Stock market closes down and dollar rises on the eve of interest rate decision in the US and holiday in Brazil

São Paulo -The Stock Exchange closed down on the eve of a monetary policy decision in the United States in which the rate must be maintained between the 5.25% and 5.5% band, but the statement and speech by the president of the Federal Reserve (Fed, the North American central bank), Jerome Powell generate tension for investors.

The market’s bet is on a tough message because the American economy appears to be very strong. This apprehension intensifies due to B3 being closed tomorrow (1) due to the holiday and many investors do not risk taking a position. During the month, the Ibovespa fell 1.70%, the second biggest drop of the year.

The Small Caps Index fell 2.06% and few stocks rose in today’s session. The highlight of the increase was Santander Brasil (SANB11) of 2.73%, reflecting the 1Q24 balance that pleased the market.

Earlier, in the United States, the labor cost index was released, weighing on the market. The Index rose 1.2% in the first quarter of 2024 on a quarterly basis and the forecast was +0.90%, which could impact inflation.

Salaries and income increased by 1.1%, and benefits also increased by 1.1% on a quarterly basis. In annual terms, salaries grew 4.4%, and benefits, 3.7%. In the private sector, labor costs rose 4.1% on an annual basis, and for public servants, they rose 4.8%.

The main B3 index fell 1.12%, to 125,924.19 points. The Ibovespa future due in June lost 1.04%, at 127,340 points. In the interday period, the maximum reached 127,351.62 points and the minimum 125,855.79 pts. The financial turnover was R$23.6 billion. In New York, the stock markets were trading in the negative.

Charo Alves, an expert at Valor Investimentos, said that the Ibovespa is in the red, reflecting investor caution with the interest rate decision tomorrow in the United States.

“The stock market falls and the Small Caps Index [reúne as empresas com menor valor de mercado] retreat further and most stocks are down, with the exception of some more tactical stocks, such as Eletrobras [ELET6 subia 0,60%], with investors migrating to more defensive positions. The investor’s fear at the Fed pre-meeting is that Jerome Powell [presidente do Fed] take a more hard line position in your speech and the message you will send to the market is that the cut should not happen as we were expecting at the beginning of the year. The maintenance [dos juros] is already priced. With the holiday here tomorrow, it is natural that investors are afraid to position themselves, which is why we see the market as more sellers than buyers.”

Diego Faust, variable income operator at Manchester Investimentos, said that the higher-than-expected labor cost index and the monetary policy decision, both, in the United States are pushing the Ibovespa down.

“The Fed must position itself regarding employment costs. The data is important because it can put pressure on inflation and the cut [de juros] it may only come in September, November or until there is no reduction [de juros] this year. The job market and inflation are information that the Fed watches closely. Tomorrow Powell [presidente do banco central norte-americano] he must maintain the same speech, as long as economic data does not allow inflation to reach the 2% target there will be no interest rate cuts; DIs are also rising sharply and the fall of Petrobras and Vale also weighs heavily. The state-owned company is correcting it, after yesterday reaching a historic high and the mining company is following ore.”

The commercial dollar closed down 1.50%, quoted at R$5.1920 for sale with investors apprehensive about the message that the president of the Federal Reserve (Fed, the North American central bank), Jerome Powell, must send , after the interest rate decision tomorrow, while in Brazil the market will be closed due to the Labor Day holiday. In the month, it fell 3.55%.

According to the United States Department of Labor. wages and income increased by 1.1%, and benefits also increased by 1.1% on a quarterly basis. On an annual basis, salaries grew 4.4%, and benefits, 3.7%. In the private sector, labor costs rose 4.1% on an annual basis, and for public servants, they rose 4.8%.

Gabriel Meira, economist at Valor Investimentos, said that the dollar is on the rise, following the employment cost index in the United States and with the market betting on a cut only in 2025.

“This stress is due to increased data in the United States and the market reevaluating the drop in interest rates in the United States; the market had already been changing the possibility of a drop since the 1st quarter of 2024, it went to the second, third or fourth quarter and now the market is thinking that there will not be any cuts this year, only in 2025 because the economy remains very strong there ”.

Paulo Luives, a specialist at Valor Investimentos, said the market operates in a risk-off movement due to the meeting of the Federal Open Market Committee (Fomc, its acronym in English) in which investors want to know the dynamics of interest cuts for this year .

“This will be very important, because at this moment the market is working with a scenario of interest cuts starting at the end of the second half of the year, that is, there was a postponement of the expectation of interest cuts. And this factor in itself ends up impacting several asset classes.”

Vanei Nagem, partner at Pronto! Invest, said that the dollar rises in today’s session reflecting the American data on employment costs and Ptax.

“The index was higher than expected, which is bad because it shows that employment has become more expensive and generates inflation. It’s also the end of the month and there’s a fight over Ptax, the consensus is high Ptax [ fechou em R$ 5,1798]”.

Rates on Interbank Deposit (DIs) futures contracts closed higher across the board on the eve of a monetary policy decision in the United States, a holiday here and the advance of 10-year US Treasury bonds (treasuries). with increased risk perception. Labor market data here also weighed on future interest rates.

At around 4:25 pm (Brasília time), the DI for January 2025 had a rate of 10.310%, from 10.160% in the previous adjustment; the DI for January 2026 projected a rate of 10.630% from 10.395%, the DI for January 2027 was 10.985%, from 10.760%, and the DI for January 2028 with a rate of 11.290% from 11.085% in the same comparison. In the futures exchange market, the dollar was up 1%, quoted at R$5,172,000 for sale.

The main stock indexes in the United States market closed the session lower, to end the worst month of 2024 on Wall Street, as new labor market data came hotter than expected, while investors await the decision of Federal Reserve interest rate and Amazon’s earnings report.

Check below the variation and score of the United States stock indices after closing:

Dow Jones: -1.49%, 37,815.52 points
Nasdaq 100: -2.04%, 15,657.82 points
S&P 500: -1.57%, 5,035.64 points

With Darlan de Azevedo / Safras News Agency