Dollar keeps falling and stock market fluctuates with profit taking

The Brazilian Stock Exchange fluctuated between slight highs and small drops in the first trades this Friday (28), under pressure from investors seeking profits after a few days of consistent gains in the stock market. The basic materials sector, however, exerted a positive influence and avoided a deep slump.

At 11:40 am, the Ibovespa dropped 0.29%, to 112,288 points. Despite the drop on the day, the benchmark index of the Stock Exchange is heading to close the third week in the black and with an accumulated gain in 2022 around 7%.

The dollar fell 0.57% to R$5.3940. The American currency has been losing strength against the Brazilian real due to the inflow of foreign capital into the country. International investors put their dollars in Brazil to take advantage of a favorable combination of profits, which is made up of high commodities, cheap stocks and good returns with fixed income due to the high basic interest rate (Selic).

Losses with US stock markets are also encouraging investors to seek gains in the Brazilian financial market.

The American stock market is still digesting the messages from the Fed (Federal Reserve, the central bank of the United States) about expectations for interest rate hikes in the coming months.

Last Wednesday (26), the Fed’s monetary policy committee signaled the end of the special bond purchase program and an interest rate hike for March. The news was expected, but the interview with the chairman of the monetary authority rocked stocks in New York. Jerome Powell took a hard and, at the same time, under-detailed tone about the need to raise interest rates to combat the biggest inflation Americans have faced in four decades.

Analysts assess the dollar’s fall and the stock’s rise as a momentary phenomenon, which will last while foreigners are looking for quick gains until Wall Street stabilizes. In the logic of the global market, the monetary tightening in the US reduces world liquidity and, therefore, should reduce the flow of international investments to emerging economy countries, such as Brazil.

“With the Fed stoking the hawkish fire [mais duro no combate às altas de preços], we expect the dollar to strengthen, but only moderately,” Citi strategists said in a report on Friday.

The private US bank said that while more aggressive swings by the Fed generally push down emerging assets, several developing countries have shown “continued momentum from positive data”, which could lead to inflows.

In addition, noting that Latin American currencies are outperforming broader emerging market pairs at the moment, Citi said investors appear to be aware of cycles of central bank interest rate hikes, which tend to heighten attractiveness. carry (return by rate differentials) of local currencies.

In Brazil, several market agents have already pointed to the high level of the Selic rate, currently at 9.25% per year, as an important factor for the fall of the dollar.

In addition to monetary policy, investors also reacted this Friday to data showing that the unemployment rate in Brazil fell again in the quarter ended in November, going to the lowest level since the beginning of 2020, of 11.6%.

In the stock market this morning, investors were selling stocks that had accumulated highs over the week. This is the case of Magazine Luiza shares, which yielded 1.52%.

Braskem soared 8.41% after Petrobras and Novonor confirmed the postponement of the sale of their stakes in the company.

Vale and CSN rose 1.18% and 1.72%, respectively, driven by strong increases in iron ore contracts exported to China.

Petrobras rose 0.47%. The state-owned company has been accumulating highs in the wake of oil appreciation due to the crisis involving Russia, one of the main global producers, and Ukraine.

A barrel of Brent rose 1.75% at US$90.90 (R$489.09). The price of the commodity is at the highest level since 2014.

with Reuters