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The Brazilian stock market reached unprecedented heights on Wednesday, November 7th, causing the value of the dollar to plunge. This surge in the stock market was primarily driven by investors shifting their focus towards the domestic economic conditions in Brazil. The Ibovespa, which serves as the primary indicator for the performance of Brazilian stocks, closed at a record high of 118.4 million points, marking a 0.23 percent increase from the previous day.
One of the significant events that took place on this day was the approval of Senator Eduardo Braga’s amendment to the tax reform bill by the Senate Constitution and Justice Committee. In a favorable vote, twenty committee members voted in favor of the Proposal to Amend the Constitution (PEC) No. 45/2019, while only six members voted against it. The committee’s president, Davi Alcolumbre, did not cast a vote in accordance with protocol. The manuscript for this amendment was submitted by the author on October 25th, giving the commission members a two-week period to thoroughly review it.
A crucial meeting was held between President Luiz Início Lula da Silva and Senate and cabinet leaders on Tuesday night to finalize the details of the vote. The government has prioritized the reform of the economy and considers it one of its top goals for this year. The PEC has already been approved in two rounds by the Chamber of Deputies in the first half of the year and will now be put to a vote in the full Senate on Thursday.
Another event that significantly influenced the market on Wednesday was the release of the minutes from the most recent meeting of the Comitê de Política Monetária (Copom) of the Banco Central. This meeting, held the previous week, resulted in the Governing Council cutting the basic interest rate by 0.5 percentage points to 12.25% per year. In the minutes, the Copom expressed concerns about the government’s ability to meet its fiscal targets. The committee emphasized the importance of maintaining efforts towards structural reform and fiscal discipline, as well as addressing uncertainty surrounding the stabilization of public debt. Failure to do so could potentially increase the economy’s neutral interest rate, undermining the effectiveness of monetary policy and negatively impacting the overall economy.
The positive performance of retail-related stocks played a significant role in driving the early gains of the Ibovespa on Wednesday. The company Magazine Luiza witnessed the biggest gain of the day, soaring by almost 23%, which was consistent with the gains seen the previous week. The decrease in the value of the Brazilian real has partially been attributed to better-than-expected news on interest rates, such as the rate reduction by the Copom and the maintenance of interest rates in the United States at their previous level. Despite being the highest level of U.S. interest rates in 22 years, this rate remained unchanged for the second consecutive meeting of the Federal Open Market Committee.
As the trading session concluded, the value of the dollar on the Bolsa dropped significantly compared to its performance throughout the day. The US dollar fell by 0.25% against the Brazilian real, trading at R$ 4.875. Moreover, the dollar experienced a 0.16 percent drop overnight, reaching R$ 4.887, its lowest level in over a month. As a result, the Brazilian currency has incurred a loss of 3.29% this month and 7.64% this year.
In summary, the Brazilian stock market experienced a remarkable surge, leading to a decline in the value of the dollar. This surge was driven by various factors, including Senate Committee approval of the tax reform amendment, the release of Copom’s minutes expressing concerns about fiscal targets, and the strong performance of retail-related stocks. As a result, the dollar reached its lowest level in over a month against the Brazilian real, reflecting a significant loss in its value.
