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The Brazilian stock market experienced a significant surge on November 7th, leading to a decline in the value of the dollar. The Brazilian Stock Exchange, also known as Bolsa de Valores, closed at a record high, reaching over 119,000 points. This positive performance of Brazilian stocks was primarily driven by the focus on domestic economic conditions by investors.
On the previous day, the Ibovespa, the primary indicator of the performance of Brazilian stocks, had ended with a 0.23 percent increase, reaching 118.4 million points. However, the new record high on November 7th marked a substantial improvement in the market.
One of the key events that contributed to the market’s positive sentiment was the approval by the Senate Constitution and Justice Committee (CCJ) of Senator Eduardo Braga’s amendment to the tax reform bill. The Proposal to Amend the Constitution (PEC) No. 45/2019 received the support of twenty committee members, while six voted against it. President Luiz Inácio Lula da Silva also had discussions with Senate and cabinet leaders to discuss the details of the vote, highlighting the government’s commitment to economic reforms.
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The tax reform amendment, which had been submitted on October 25th, underwent a two-week review period by the commission members. The successful approval in the CCJ paved the way for further voting in the full Senate on Thursday, November 8th.
Another significant development that impacted the stock market was the release of the minutes from the most recent meeting of the Comitê de Política Monetária (Copom), the monetary policy committee of the Central Bank (BC). The minutes revealed that the Copom had cut the basic interest rate (Selic) by 0.5 percentage points, bringing it down to 12.25% per year. This decision was driven by concerns regarding the government’s ability to meet its fiscal targets.
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The Copom highlighted the importance of maintaining efforts toward structural reform and fiscal discipline, while also emphasizing the potential negative effects of any reduction in these efforts. The committee expressed concerns about an increase in targeted credit and uncertainties surrounding the stabilization of public debt, as these factors could elevate the economy’s neutral interest rate and impact the effectiveness of monetary policy.
The positive performance of retail-related stocks played a significant role in driving the Ibovespa’s early gains on November 7th. One notable example was the company Magazine Luiza, which experienced a gain of almost 23%, continuing the upward trend seen in the previous week.
The decline in the value of the real, Brazil’s currency, can be partially attributed to better-than-expected news regarding interest rates. The reduction of the Selic rate by the Copom and the decision of the Federal Reserve to maintain interest rates in the United States at their previous level had an impact on the foreign exchange market. Despite being the highest level of US interest rates in 22 years, the rates remained unchanged, leading to a drop in the value of the dollar against the real.
At the close of trading, the dollar was trading lower than it had been throughout the day on the Bolsa, falling 0.25% against the Brazilian real and trading at R$ 4.875. Overnight, the dollar experienced a further decrease of 0.16%, reaching R$ 4.887, its lowest level in over a month. This decline in the value of the dollar has resulted in a decrease of 3.29% this month and 7.64% this year.
Overall, the combination of the approval of the tax reform amendment and the release of the Copom’s minutes led to a surge in the Brazilian stock market, resulting in a decline in the value of the dollar. These developments indicate positive prospects for the Brazilian economy and reflect investors’ confidence in the country’s domestic conditions.
