The Ibovespa fell this Friday (2), following strong data from the United States labor market, which further weakened bets on a cut in North American interest rates in the first quarter and also raised doubts that the reduction in rates could be postponed from May to June, which put additional pressure on the market.
The main Brazilian index fell 1.01%, accumulating a drop of 1.38% in the week.
According to data from the US Department of Labor, 353,000 jobs were created in the country in January, well above expectations of 180,000. The unemployment rate was 3.7% compared to a forecast of 3.8%.
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Furthermore, the revisions of the previous two months net added 126 thousand jobs, with the biggest revision taking place in December, where the number of jobs created went from 164 thousand to 333 thousand. There was an annual review of employment statistics, which also contributed to the November and December data revisions; but that is not the main explanation for the results of recent months. “These results are explained, unequivocally, by a stronger American economy”, assesses Gino Olivares, chief economist at Azimut Brasil Wealth Management.
Another relevant surprise, points out the economist, occurred in wages (Average Hourly Earnings). A growth rate of 0.3% in the month was expected (Bloomberg median), but the rate actually observed was double the expectation (0.6%), accelerating in relation to the 0.4% rate recorded in December. With this result, accumulated wage growth in the last twelve months rose from 4.3% in November (previous release: 4.1%) to 4.5%. And the number of hours worked fell from 34.3 in December to 34.1 in January, contrary to expectations (Bloomberg Median) of maintenance.
The yield on the 10-year US Treasury bond renewed highs after the release of the numbers, reaching 4.24, from 3.863% the day before. Wall Street indices, however, closed in the green, driven by the results of technology companies, mainly Meta. Dow Jones, S&P 500 and Nasdaq rose 0.35%, 1.07% and 1.74%, respectively.
Last Wednesday, Federal Reserve Chair Jerome Powell had already cooled bets on an earlier cut, stating that he did not think a reduction in March was likely, even though he observed an improvement in inflation.
For Gustavo Cruz, strategist at RB Investimentos, the employment report completely eliminates the chances of interest rates in March and also puts a “flea behind the ear” if the cuts cannot begin in June. An interest rate cut in the US being postponed could reduce the attractiveness of emerging markets, which includes Brazil, causing the market here to suffer.
Morgan Stanley also sees the Fed holding interest rates until June. “The employment report is further proof that the job market remains tight and, therefore, the focus continues on inflation. Our inflation forecast shows the pace of inflation continuing to decline gradually over 12 months, but will be accompanied by upward pressure on the 3-month and 6-month annualized growth rates due to basic services prices. All three measures will show core inflation well above 2% in the first quarter.”
Olivares points out that the still very hot American job market has obvious implications for the Federal Reserve’s monetary policy. The recent disinflation is basically explained by global deflation in the goods-producing sectors. The services sector remains strong, as explained by the fact that this sector is the main creator of jobs in the American economy. “Thus, we could describe the current situation of the American economy as one of disinflation with risks. And these risks come from the behavior of the services sector, which should be the focus of the Federal Reserve’s attention, requiring an additional dose of caution”, he assesses.
Higher interest rates in the United States tend to reduce the flow of capital to emerging markets, with investors preferring safety – which explains the fall in the Ibovespa, despite the rise in North American stock indices. Other than that, the Brazilian interest curve followed the American one, putting pressure on shares linked to the domestic market.
The dollar, with the rise in treasuriesgained strength against the real, with an increase of 1.08% today, to R$ 4,968 in purchase and sale, and gains of 1.18% in the week.