The Ibovespa, the Brazilian stock exchange, had a difficult week. On Friday the index fell by 1.3%, dropping below the crucial 128,000 point mark.
The index has now lost three consecutive days. Sao Paulo is expected to end the week flat, reflecting the growing uncertainty in the economy of the country.
Investors are cautious due to the combination of rising prices, a weakening Brazilian Real, and fiscal concerns. This has led to an unstable market.
Recent inflation data is behind recent economic downturn
Recent inflation figures have reinforced the hawkish attitude of the Brazilian Central Bank.
The October annual inflation rate was 4.76%. This exceeded expectations and is up from September’s 4.42%.
The unexpected increase in inflation is a result of several factors. These include the severe weather conditions that have disrupted agriculture, and led to higher food and energy costs.
The depreciation in the Brazilian Real has also exacerbated inflationary pressures by making imports costlier and driving domestic prices higher.
The expectation that fiscal policy will be loosened has fuelled the fire.
In response to this, the Brazilian Central Bank has increased interest rates two times in 2018. This is to combat inflation.
Investors continue to be concerned about the future of fiscal policy, despite these efforts to stabilize the economy.
Brazil’s corporate sector has been affected by the inflationary climate.
Vale is a large mining company that saw its shares drop 3% because of the falling price of iron ore.
Ambev JBS and Suzano are also companies that reported losses ranging between 1.4% and 2.2%.
The declines are a reflection of wider market pressures. This includes the absence of Chinese stimuli to increase consumption.
This has further exacerbated the problems faced by Brazilian companies.
Not all industries were affected equally. Petrobras (the state-controlled oil company) bucked this trend and rose more than 1%.
Investors have been encouraged to buy the stock of this company by its strong financial performance. This is a result of high profit margins and cash flows.
Brazilian Real continues its struggle
The Brazilian real is still struggling, falling to 5,76 dollars per Brazilian real, a significant drop from its two-week peak.
The depreciation is largely due to a mix of factors both domestically and internationally.
The real has been weakened by the increased budgetary uncertainty, rising US protectionist concerns under Donald Trump, and a slow Chinese economy recovery.
Investors are becoming more cautious about taking risks due to the lack of information on President Lula’s fiscal proposals.
The demand for US dollars has increased as global markets have changed. This puts additional pressure on currencies in developing countries like the Brazilian Real.
China’s fiscal stimulus has aggravated the situation by reducing demand for Brazilian products, further complicating Brazil’s economy.
Investors now closely monitor the situation and are hoping to receive clearer messages from the Brazilian government as well as global economic leaders in order to determine the next steps for Brazil’s financial recover.
As updates occur, this post Ibovespa struggle as Brazilian Real hits 2-week Lows amid Rising Inflation Concerns may be updated.
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