Main segment of the Brazilian Stock Exchange, the sector that concentrates companies producing basic materials was boosted this Wednesday (2) by the appreciation of oil, steel and iron ore in the international market. The rise in prices is a consequence of the Russian invasion of Ukraine.
The Ibovespa rose 1.80% to 115,173 points. The country’s stock market benchmark was mainly supported by the 7.99% hikes of mining company Vale and 1.97% of Petrobras. These are the companies with the greatest weight on the Stock Exchange.
Other commodity producers were also responsible for boosting the Ibovespa. Among the oil companies, 3R Petroleum soared 12.93%. PetroRio jumped 9.02%. In the steel industry, CSN and Gerdau rose 8.09% and 6.89%, in that order.
Expectations of gains from commodity-linked stocks kept the Bolsa do Brasil attractive to foreign investors, which meant more dollars flowing into the country. This movement made the American currency retreat 0.91%, to R$ 5.1080. The drop occurred after the currency had risen more than 1% at the opening of the trading session, when it had passed R$ 5.20.
Oscillations in the foreign exchange and stock markets were expected after the two-day interruption of trading on B3, the Brazilian Stock Exchange, due to Carnival. In the meantime, global investors continued to assess the economic effects of sanctions imposed by the West on Russia.
The Russia-Ukraine conflict has driven up the prices of some of the main raw materials also produced by Brazilian companies.
Steel futures contracts traded in China, the world’s largest producer of the product, rose to a high of more than two weeks on Wednesday. There are expectations that the war will increase demand for steel abroad.
The price of oil reflected the impact of tightening sanctions against Russia. The barrel of Brent, a world reference, rose 8.50% in the late afternoon, at US$ 113.89 (R$ 584.72). It was the highest price for the commodity since June 2014.
“Petrobras and Vale are the companies with the greatest weight on the Ibovespa, and are in the oil and iron ore business, respectively. All the main commodities in the world are rising in price due to the conflict”, commented investment analyst Rob Correa.
In a report on Wednesday, Citi strategists said that, from the perspective of rising commodities, it is possible for currencies of Latin American countries to outperform their emerging peers amid the war in Ukraine.
The main stock markets in the United States and Europe closed higher on Wednesday, while the most important indexes in Asia fell.
In New York, the benchmark S&P 500 rose 1.86%. Large value companies contributed significantly to the closing in the black of the American market, reveals the 1.79% rise of the Dow Jones.
Nasdaq, an exchange that concentrates companies in the technology sector with the greatest growth potential, advanced 1.62%.
In addition to monitoring the geopolitical news, investors were also reacting to comments from US central bank governor Jerome Powell, who indicated on Wednesday that the Federal Reserve is on track to raise interest rates despite geopolitical tensions.
Powell said he was inclined to support a 0.25 percentage point increase at the March policy meeting, but said the Fed was prepared to act more aggressively later if inflation did not decline as expected.
Before the start of the war, however, the market was counting on an increase of 0.5 percentage point due to the pressure generated by the highest inflation in 40 years.
Higher borrowing costs tend to devalue companies that rely on credit, such as companies with the highest growth potential listed on Nasdaq.
The Tokyo Stock Exchange fell 1.68%. Hong Kong fell 1.84%. The main stock index of Chinese companies in Shanghai and Shenzhen fell 0.89%.
In Europe, the London, Paris and Frankfurt markets closed up 1.36%, 1.59%, and 0.69%, respectively. The Moscow Stock Exchange did not open for the third day this week.
There was a historic devaluation of the Russian currency on Wednesday and each US dollar was worth 110 Russian rubles, according to Reuters. In a basket of 24 emerging currencies, the ruble also posted the worst return against the dollar, delivering a 6.4% loss on the day, according to Bloomberg data.
With much of Moscow’s $640 billion in reserves held in the West and sanctions hampering the flow of capital across borders, investors fear Russia is heading for its first hard-currency sovereign debt default.
On Wednesday, foreign investors were effectively stuck with their positions in ruble-denominated bonds — known as OFZs — after the Russian central bank temporarily stopped paying coupons and the Euroclear settlement system stopped accepting Russian assets.
A ruble debt default is unprecedented—Moscow reneged on OFZs during its 1998 financial crisis, but even then it kept paying US dollar bonds. Before the latest devastating sanctions from the West that froze central bank assets, such a default was not on anyone’s radar.
JP Morgan and the global banking association IFI (Institute of International Finance) have warned that there is significant growth in the risk that Russia may be heading for its first foreign debt default.
with Reuters
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