The intense Q3 earnings season in the Brazilian stock market was overshadowed by bad macroeconomic news and speeches from President-elect Luiz Inácio Lula da Silva that disappointed investors.
Earlier today, official inflation data showed that prices rose 0.59 percent in October, above market expectations of 0.49 percent. If inflation persists, the Central Bank may have to reactivate an already bitter cycle of monetary tightening.
On top of this, Lula’s first visit to Brasilia after the runoff election made investors jittery about the country’s fiscal path.
In a speech to allied politicians, Lula said that increasing social spending is a priority for the transition team and its negotiations with Congress. He also vented the possibility of permanently withdrawing aid programs from current federal spending cap rules.
“Why aren’t poor people part of the spreadsheets in macroeconomic discussions?” Lula said. The president-elect also criticized the 2017 labor reform, a no-no for investors. “Business owners get bummed just because we say we’ll re-discuss labor legislation. The truth is that we’ll have to discuss the capital-labor relationship in the 21st century. Some rights were removed from workers.”
Risk aversion marked the trading session from the opening bell, with Ibovespa futures opening low and the dollar advancing in its first trades — a trend opposite to rallies seen in global markets.
At 3 pm, the Ibovespa stock index registered a fall of up to 3.37 percent, to 109,757 points, while the dollar soared more than 3.9 percent, reaching BRL 5.35. The EWZ index, made up of Brazilian equities, fell 6.09 percent in New York.
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