the intensification of political tension between the Powers of the Republic, as a result of the inflamed speeches of President Jair Bolsonaro (no party) to protesters the day before, it makes investors greatly reduce exposure to risky assets in the local market, which leads the Ibovespa to operate at the lowest levels since March . At 1:30 pm the Ibovespa fell 2.83%, to 114,528 points, close to the minimum of 114,409 points.
O dollar you also feel the reflexes and, around 1:30 pm, the American currency rose 1.97%, to R$ 5.2771, after touching a maximum of R$ 5.3091.
The institutional crisis, in the investors’ view, should place even more obstacles in an already slow reform agenda and make it difficult to negotiate important issues for the future of the economy in the short term, such as the solution for the payment of court-ordered debts.
“Several parties that are or were in government started to demonstrate in favor of impeachment. The fact that Rodrigo Pacheco suspended the sessions of the Senate this week is an example of what we can live until next year: a frozen country and bleeding, in need of reform,” stated the variable income manager at Galapagos Capital, Ubirajara Silva.
Reflections are observed on all local assets. In the futures interest market, rates showed steady advances, more pronounced at the long end of the forward curve. The Interfinance Deposit (DI) contract for January 2025 was up from 9.80% to 9.96%; and that of the DI for January 2027 rose from 10.27% to 10.43%.
“The scenario for the stock market, with interest rates opening the way they are opening, ends up being very bad and the sectors linked to the domestic market are the ones that suffer most. Today we see this very negative day for banks and retail,” stated Silva.
Itaú PN shares fell 3.05%, Bradesco ON fell 5.30%, Banco do Brasil ON lost 2.73% and Santander Units fell 3.47%. In electronic retail, Via ON dropped 5.93%, Magazine Luiza ON gave 3.23% and Lojas Americanas PN dropped 5.48%.
Equity traders also report the triggering of “stop loss” mechanisms (maximum acceptable loss), which helped to accelerate the stock market’s downward movement.
From the point of view of technical analysis, the Ibovespa tests important support at 114.9 thousand points, observes in a report by Itaú BBA. “If you lose this region, the spot index may extend downward movement, towards 110.9 thousand, 109.3 thousand and 107.3 thousand points, respectively”, comments technical analyst Fábio Perina.
Ubirajara Silva, from Galapagos, claims that the manager had already been reducing the directional position on the Brazilian stock exchange. According to him, the allocations are tactical, in some sectors that should benefit from a still strong global growth in the second half of the year, but with a reduction in exposure to papers more linked to the Brazilian domestic scenario.
“With Brazil, we are very concerned. It is difficult to be optimistic about the Brazilian stock market with this whole scenario, especially with the prospects of high inflation and low growth for the coming months,” he says.
In the foreign exchange market, investors also assess that today’s trading session is for the strengthening of the dollar, amid a recalibration of investors’ expectations regarding the effects of the covid-19 pandemic. According to a strategist at a large local brokerage, the external bias, the reaction of political agents to yesterday’s demonstrations and today’s news, which brings protests by truck drivers closing some roads in the interior of the country, add up to explain the agents’ defensive behavior .
In his assessment, it is difficult to specify what frightens investors in relation to yesterday’s outcome – whether the risk of an impeachment, a stoppage of work in Brasília or its consequences for next year’s electoral race. “But it left a bad taste of uncertainty in people’s mouths,” he added.
In conversation with supporters on the way out of the Palácio da Alvorada, in Brasília, Bolsonaro kept the tone of yesterday’s speeches. Asked by one of those present whether the demonstrations had achieved the objective of giving a “photo to the world” of support for their agenda among the population, the president replied: “We will seek a solution to the case, it is not easy to change something that it has been embedded in Power for decades. Some want me to do this and resolve the matter, yesterday I was one of the crowd.”
He tried to evade responsibility for rising inflation and criticized parties. “Two political parties making notes now and attacking me and talking about the price of fuel and food, but what have the parties done last year except support the governors’ measures? It has to have a consequence, is it going to stay at home? to have a consequence.”
With Bolsonaro adopting a tone of aggressiveness in speeches in the acts in favor of his government yesterday, the real should see a weakening round, says Brendan McKenna, international economist and currency strategist at Wells Fargo. “I think that as Bolsonaro becomes more aggressive with the Supreme Court and other institutions in Brazil, the currency will likely come under pressure,” says the professional, who is based in New York.
According to McKenna, the September 7 demonstrations and the run-up to the 2022 presidential election “will end up resulting in a weaker real.” “The demonstrations could have gotten a lot worse from a security point of view, and luckily they didn’t, but I think that if Bolsonaro continues to ask his supporters to speak out in his favor, conditions could become more hostile,” says economist of the American bank.
“Should this scenario materialize, the widespread sale of reais could be quite accentuated. The currency is already fragile, but the interest rate market could be equally fragile”, he points out. For McKenna, as the Brazilian currency weakens, it would not be so surprising if the Brazilian interest and sovereign debt markets also experienced a process of deterioration.