Dollar has moderate fall after euphoria with Bolsonaro in the 2nd round

The dollar fell slightly this Tuesday (4th) after having registered the biggest drop in four years the day before due to market euphoria with the result of the first round of the presidential elections.

The spot commercial dollar dropped 0.13%, quoted at R$5.1690. It is worth noting that, despite recent declines, the dollar remains at a very high level, even compared to the lows recorded in April this year, at around R$4.61.

Abroad, however, the American currency had a strong fall in relation to global peers, according to the DXY index, which fell by 1.4%. The dollar lost ground as investors became more willing to exchange the security of fixed income in the United States for opportunities on the stock exchanges, which have been greatly undervalued this year.

In the domestic stock market, the Ibovespa index rose by just 0.08%, to 116,230 points. A reference of the Brazilian Stock Exchange, the indicator had registered the highest daily increase in two and a half years the day before. Even so, it remains below the highs of 2022, at around 121,000 points, reached in April.

Piter Carvalho, economist at Valor Investimentos, describes accommodation movements as normal after a day of strong movement in the markets. “This type of breathing is expected to occur.”

The domestic market was not able to keep up with the strength of the exterior in this session. Major indices traded in the New York financial district of Wall Street delivered consistent gains.

Parameter for the New York Stock Exchange, the S&P 500 advanced 3.06%. The Dow Jones, which tracks 30 large US companies, rose 2.80%.

Nasdaq jumped 3.34%. This index concentrates technology companies with great growth potential and which were the most affected by the inflation that resulted in the historic escalation of interest rates in the country.

Analysts of the American market describe the movement simply as a change in the attitude of investors who decided to start the quarter by going shopping in a scenario of stocks strongly devalued by the inflationary crisis and uncertainties about a potential recession.

They assess that recent figures on the US economy may indicate a trend towards a slowdown in the economy and that this will allow the Fed (Federal Reserve, the US central bank) to reduce the pace of the increase in its interest rates, although representatives of the monetary authority have been saying the opposite.

This does not mean that this positive turn in the markets will be lasting, according to Hani Redha, portfolio manager at PineBridge Investments. “We’ve been in a bear market all year and we have these bear market runs, which are very typical. That’s just part of the course,” he told The Wall Street Journal.

This type of movement was also described by Daniel Miraglia, chief economist at Integral Group. He explained that markets do not fall in a straight line and, in the midst of a bearish movement, there are breaths provoked by positive narratives in which investors momentarily embark.

For Carvalho, from Valor Investimentos, the market may be “entering a trap” when trying to enact a narrative of slowing interest rates. But he reckons investors decided to go shopping because “there’s a lot of liquidity in the market,” he said. “Managers have cash on hand,” he said. “You have to be careful because this can generate volatility.”

European stocks rose sharply. The Stoxx 600 closed up 3.12%, extending gains for a third straight day and posting its best session since mid-March.

Reference oil prices also rose at the close of this Tuesday, still reflecting the news that OPEC (cartel of producing countries) and allies led by Russia decided to make a major cut in production.

The group wants to tighten the supply of raw material to bolster prices, which fell by around 20% in the third quarter, the biggest drop since the beginning of the Covid pandemic.

A barrel of Brent oil was quoted at US$ 91.50 (R$ 470.35), up 2.97%, after having risen 1% the day before.

1st round result balances market

The domestic financial market reacted with euphoria this Monday (3) to the better-than-expected performance of current President Jair Bolsonaro (PL) in the first round of elections this Sunday (2).

In the domestic exchange market, the spot commercial dollar closed down by 4.05%, at R$ 5.1760 on sale. This is the biggest drop for the US currency since the more than 5% drop recorded on June 8, 2018.

At the time, the American currency had been lowered by an intervention by the Central Bank in the exchange rate and had its most expressive fall since October 2008, according to the Reuters agency.

On the Brazilian Stock Exchange, the Ibovespa index jumped 5.54%, to 116,134 points, at the close of this Monday. It is the biggest increase since the 6.52% gain recorded on April 6, 2020, as the market was recovering from the tumble caused by the beginning of the pandemic.

In addition to considering the possibility of re-election of the candidate whose economic agenda is perceived as more liberal, investors also believe that the tight result of the vote —Lula got 48.4% of the valid votes, against 43.2% for Bolsonaro—will lead the PT to present names for an eventual government more aligned with the market.