Bridge to the future for FHC and Temer collapses: stock market falls 5% and dollar reaches R$ 3,95
The PSDB-MDB government, the result of a conspiracy hatched by Fernando Henrique Cardoso and Michel Temer against President Dilma Rousseff, is ending catastrophically. This afternoon, markets panicked, with the stock market index falling 5% and the dollar reaching R$ 3,95. The coup government managed to hand over a chunk of the pre-salt oil reserves this morning to major international oil companies, but the Brazilian economy may collapse once again, and the only figure capable of saving the country, Luiz Inácio Lula da Silva, remains a political prisoner in Curitiba.
247 - The PSDB-MDB government, the result of a conspiracy hatched by Fernando Henrique Cardoso and Michel Temer against President Dilma Rousseff, is ending catastrophically. This afternoon, markets panicked, with the stock market index falling 5% and the dollar reaching R$ 3,95. The coup government managed to hand over a chunk of the pre-salt oil reserves this morning to major international oil companies, but the Brazilian economy may collapse once again, and the only figure capable of saving the country, Luiz Inácio Lula da Silva, remains a political prisoner in Curitiba. Below is a report from Infomoney about the panic in the markets:
From Infomoney – The Ibovespa accelerated losses on Thursday afternoon (7), falling more than 5%, while the dollar gained strength and surpassed the R$ 3,94 mark, with the climate of uncertainty taking over the market again in view of the surge in the dollar and future interest rates, which continue to rise even with new intervention by the Central Bank to contain volatility.
At 14:02 PM (Brasilia time), the benchmark stock index was down 5,26%, at 72.117 points, a drop of 4 points today alone, thus renewing its lowest level since December 12th. The commercial dollar, in turn, registered gains of 2,49%, quoted at R$ 3,9340 on the sell side, its highest level since March 2016, with the volatility still intense due to investors apprehensive about the direction of the economy. The dollar futures, meanwhile, rose 2,35%, to R$ 3,947, after reaching over R$ 3,95.
Given the strong turbulence experienced in recent days amid the aforementioned uncertainties, the Central Bank and the National Treasury announced a joint intervention in the market this Thursday. The sale of government bonds with a repurchase commitment in 9 months will take place, offering LTNs (National Treasury Notes) with maturities from 2019 to 2022, as well as NTN-Bs (National Treasury Notes - Series B) for 2019 to 2055, and NTN-Fs (National Treasury Notes - Series F) with redemptions ranging from 2021 to 2029.
Despite all efforts to curb the strong volatility of interest rate futures, future interest rates are soaring, with contracts maturing in January 2019 reaching their limit of variation, rising 42 basis points to 7,57%, while futures for January 2021 jumped 66 basis points to 10,10%.
On the exchange rate front, the Central Bank offered 15.000 currency swap contracts early in the morning and shortly after announced that it will hold an auction with another 40.000 contracts at 10:30 am and another 8.800 currency swaps to roll over maturing in July at 11:40 am. Even with the monetary authority demonstrating its interest in curbing the currency, the market is skeptical about the Central Bank's success.
How high will the dollar go?
Rogério Xavier, one of the founders of SPX Capital, an asset management firm with over R$ 30 billion in assets under management, stated at an event last Wednesday that the situation in Brazil is chaotic, predicting that GDP will grow by only 0,8% in 2018, while the dollar will reach R$ 5,30 ("the exchange rate is practically free") and the Central Bank will have to raise interest rates quickly to contain the pressure.
Similarly, the foreign exchange director at Wagner Investimentos, José Faria Júnior, believes that the dollar could soon reach the R$ 4,00 mark, citing the external scenario, with a higher probability of the Fed raising interest rates faster than expected by the market, and the uncertainties of the domestic election scenario - check out the full analysis.
market highlights
On the downside, stocks linked to interest rates stand out, falling sharply due to the surge in interest rate futures even with the Central Bank's intervention in the market. Meanwhile, only Embraer's shares are rising.
The biggest losers among the stocks that make up the Ibovespa are:
Active Code Price R$ % Day % Year Vol1
SMLS3 SMILES ON 44,20 -15,41 -38,81 142,37M
MGLU3 MAGAZ LUIZA ON 99,50 -12,97 +24,38 249,55M
VVAR11 VIAVAREJO UNT N2 18,84 -12,21 -22,92 71,29M
CVCB3 CVC BRASIL ON 43,20 -11,11 -9,58 114,02M
SANB11 SANTANDER BRUNT 30,29 -10,91 -3,08 93,36M
The biggest gains among the stocks that make up the Ibovespa are:
Active Code Price R$ % Day % Year Vol1
EMBR3 EMBRAER ON 23,28 +0,34 +16,87 72,32M
* - Lot of one thousand shares
1 - In reais (K - Thousand | M - Million | B - Billion)
News of the day
The "Painel" column in the Folha de S.Paulo newspaper reports that businessman Benjamin Steinbruch, of the steel company CSN, sent a letter to Fiesp (Federation of Industries of the State of São Paulo) announcing his temporary leave from his position as vice-president of the organization. With this action, he complied with the legal requirement to relinquish incompatible positions in order to run for election, which increases speculation about his participation in a ticket headed by former Ceará governor Ciro Gomes (PDT) for the presidency of the Republic. The initiative is viewed favorably by Senator Ciro Nogueira, national president of the PP, the party to which the businessman is affiliated.
Also noteworthy is a news report published by the newspaper O Estado de S.Paulo, stating that the COAF (Council for the Control of Financial Activities) has agreed to deliver to the Federal Court of São Paulo a report pointing to "suspicious financial transactions" related to former President Lula, his lecture company LILS, and the Lula Institute and its president Paulo Okamotto. Lula's press office stated that all confidentiality agreements were lifted more than two years ago and no irregularities were found.
Another highlight comes from Brasília. The plenary of the Chamber of Deputies approved, last night, Bill 1220/15, by Deputy Celso Russomanno (PRB-SP), which regulates the amounts to be received by the borrower when withdrawing from the purchase of a property. The matter, approved in the form of a substitute by the rapporteur, Deputy Jose Stédile (PSB-RS), will be sent to the Senate. When the development has its assets separated from those of the construction company, in a mechanism called segregated assets, the buyer who withdraws from the property will be entitled to receive 50% of the amounts paid, after prior deduction of the brokerage fee.