The concern about the lack of control of public accounts brought volatility to the forex market, with the US currency reaching the important resistance of BRL 5.40. There was widespread panic in the market after a speech by Lula, as the president-elect criticized fiscal stability. The market sees with great apprehension the efforts of the transition team to remove the expenses with Bolsa Família program [support to low-income families] from the spending cap. The uncertainty regarding the economic team also causes stress in the financial market, especially with the appointment of a transition team more inclined to the flexibility of tax rules. It seems that the honeymoon between the new government and the market, if it ever happened, was very short.
Inflation was also scary in Brazil. The October IPCA was 0.56%, above expectations of 0.46%, which makes investors look more closely at the next Copom meeting.
The external scene, on the other hand, served as a counterpoint, given the sign of greater relaxation of restrictions against COVID by China. Traders also digest a lower-than-expected CPI in the United States. The consumer price index rose 0.4% in October, down from an expected 0.6%. On an annual basis, the increase was 7.7% against the expected 7.9%. This result reopens speculation of a milder rate hike at the next Fed meeting.
In the face of all this, the dollar lost value against its world peers. The DXY index fell to 106 points, accumulating losses of 4.1% over the week. The real did not follow the external performance, reflecting fiscal fears. The US currency closed Friday (11) at BRL 5.3250 on the sell rate. For the week, the dollar rose 5.42%.
On the market’s radar are the fiscal commitment and the definition of Lula’s economic team. On the external side, new signals from the Fed and the Chinese government’s definition of the easing of restrictions on COVID. The dollar rose and, as a result, ended up moving away from the bottom at BRL 5.00 and getting back to the important resistance at BRL 5.40.