September 24, 2022
A possible slowdown in the US economy is putting money at risk from investors in Brazil

A possible slowdown in the US economy is putting money at risk from investors in Brazil

Investors of Stock markets They just laugh at us America And no Brazil Major stock indexes have rebounded impressively from this year’s record lows, but a risk looms on the horizon: An eventual slowdown in the U.S. economy threatens to put water on stock-market holders’ beer.

As of yesterday’s close, at 113,512 points, the Ibovespa It is already up 18.1% from the year’s lowest closing level recorded on July 14. Even so, investors say the Brazilian stock market is still cheap.

Ibovespa’s performance is not on its own merits, following a stunning rally in US stock markets over the past four weeks.

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Without a reform agenda, Ibovespa is at the mercy of what is happening in the US Photo: Amanda Perobelli/Reuters

For example, the S&P 500 index has risen more than 11% in the past 30 days through yesterday. The Nasdaq index, filled with tech stocks, has risen nearly 15% over the same period.

Market expectations are driving the recovery in US stock markets Federal Reserve (Central Bank) It may slow the pace of tightening at its next monetary policy meeting in September, without delivering all the interest rate hikes already signaled for 2022 and 2023.

In Brazil, most analysts already take it for granted Central Bank No more rate hikes Selig It was at 13.75% at the beginning of the month, after the last increase of 0.50 percentage point.

With the latest inflation data coming in much lower than expected in the US, investors are betting that the central bank will start cutting rates earlier than expected a few weeks ago.

As a result, interest rates on futures contracts fell sharply both abroad and here, encouraging investors to migrate back to equity markets. In Brazil, the rate on the DI contract maturing in January 2027, a reference to the long end of the yield curve, fell nearly 2 percentage points in less than a month.

For now, expectations about the next steps central banks will take outweigh the risks ahead for equity markets. But if operational indicators deteriorate and rekindle recession fears, the stock market will be vulnerable to a price correction.

On Monday, for example, stock indexes opened lower after disappointing data from the Chinese and US economies. Investors are not even reacting to what will happen to the Brazilian economy after the presidential election. Without any reform agenda, Ibovespa is at the mercy of what is happening in the US.