Opinion – Vinicius Torres Freire: Don’t look up: American interest in space

Here in the country, the Ibovespa continues to rise, indifferent to the fall of the American brothers. To almost general surprise, the dollar dropped from R$5.60 in December to close to R$5.20. If we look up, however, we’ll see that the US interest rate asteroid got closer. Even when it just passes by, it often causes confusion.

Inflation in the United States reached 7.5% a year in January, the highest in 40 years, with no sign of slowing down. Interest rates there took rare jumps on Thursday. Now, the question is at what pace the Fed, their Central Bank, will raise the basic interest rate, which is now close to zero. A lot of reputable old war analyst and big money manager says the Fed is behind schedule. Therefore, it would have to increase its interest much more, to compensate for the delay in controlling inflation.

Fast, large, and no-time increases can be a problem. In addition to hitting the “real” economy, they can cause accidents. That is, catching big people in short pants, in big and wrong applications, causing blowouts. It’s not prophecy. It’s just the caution of anyone who has looked at the history of financial turnarounds.

And?

To begin with, what is this relative calm in the exchange rate and this modest joy in the stock market? Money has come in. The financial flow this year was positive by almost US$ 6 billion at the beginning of February (it is the difference between what came in and out of dollars in the country, foreign trade operations and finance), almost tying with the balance of the entire last year. Apparently, the balance for the year, but not the most recent, was almost entirely on the Stock Exchange, where foreigners (non-residents) put in almost R$40 billion more than they took out, until February 8th. Exchange cannot be explained just by that, but come on.

Of the relevant currencies in the world, the real appreciated the most in 2022 (February average compared to December average). There is a wave in favor of emerging markets, but Brazil and those who have been hit a lot in the exchange rate since the beginning of the epidemic stand out more. “It’s cheap”. There is still this perspective of relative improvement if a “centrist” Lula is elected, as many foreign investors currently think.

More than that, people in the market argue that some money leaves the United States to escape the impact of high interest rates. This little money that looks for bargains in emerging markets, such as Brazil, values ​​some papers, such as shares (but not debt. Interest rates are still salty around here).

Until when? It’s an election year, restless anywhere, especially here. Jair Bolsonaro and the center are in charge. Until yesterday, these people were willing to blow up the public debt to make demagoguery of the really dumb (lower taxes a lot). How much money will foreigners (non-residents) pour into this environment? Yes, assets are cheap, depressed by the crumbling economy and the expensive dollar. The difference between interest rates here and abroad is huge, the price of the commodities we sell is high. But there is reason for reasonable doubt, a whiff of risk—the journalist has no idea beyond that. If he had, he would be in “romofic” in Polynesia, in Syracuse, Lisbon or Paris.

American interest rates in the square must also be rising because the Fed is buying less debt securities (in practice, it still subsidizes the government and the private sector), even with high inflation, already tight labor market – it should end this party in March. Even if it is true, recent tachycardias are inflation in the vein. There is a risk of more emotion in the event of a Fed clubbing, starting in March. Look up.