Brazil’s Ibovespa drops 2%, hits worst level in 6 months with commodities and IOF hike

RIO DE JANEIRO, BRAZIL – The Ibovespa stock index fell back on Friday, 17, after the federal government decreed the increase in the rate of IOF until the end of this year to enable the extension of the Bolsa Família subsidy.

The measure occurs amid the worst rejection of President Jair Bolsonaro by the Datafolha poll. At noon, the main B3 index fell 2.10% to 111,433 points – the lowest since March. The dollar, meanwhile, advanced 1.42%, trading at 5.34 reais.

“The market reacts to the almost surprise decision to increase the IOF on financial operations. With popularity low, there is a greater possibility that the government will resort to more populist measures [increase in the Bolsa Família Program] to get some votes. No wonder the Real has depreciated much more than its peers”, says Fernanda Consorte, chief economist at Ourinvest bank to Exame newspaper.

The economist also points out that besides the tax increase that makes credit more expensive for individuals and companies, the “populist decisions put even more pressure on inflation, increased interest rates, and reduced economic growth.”

The hostile domestic environment is added to the devaluation of commodities in the international market, which puts pressure on the leading shares of the Brazilian stock exchange.

With the largest share in the index, Vale’s stock (VALE3) opened up, reflecting the announcement that the company will distribute R$40.2 billion in dividends. On the other hand, the price of iron ore, which plunged 4.9% in the port of Qingdao, again pressured the shares of the mining company, which then fell 3%. Steel companies, such as Gerdau (GOAU4), CSN (CSNA3), and Usiminas (USIM5), dropped more than 5%.

The sequence of falls in iron ore occurs amid greater control of the Chinese government over steel production. In China, concerns are also growing about the possible effects of Evergrande’s over-indebtedness on the country’s economy, which has shown successive signs of slowing. Besides mining, cellulose companies suffer from the worsening scenario in Asia, with Suzano (SUZB3) falling 2.26% and Klabin (KLBN11), 1.59%.

Petrobras (PETR3/PETR4) shares, with the second-largest weight of the Ibovespa, fell about 3%, following the depreciation of oil prices abroad.

The falls, however, are not restricted to the commodities sector. In retail, the losses of Via (VIIA3), Magazine Luiza (MGLU3), and Americanas (AMER3) were more than 3%. The big banks do not mitigate the losses either, being traded in a little less than 1% drop.

The positive highlight of the session comes from outside Ibovespa. In the logistics sector, Log-In (LOGN3) shares extend the gains of the day before, rising more than 6% this session, after the manager Alaska – the company’s main shareholder – accepted the conditions of the takeover bid (OPA) presented by Sas Shipping, a subsidiary of MSC.

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