Future interest falls on risk of global slowdown with new Covid variant

In a session of greater risk aversion, caused by the advance of a new strain of the coronavirus, with a sharp drop in shares on the Stock Exchange, the futures interest market also retreats this Friday (26).

At around 1 pm, the futures interest rate contract maturing in 2023 retreated from 12.09% the day before to 11.87%, while papers for 2027 yielded from 11.81% to 11.74%, according to data from Bloomberg.

According to Paulo Nepomuceno, fixed income strategist at Terra Investimentos, the drop is due to market expectations that a new spike in Covid-19 will negatively affect the pace of economic activity recovery.

This new scenario could even take the pressure off the BC (Central Bank) in Brazil, as it would make room for the rise in the Selic, the country’s basic interest rate, to occur at a slower pace than currently adopted.

“Slower growth demands a slower pace of tightening monetary policy by central banks,” says Nepomuceno. “We have already seen that in Europe contamination has increased significantly again.”

Little is known about the new variant, detected in South Africa, Botswana and Hong Kong, but scientists say it has an atypical combination of mutations that may be able to prevent immune responses and that it would be more transmissible.

The European stock market was already under stress this week as the resurgence of Covid-19 cases led to new restrictions in several countries in the region.

“Due to the risk of economic slowdown brought by the new variant of the coronavirus, the market is also returning part of an anticipated rise in interest rates in the United States, which ends up contributing to the drop in future interest rates in the local market”, says Rodrigo Crespi , market specialist at Guide Investimentos.

Nepomuceno, from Terra, adds that he also contributes to the closing of rates signals transmitted to the market by the president of the BC (Central Bank), Roberto Campos Neto, that the monetary authority would be considering the curve premiums excessively stretched.

Campos Neto said this week that, although the average performance of economic activity between 2020 and 2022 should be better than expected, structural growth in Brazil is starting to worry.

“When you look at the combined 2020, 2021 and 2022, the average is better [que o previsto], but they are starting to worry about what is the structural growth in Brazil and how we can improve it,” he said at a Bank of America event on Wednesday (24).

The BC head reaffirmed that the autarchy must revise its projection for the GDP (Gross Domestic Product) for next year, currently at 2.1%. The new estimate is expected to be published in the next quarterly inflation report on December 16th.

In recent weeks, analysts and financial institutions have revised downward expectations for GDP (Gross Domestic Product) growth in 2022. According to this week’s Focus bulletin, in which the Central Bank releases market projections, economists expect growth of 0.70 %. A week ago, the projection was 0.93%, and four weeks ago, 1.40%.