Business in the Brazilian financial market this Wednesday (16) pointed to the prolongation of the Stock Exchange’s gains and the deepening of the dollar’s fall. High interest rates and cheap domestic assets explain this movement. Brazil is attractive to foreign investors, who seek profits in emerging economies while waiting for clearer signs on how developed countries will deal with inflation.
In the background, tensions between Russia and Ukraine add to concerns about rising global prices. A war in Europe or even a diplomatic stalemate could harm the supply of Russian oil and natural gas, precisely at a time when the low supply of these inputs is one of the main sources of inflationary pressure.
At 12:10 pm, the commercial dollar was selling at R$5.1480, shortly after having retreated to a low of R$5.1430. If the American currency ends the day at this level, it will have the lowest price since July 29, 2021 –almost seven months ago–, when it closed at R$5.079.
The Ibovespa rose 0.41% to 115,309 points. It is the seventh consecutive daily increase in the Brazilian stock market benchmark. The indicator is also heading for the sixth week in the blue and, in addition, it may reach an accumulated annual gain of around 10% this Wednesday.
“This appetite for local assets should continue to compress risk premiums, which should reduce the dollar rate,” commented Nicolas Borsoi, chief economist at Nova Futura.
In the financial market, risk premium is the term used to describe the return that investors require to invest in equities in relation to fixed income benchmark yields, which are considered safe because they offer certain predictability.
In the global context, US Treasury bonds are the safest investments. But they currently offer a poor return. Interest rates there are zero and inflation is the highest in 40 years. This means that the yield is negative.
Investments in US stock market shares are also going through an unfavorable moment. Stocks are down after years of appreciation.
Large investors are reducing investments in assets that are highly valued as they await clearer signs on the unfolding of the crisis between Russia and Ukraine and, especially, on the measures that the Fed (Federal Reserve, the American central bank) will adopt to combat the largest inflation in the United States in four decades. These investors want to know how much the Fed will raise its interest rate.
If US interest rates go from zero to a relatively high annual rate within a few months, there is a risk that investors will stop investing in Brazil and other emerging markets to cash in on the rise in US Treasuries.
On Wednesday, US stocks were lower as the market awaited the release of the minutes of the most recent Fed meeting.
The Dow Jones, S&P 500 and Nasdaq indexes dropped 0.56%, 0.66% and 1.22%, respectively.
In the oil market, the barrel of Brent rose 2.24%, to US$ 95.37 (R$ 494.73). The commodity has been around for a few weeks at the highest prices recorded since 2014.
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