Stocks fall after Fed signals interest rate hike anticipation

The benchmark index of the Brazilian Stock Exchange was close to falling below 100 thousand points this Wednesday (5), a day marked by the signaling of an earlier than expected rise in interest rates in the United States. The Ibovespa closed down by 2.42%, at 101,005 points.

It’s the indicator’s worst result since December 1 last year, when news about the coronavirus’s omicron variant sent markets crashing. Abroad, Nasdaq, S&P 500 and Dow Jones also recorded declines on Wednesday.

The dollar rose 0.36% to R$5.7100. The American currency also gains global value with the prospect of rising interest rates in the country.

Operating lower since the first trades on Wednesday amid uncertainties about the Brazilian fiscal scenario, the Ibovespa deepened its fall in the afternoon due to the release of the minutes of the meeting held in December by the Fed (Federal Reserve, the American central bank).

The document showed that the monetary authority of the United States is considering anticipating the rise in interest rates and reducing its purchase of assets in the market more quickly. These measures aim to curb the rise in inflation by reducing the availability of money and credit in the economy.

This combination of measures makes investors unwilling to invest in emerging equity markets, such as Brazil. This is for two reasons: First, there is less money available. Second, US Treasuries, considered the safest investment, become more attractive as US base interest rates rise.

Abroad, the main American indices closed sharply down. Nasdaq plunged 3.34% and had its worst daily result since February 2021.

The index concentrates small and medium-sized companies in the technology sector, still in the formation of cash, whose operating costs are strongly pressured by high interest rates.

The weight of the technology sector brought down the US market benchmark, the S&P 500, which dropped 1.94%. The Dow Jones index fell 1.07%.

“Today’s minutes seem to us much more hawkish [agressiva, do ponto de vista do aperto monetário] than the communiqué suggested, particularly with regard to monetary policy discussions,” said Étore Sanchez, chief economist at Ativa Investimentos.

Before the release of the minutes, there was a consensus in the market that the increase in interest rates, currently very close to zero, would take place as of March. That date was considered because that is when the Fed intends to end its bond purchase program, which has been slowly falling. In industry jargon, tapering is taking place, which is the thinning of the flow of resources destined for the market through the purchase of assets.

Now, the assessment is that the faucet may close earlier. This expectation gained even more strength because there was a strong generation of jobs in the country in December, according to data released by the consultancy ADP, a kind of preview of the official measurement of the country’s payroll. 807 thousand jobs were created in the private sector.

The strong resumption of employment is one of the factors that the Fed was waiting for to end its economic stimulus program, created precisely to reduce the impact of the slowdown during the periods of stoppage of activities caused by the pandemic.

“With this, the already short perspective on monetary tightening becomes even more intense, especially after the bullish surprise observed in ADP today. [pesquisa oficial de empregos] confirms this perspective, the chance of ending the tapering with an immediate increase in the Fed Funds Rate becomes more and more likely [taxa de juros do Fed]”, evaluates Sanchez.

The most recent forecasts are that the combined interest rate increases will reach 0.75 percentage point during the year 2022.

The spread of the omicron variant of the Covid virus, however, could pose obstacles to monetary tightening. The December meeting was held as the coronavirus case count was starting to rise.

Infections have risen very rapidly since then, and there have still been no comments from senior Fed officials to indicate whether the change in the health situation has altered their views on appropriate monetary policy.

Andrey Nousi, president of the consultancy Nousi Finance, warns, however, that new stoppages in activities to contain Covid can generate higher prices.

“Problems in the logistics chain should extend even this year, which could bring more inflationary pressures”, he commented.

Fed Chair Jerome Powell will appear before the Senate Banking Committee next week for a hearing on his nomination for a second four-year term as head of the central bank, and is likely to update his views on the economy at the time.

In Brazil, Petrobras dropped 3.87%, and made the biggest contribution to the decline in the Ibovespa. The fall occurred despite the 0.23% appreciation of oil. The barrel of Brent rose to US$ 80.18 (R$ 453.99).

with Reuters