The dollar rose sharply on Thursday (24), the day global markets were shaken by the start of the war in Europe. Russia decided to attack Ukraine, in what Kiev called a total invasion. It is the most serious military crisis in Europe since the Second World War.
The American currency soared 2.01%, closing the session quoted at R$5.1040. The jump came a day after the US currency hit its lowest value against the real since late June. This Wednesday (23), the currency had retreated 0.95%, to R$ 5.0030, which at the time represented a fall of 12.4% since the peak of appreciation this year, of R$ 5.71 on January 5th.
With the beginning of the Russian military offensive, however, there was a global appreciation of the American currency. It is usually more sought after by investors in periods of uncertainty. This explains the turnaround in the exchange rate in Brazil.
Another effect of the fear generated by the war in Brazilian finances was the fall of the Stock Exchange. The Ibovespa closed down 0.37%, at 111,591 points. Earlier, the benchmark for the country’s stock market had fallen 2.57%, retreating to a low of 109,125 points.
Until this Wednesday, before the Russian invasion of Ukraine, foreign investors who saw Brazil as an alternative to the declines in the stock markets of developed economies maintained a strong flow of investments in the domestic financial market.
Analysts believed that the crisis in Europe even favored this movement. Similarities between the Brazilian and Russian commodity sectors would make the Brazilian market a potential refuge for investors forced to stop business in Moscow, which will face economic sanctions.
Fundamentals that make Brazil attractive to international investors are still present, such as a devalued real, the stock market with cheap shares, the appreciation of commodities and, above all, a very high interest rate in relation to the main economies.
The beginning of a war, however, makes investors abandon fundamentals to adopt measures to protect against the risk of losses, according to Fernanda Mansano, chief economist at the investor platform TC (Traders Club).
“Until then, we were seeing a carry trade effect based on the basis of the interest rate differential between Brazil and the United States”, says Mansano.
Carry trade is what the market calls the practice of borrowing cheaply in low-interest countries and investing in markets with a greater possibility of return.
“Now, faced with a situation of uncertainty, there may be flight [do capital estrangeiro]. The chance of exchange rate devaluation in the very short term is real”, comments the economist. “I usually compare these moments with driving when it’s raining a lot. What do you do? Stop the car, wait for it to pass, because you can’t see what’s ahead.”
Stocks around the world were affected this Thursday. In Europe, the impact of the beginning of the war on markets was the most pronounced.
The index that tracks the top 50 companies from countries that use the euro as their currency plunged 3.63%. The London, Paris and Frankfurt markets sank 3.88%, 3.83% and 3.96% respectively.
In Asia, the main stock indices closed with severe drops. Tokyo, Hong Kong and Shanghai/Shenzhen all tumbled by 1.81%, 3.21% and 2.03%, in that order.
The main index of the Moscow Stock Exchange melted 33.28%, reaching the lowest price since 2017. On Tuesday (22), the main indicator of the country’s stock market had risen 1.58%, rehearsing a timid recovery in relation to to the drop of 10.50% of the previous day. The Russian Stock Exchange did not work on Wednesday (23) due to a national holiday.
The barrel of Brent oil, the world reference for this commodity, rose 2.25% at the beginning of the night, at US$ 99.02 (R$ 506.66). With that, it abandoned the highs reached in the morning, when it shot up about 8% and went to the house of US$ 105, the highest value since 2014.
Russia is one of the main producers of oil and derivatives, such as natural gas. Amidst the unpredictability about the continuity of Russian supply, especially to Europe, fears that a drop in supply put pressure on the price of the commodity.
After nearly a full day of flirting with the possibility of a new negative close, stock markets in New York showed a strong recovery in the late afternoon, after US President Joe Biden announced new sanctions against Russia.
In the main reaction of the American market, the index that tracks companies in the technology sector listed on Nasdaq soared 3.35%. This pushed up the S&P 500, the benchmark for the US market, which closed up 1.50%.
The Dow Jones index, which brings together three dozen large American companies, rose 0.28%, after starting a late advance in relation to its peers.
The recovery in the main market on the planet occurred, however, from a level already lowered in recent days. Wall Street has been falling due to expectations of a tighter monetary policy to contain the highest inflation in 40 years. The Fed (Federal Reserve, the American central bank) expects to raise the country’s benchmark interest rates starting next month.
The S&P 500 last Tuesday (22) reached a low of 10% from its record score reached on January 3 this year. When an indicator retreats from this percentage in relation to its highest level, it enters the so-called “correction zone”. It was the first time this had happened with this indicator since February 2020, when Covid shook markets.
Part of the explanation for the turnaround after Biden’s speech may be linked to concessions made to strategic sectors for the global economy.
Biden has blocked deals from the biggest Russian companies in US banks, including Gazprom, the state-owned oil and gas giant. But the US government made exceptions. These large companies banned from American finance are allowed, for example, to do business related to energy (from fuel exploration to production, transportation, etc.).
The fuel shortages that can be caused by limitations in this segment could result in an even greater acceleration of global inflation, forcing the Fed to accelerate even more the increase in American interest rates.
