São Paulo stock market falls 6.7% in October due to fears Brazil might relax fiscal rules

RIO DE JANEIRO, BRAZIL – The São Paulo stock exchange registered a cumulative fall of 6.7% in October, the worst monthly result of the year, amid doubts about the economic policy of Jair Bolsonaro’s government and his intention to relax fiscal rules to increase social spending.

The Ibovespa, the benchmark index of the trading floor, lost 2.09% this Friday and closed at 103,500 points to mark the fourth consecutive session in the red, with a weekly decline of 2.63%, according to preliminary results at the end of the day.

So far, in 2021, the São Paulo stock exchange has already fallen more than 13% and is currently at its lowest level of the year.

The Brazilian stock market is living days of absolute pessimism given the worrying scenario of the largest economy in Latin America and the government’s plans to increase social spending in 2022 through a series of maneuvers that have put financial operators on alert.

Last week, the federal government decided to raise the spending ceiling and postpone the payment of part of of it’s court-ordered debts payable in 2022, to expand a program of social subsidies in the year in which Bolsonaro will seek reelection.

However, these measures have yet to be approved by Congress in a complex and tortuous voting path between the Chamber of Deputies and the Senate, which has added further uncertainty to the matter.

Financial agents fear that Brazil will return to the path of fiscal imbalance when it seems to have straightened out its public accounts, and the Government will not comply with its commitments to contain public spending for electoral reasons.

All this uncertainty had already caused severe turbulence in the Sao Paulo stock exchange last week, when it accumulated a 7.3% drop and the currency market, with a strong appreciation of the dollar against the real.

This Friday, the US dollar rose by 0.34% and closed at R$5.64 for purchase and sale at the Brazilian commercial exchange rate. In October, the greenback has appreciated by 3.7% against the Brazilian currency, which has also been impacted by the growing inflation in the country, which exceeds 10% year on year.

All in all, the São Paulo stock exchange subtracted 2,204 points from its accumulated score on Friday in a week of high volatility. The volume traded reached R$33.34 billion (almost US$6 billion), in a total of 5,203,241 financial operations.

The meat sector was the big winner of the day, with gains for Minerva (7.1%), Marfrig (5.3%), JBS (4.2%), and BRF (2.1%). On the other side of the coin, the most significant losses were recorded by Alpargatas (-10.6%), Banco Inter (-9.1% in its preferred shares and -10.1% in its unit shares), and the hosting portal Locaweb (-8.5%), among others.

The most traded shares were those of Petrobras, the state-owned oil company, which fell between 6 and 6.5%, and the mining giant Vale, which fell 2.8%.