The dollar closed this Wednesday’s session (1st) falling, after the Federal Reserve (Fed, the North American central bank) announced that it kept the basic interest rates in the United States unchanged. Investors were also waiting for the decision of the Monetary Policy Committee (Copom), which should be released after the markets close.
This holiday eve, the market also monitored data on labor and the manufacturing sector in the United States, in addition to keeping an eye on developments in the war in the Middle East. Possible signs about the Brazilian fiscal framework were also on the radar.
Ibovespa, the main stock index on the Brazilian stock exchange, B3, ended the session with an increase of more than 1%.
See the day in the markets below.
At the end of the session, the dollar closed down 1.34%, quoted at R$4.9730, the lowest level since September. See more quotes.
The day before, the North American currency ended the session with a decline of 0.13%, quoted at R$5.0406. With today’s result, it started to accumulate losses of:
- 0.79% in the week;
- 1.34% in the month;
- 5.78% in the year.
Ibovespa ended with an increase of 1.69%, at 115,053 points.
The day before, the index had closed with an increase of 0.54%, at 113,144 points. With today’s result, it started to accumulate highs of:
- 1.55% per week;
- 1.69% in the month;
- 4.85% in the year.
What’s moving the markets?
The main highlight of this session is “Super Wednesday” — as the day on which both the Fed and the Brazilian BC release their interest rate decisions is called.
Here, the Monetary Policy Committee (Copom) meets to decide what the interest level will be over the next 45 days. According to experts interviewed by g1, the expectation is that the BC will make a new cut of 0.50 percentage points (pp) in the Selic, taking the rate to 12.25% per year.
If confirmed, this will be the third consecutive cut in the basic rate — which will fall to the lowest level since May 2022, when it was at 11.75% per year.
XP, for example, assessed, in a statement, that recent data on inflation and activity continue to suggest room for interest reduction.
The institution projected a cut to 12.25% per year, but added that, in its view, an acceleration in the pace of cuts is increasingly less likely “in line with the rise in American interest rates and fiscal risks [nas contas públicas] persistent in the domestic context”.
The financial market projection is that the interest rate will fall again in December this year and end 2023 at 11.75% per year. For 2024, the estimate is that the Selic rate close the year at 9.25% per year.
It is worth noting that the lower interest rates are, the greater the risk appetite in the market tends to be. Thus, investors tend to sell their fixed income securities and buy shares, e.g. driving the Brazilian stock market upwards.
In the United States, the Fed announced that it kept the country’s interest rates unchanged, as expected by the market, but left the door open for another possible increase in borrowing costs in the future.
The Federal Open Market Committee (Fomc) also recognized that the North American economy expanded at a strong pace in the third quarter — which once again puts the possibility of a new interest rate increase on the radar.
In an interview with journalists after the release of the Fomc statement, Fed President Jerome Powell said that the idea that it is “difficult” for the US Central Bank to raise the country’s interest rates again is not true, highlighting that policy cuts interest is not on the authority’s radar at the moment.
Furthermore, Powell also reiterated that market borrowing costs would need to be sustained at a higher level for this to influence the Fed’s future monetary policy choices.
According to Inter’s senior economist André Cordeiro, the committee did not give firm indications about the next steps in US monetary policy, only reinforcing that they are ready to change the direction of monetary policy if necessary.
The Fomc also signaled that it will closely monitor economic developments and international events — which, for Cordeiro, is a “nod to the conflict in the Middle East.”
“Therefore, the decision was unsurprising, with the Fed maintaining its speech of dependence on data,” said the economist.
On the indicator agenda, the US manufacturing sector reported a sharp decline in October, after showing signs of improvement in previous months as new orders and employment fell, likely reflecting strikes by the United Auto Workers (UAW) union in three major automakers in the country.
Available job openings in the world’s largest economy, in turn, increased in September, signaling the continued resilience of the North American job market.