Ibovespa speeds up and drops by more than 2% after the Fomc minutes come on a stronger tone; The dollar goes to 5.70 Brazilian real

The Ibovespa Index saw its decline accelerate to 1.97%, at 101.475 points, at 4:30 p.m. (ET) after the Federal Reserve published a report Minutes of the last monetary policy committee meeting, Federal Committee.

The main index of the Brazilian stock market is falling in parallel with the rise in income treasury bonds Americans — who mature in ten years, for example, rose 4.3 basis points at 4:30 p.m., to 1.70%, right after the document was published.

The trade dollar, which was down most of the day, is now up 0.27% to R$5.704 in purchases and R$5.705 in sales.

The highlight of the post was the fact that Fed leaders had assumed that inflation was higher than expectations, no longer temporary, and that the terms for raising interest rates could be reached soon.

In addition, the Fed has also indicated not only to cut back (or reduce the pace of asset purchases) but also reduce the size of its balance sheet.

“As much as the Fed has brought in good news, saying, for example, that the labor market has brought very positive data and that the Ômicron variable does not change the outlook for the economy at all, concern about inflation has dominated the market’s attention,” explains Henrique Esteter, Specialist Market at InfoMoney. “Indications that higher interest rates could happen sooner than expected rattled the stock markets.”

For Rodrigo Franchini, head of institutional relations at Monte Bravo, the minutes were tough. It claims that inflation will be brought under control anyway, and that interest rate hikes will definitely happen and that fill It won’t change, it will end in March and the whole point,” he comments.

At 4:35 pm, the Dow Jones is down 0.40%, the S&P 500 is down 0.99% and the Nasdaq is down 2.13%.

The next meeting, in March, can already count on higher interest rates

The Fed’s directors’ speeches are making investors more alert to the next meeting, which will be held in March. Negotiating future interest rates in the US, right after publication, shows that about 70% of the hike is coming in the third month of this year.

When the central bank of an emerging country, such as Brazil, talks about permanent inflation, this is often not a big problem, because it is often due to currency devaluation and increased spending on imports. However, when a first-class market says something like this, it means that the animal is really hunting,” explains Franchini.

According to partner at Monte Bravo, the withdrawal of stimulus by the Federal Reserve has a prominent role in emerging economies, as it reduces the flow of capital to them. He explains that “the investment trend in emerging countries is declining, and these countries need to make more efforts to become more attractive to investors.”

As Brazil faces a series of financial problems, the way in which market rates in the country become more attractive is by increasing interest rates here. As a result, the interest curve rises in the form of a block. The DI contract due in January 2023 was increased by 1 basis point to 12.05%. It would push the January 2025 rate by 1.5 basis points to 11.30%. The rate for the same month in 2027 rose 0.8 points to 11.17%.

“If the Brazilian stock market, while having a series of breaks of historical highs abroad, managed to close 2021 very significantly lower, you can now imagine the international market losing steam with reduced liquidity,” Esteter concluded.

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