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Dollar retreats with a nod to fiscal responsibility and chance of change in the Transition PEC


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The dollar fell sharply against the real at the opening of the market this Friday (18). The movement reversed the gains of the eve, after the elected government tried to reassure investors about the risk of fiscal lack of control under the administration of Luiz Inácio Lula da Silva (PT).

There were nods towards spending cuts, in addition to the possibility of the Transition PEC being wiped out in Congress.

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At 9:13 am in Brasília, the spot dollar retreated 0.87%, to R$ 5.3593 in the sale. On the B3, at the same time, the dollar futures contract with the first maturity fell 1.29%, at R$ 5.3745.

On the eve, the spot US currency rose 0.45%, to 5.4064 reais on sale, the highest closing price since last July 22 (5.4976 reais).

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In this session, the Central Bank will auction up to 16 thousand traditional exchange rate swap contracts for the purpose of rolling over the maturity of December 1, 2022.

On Thursday (17), volatility marked the negotiations in the stock and exchange markets.

After an entire day of sharp declines in reaction to Lula’s speeches and the PEC, the Brazilian Stock Exchange closed with a moderate fall due to the positive reaction of investors to the news that former Minister Guido Mantega had communicated his resignation to the transition.

The event coincided with a rise in the Ibovespa, which rose from 107,668 points at 4:46 pm to close the day at 109,702 points at 6:20 pm. This was not enough, however, to avoid a drop of 0.49% in the reference indicator for Brazilian shares, traded throughout the day under pressure from the perspective of increased public spending.

The PT’s resignation, therefore, made the sector mitigate the losses observed during the day, which reflected the future government’s proposal to breach the spending ceiling to pay for the Bolsa Família and Lula’s statements about the reaction of investors. In the morning, the Ibovespa dropped more than 2%, retreating to a low of 107,245 points.

Lula defended this Thursday, during a speech at COP27 with representatives of Brazilian civil society, breaking the spending ceiling to finance social programs.

“If I say that, will the stock market fall, will the dollar rise? Patience,” said Lula at the UN climate conference taking place in Sharm el-Sheikh, Egypt. The petista also stated that the fluctuation of indices does not happen “because of serious people, but because of speculators who are speculating every single day.”

The commercial dollar, whose negotiations end at 5 pm, closed with a high of 0.44%, quoted at R$ 5.4080 in the sale. The rise of the American currency was also softened in relation to the opening of the exchange market, when the currency soared more than 2% and reached a peak of R$ 5.53.

Before news of Mantega’s resignation spread, however, market indicators had been slowly improving. Analysts attributed this to adjustments that investors promoted in their portfolios as they evaluated the sectors that may be more or less harmed by the change in expectations regarding the country’s economy, but also considered that some signals from the transition team and Congress may have helped to calm down the market.

In addition, the domestic market was already coming off a day of losses. On Wednesday (16), the Ibovespa fell 2.58% and the dollar advanced 1.52% while the PEC was awaited. The text was only presented at night by the elected vice president, Geraldo Alckmin (PSB).

The measure is considered necessary by the PT government to avoid a social blackout next year, since the Budget proposal sent in August by Jair Bolsonaro (PL) ensures only an average value of R$ 405.21 for the beneficiaries, in addition to impose severe cuts in funding for housing and the People’s Pharmacy.

Despite acknowledging the need to increase expenses, analysts warn that, if the government does not establish clear limits for this, the market will be driven by the expectation that public money will boost inflation and interest rates, as a result.

The DI rate (interbank deposits) for 2024 remained at around 14% per annum this Thursday.

Abroad, the scenario was also not positive. For the second day in a row, the main world stock markets traded with moderate falls, which created an even more unfavorable trend for the Brazilian Stock Exchange, with a strong presence of foreign investors.

A parameter for the New York Stock Exchange, the S&P 500 index fell 0.31% on Thursday. On the eve, the American market abandoned the optimism provoked in recent days by the expectation that interest rates in the country could rise less in the coming months after inflation lost strength in October.

Fed officials (Federal Reserve, the US central bank), however, began to reaffirm that the tightening of credit to curb inflation will be maintained.

The JP Morgan bank also pointed out in a report that the United States is heading towards a mild recession, according to the Bloomberg agency.

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