See dollar and stock market quotation after inflation today – 07/11/2023 – Market

The Brazilian Stock Exchange was operating in a fall in the early afternoon of this Tuesday (11) even after the announcement that the IPCA (National Index of Consumer Prices) had deflation of 0.08% in June. Despite the drop in prices, the biggest for the month since 2017, the result was in line with market expectations and did not endorse a possible more aggressive interest rate cut in August.

On the other hand, the dollar continued its upward trajectory against the real after the IPCA, since the confirmation of market expectations reinforces the forecast that the BC will start cutting the Selic rate at its next meeting. Investors await, this week, inflation data in the United States to have clues about the next steps of American monetary policy.

At 12:15 pm, the Ibovespa was down 1.13%, at 116,606.47, while the dollar rose 0.22%, quoted at R$4.893.

The IBGE (Brazilian Institute of Geography and Statistics) released this Tuesday that the IPCA fell by 0.08% in June, the first time that the official inflation index was negative in nine months. As a result, the increase accumulated by the IPCA in 12 months slowed down to 3.16% until June, the lowest level since September 2020 (3.14%).

The negative variation, however, was close to the median level of market projections. Analysts consulted by the Bloomberg agency expected a 0.10% decline, after the 0.23% advance recorded in May.

In addition, services inflation increased by 0.62%, after a negative variation of 0.06% in May, which attracted the attention of the market.

For the chief strategist at Acqua Vero, Antonio van Moorsel, this result for the services sector helped to explain the declines in the Brazilian stock market, since this is a metric closely monitored by the Central Bank.

As the inflation strategist at Warren Rena, Andréa Angelo, pointed out, this behavior in the services sector may reinforce the arguments of the more cautious wing of the Copom, in line with an initial cut of 0.25 percentage points in August.

In recent weeks, part of the market has started betting on a cut of 0.50 percentage points in the Selic in August, mainly with expectations of inflation falling week by week. The figures released on Tuesday, however, did not reinforce this scenario.

“We see the way open for the beginning of the cycle of cuts in the August meeting, but the debate between a cut of 25 or 50 bps should continue”, said Rafaela Vitoria, chief economist at Banco Inter.

Despite doubts about the magnitude of the cut, the Selic reduction at the next Copom meeting is already taken for granted by the market.

“Without a doubt, the IPCA in June is marking out new bets in relation to the Selic cut in August”, Fernando Bergallo, director of operations at FB Capital, told Reuters. “Therefore, it seems to me that the local is prevailing, with a slightly closer horizon for our interest rates to start to retreat and close this differential, which has helped the real a lot in these last few weeks.”

The horizon of lower interest rate differentials has even put pressure on the performance of the real against the dollar. The Brazilian currency benefits from higher interest rates in Brazil, which increase the country’s fixed income return and, therefore, attract resources.

Despite projections of cuts in the Selic, economists still see room for the fall of the dollar in Brazil, especially if expectations of reduced inflation are confirmed. This is because a lower inflation rate can keep Brazilian real interest rates (which discount the IPCA) at an attractive level, supporting the performance of the real against the US currency.

With Reuters