The package of measures announced this Tuesday (24) by China had a positive impact on the Brazilian market: the dollar closed below R$5.50 and the Ibovespa rose 1% at the close of the day.
China's central bank chief Pan Gongsheng has outlined a series of government measures to stimulate the economy. According to Bloomberg, they include interest rate cuts, more money for banks, incentives for home purchases and the possibility of creating a fund to stabilize the stock market.
As a result, in Brazil the dollar fell again after two days of rising, and closed below the level of R$ 5,50down 1.33%. According to Reuters, the dollar futures were down 1.45% at 5:04 pm on B3, worth R$5.4614.
The Ibovespa, in turn, rose 1,22% at 132,155.76 points, driven mainly by shares linked to commodities, especially those of Vale, up 4.88%, Usiminas (7.68%), CSN (9.39%) and CSN Mineração (4.11%).
The sentiment also spilled over into other markets, with iron ore futures in the United States posting their biggest intraday gain in more than a year. In the United States, major stock indexes closed higher, with the S&P 500 up 0.25%, while the 10-year Treasury yield was at 3.7318% in late afternoon trading, up from 3.738% the previous day.
China Effect
“Today’s theme is China,” Jennie Li, equity strategist at XP Research, told Reuters. “That’s the main catalyst for this rally we’re seeing.”
According to Bloomberg, Chinese authorities held several closed-door meetings to define the new measures, which were accelerated after fears that a province in the country would not be able to meet its Gross Domestic Product (GDP) growth target.
With the economy at risk due to falling demand and confidence, banks such as Goldman Sachs and UBS have in recent weeks cut their growth forecasts for China, following a series of negative data that alarmed the market about the possibility of falling prices.
With the measures announced Tuesday, economists at Bloomberg Economics and others expect the government to meet Xi’s target of expanding GDP by “about 5%” this year. But most experts agree that more measures will be needed to avoid a prolonged deflation along the lines of Japan. The main challenge remains finding an effective strategy to encourage China’s 1.4 billion people to increase consumption.
READ MORE: China's cooling interest in grains could ease pressure on global food inflation
Copom minutes overshadowed
According to Reuters, China's package ended up overshadowing domestic news, at least in the foreign exchange market. In the morning, the Central Bank published the minutes of its last monetary policy meeting, when it raised the Selic base rate by 25 basis points, to 10.75% per year.
In the document, in a pessimistic tone, the BC reported that the increase in the Selic rate was resumed based on three points: a scenario that demands a more contractionary monetary policy, a perception that the start of the adjustment should be gradual and a discussion about the pace, magnitude of the cycle and its communication.
“Due to the uncertainties involved, the Committee preferred a communication that reinforces the importance of monitoring scenarios over time, without providing any future indication of its next steps, insisting, however, on its firm commitment to convergence of inflation to the target,” said the BC in the document.
The message in the minutes was reinforced by the president of the Central Bank, Roberto Campos Neto, during an event in São Paulo. According to him, the most recent inflation figure was “even better”, but when looking at the more complete picture, “inflation dynamics still worry the Central Bank”.
Professionals interviewed by Reuters in recent days have assessed that the prospect of an even higher Selic rate in Brazil, with lower interest rates in the US, would open up space for the dollar to seek levels below 5.40 reais. However, the market's concern about fiscal balance — which has been supporting the Brazilian interest rate curve — would be an obstacle to this.