General Summary
The market’s attention on this week was turned to the results of the monthly research by the Banco Central (BC – Central Bank of Brazil) with the financial institutions, to the results of the Balance of Trade in the third week of January, and mainly to the Copom’s (Monetary Policy Committee) report on the past week’s meeting.
Regarding the weekly research from the BC, the results were exciting. In the inflationary field, the report shows that the projection for the inflation in 2005 stayed in 5.7%; Regarding the GDP, the market believes that the production of all the country’s wealth should grow 3.7%; and about the interests, the market’s projections are of an average of 17.60% in this year. In the previous research the projections for the GDP were of 3.65% and for the key interest rate, 17.44%.
In reference to the Balance of Trade, the Ministry of Development, Industry and Foreign Trade informed that the gains reached US$ 292 million in the third week of January. The gains for the Balance of Trade in the first month of 2005 were of US$ 1.208 billion until the end of the third week.
As to the Copom’s report on the last meeting, the news weren’t good at all. The document showed that the Copom thought about the possibility of a bigger raise in the country’s key interest rate than the one that was effectuated, of 0.5%, and reaffirmed that the probable is that the interests raise more and then get stable for a “sufficiently long period” to guarantee the convergence of the inflation to the inflation’s goal stipulated by the government.
Some other data released on the week reflected positively to the Brazilian market, being them: the inflationary data measured by the IGP-M (General Prices Index, one of the Brazilian’s indicators to measure the inflation), which advanced 0.39% opposed to 0.74% in December, and the IPCA-15 (a preview for the first two weeks of the month to the IPCA – Ample Consumer Prices Index, Brazilian’s main indicator to measure the inflation) coming under the expected. The news of a slower growth than the one expected for the US’s economy was also well received by the Brazilian market. The US’s GDP rose to an annualized rate of 3.1% in the last trimester of 2004, lowest rate since the first trimester of 2003 and under the market’s estimative, of 3.5%. This weak data contributed for the expectations of a moderated raise in the interests by the Fed in its next meeting.
Currency (Dollar)
The dollar started the week with a 0.26% drop on Monday, closing at R$ 2.681 on the end of the day. The Banco Central once again entered in the dollar market with a purchase auction, which made the droop of the dollar to reduce. During the week, the market operated mostly following the dollar’s depreciation to the euro, which reflected in a drop in the Brazilian market either. Not even the Copom’s report, which was negatively seen by the market, was capable of changing the falling tendency this week. But the most important news for the currency exchange market came only on Friday. The American growth data for the fourth trimester came under the expected, reducing the chances of a more aggressive raise in the US’s interests by the Fed. Higher interests in the US make the investments in Brazil less attractive. This way, the dollar ended the week at R$ 2.647, the lowest since June 2002. On the week the dollar felt 1.49% to the real.
Stock Market (Bovespa – Bolsa de Valores de São Paulo)
The Bovespa (Sao Paulo Stock Exchange) opened the week maintaining the same high tendency in which it ended the past week, still recovering from the losses of the month. Despite the low volume of business due to the Sao Paulo Anniversary holyday on Tuesday, the Ibovespa (Bovespa’s main index) had the biggest valorization of the year, of 1.59%, ending the day at 24,197 points. On Wednesday the Bovespa adjusted the prices to Wall Street, after a positive Tuesday in the US’s market when the Sao Paulo Stock Exchange was closed, and enjoyed also the good inflation results to raise 1.37% to 24,530 points. But the expectative was all turned to the Copom’s report that would be released on Thursday. On the report, Copom demonstrated that the raise in the interest rate could’ve been bigger, and said that the interests ought to raise more and stay stable at high levels for “sufficiently long” period of time to guarantee that the inflation stays inside the goals. The document intensified the expectative of a new high in March. This conservativeness from Copom regarding the interests reflected negatively on the market and the Ibovespa answered by falling 2% on Thursday and 0.26% on Friday, obfuscating the inflation’s good performance, and making the Ibovespa to close the week at 23,968 points.
Risco-Brasil (Brazil’s Risk)
The titles of the Brazilian external debt followed the improvement of the intern scenario and regained losses. The C-Bond, main Brazilian and emerging title, ended the week close to 103% of its facial value. The Brazilian rating (Brazil’s Risk, rating to measure the foreign investors’ confidence in the country) started the week at 430 points and felt as low as 410. The rating of emerging countries felt on the week, especially in Brazil, despite the emissions of new sovereign bonuses, which are generally a source of pressure over the market. The investors have been managing to easily absorb new titles, putting away the risk of a “indigestion” and puts what the analysts consider as “the good foundations” of the emerging markets back on the spotlight. Among the emerging countries (developing countries), Brazil has the sixth highest rating, behind of Argentina, Equator, Nigeria, Philippines and Venezuela. So far in January, the rating rose 7%.
Noteworthy News (week’s major related news)
- The Prime-Minister of Spain, José Luis Zapatero, visited Brazil this week to make his first official visit to the Latin America. Several agreements were signed, including a Strategic Cooperation Agreement. It was also signed agreements for the areas of Tourism, Agriculture, Education and the clean development mechanism of the Kyoto Protocol.
- The Agreement for the liberalization of the World Trade can be closed by the end of 2006, said the general manager of the World Trade Organization (WTO), Supuchai Panitchpakdi. In conversations in the World Economic Forum, in Davos, Supachai invited the countries to work as hard as possible to take on the objectives early in this year. The Brazilian Minister of Development, Luiz Fernando Furlan, said that the negotiations in course are “doing fine”, at least when compared to the called Uruguay Round of trade negotiations that took 7.5 years to be concluded and so creating the WTO and the current Free Trade system. The Doha Round of trade negotiations is paralyzed for years now, with the discussion among industrialized countries and the developing ones regarding subsidies and taxes barriers for agricultural products.
- The estimative made by the IBGE (Brazilian Institute of Geography and Statistics) regarding planted areas in the country, reveals that the Brazilian harvest can grow 13.29% on 2005 facing 2004. With this growth, the harvest can get to 134.9 million tons.
- The unemployment rate on the felt in December and closed 2004 in11.5%. The result is lower than the 12.3% registered in 2003. Even with less unemployment, the total number of people searching for jobs is still high and reaches 2.1 million. During 2004, there was a reduction of 232 thousand unemployed people.
- The FIESP (Federation of Industries of the Sao Paulo State) attacked the Copom’s report, which signalized the possibility of a new raise in the county’s key interest rate. The President of the Federation, Paulo Skaf, criticized the argument used by the BC, who said that a strong improvement in the economy creates hazard to the inflation, and being so, the interests must raise. According to Skaf, the own government is guilty for part of the inflation, and not the business men. He said that, in 2004, 40% of the inflation was due to the taxes readjustments made by the government.
* Sources: Folha de São Paulo, O Estado de São Paulo, Gazeta Mercantil, Invertia.com.br, Investnews.com.br, Terra.com.br, Banco Central do Brasil, Ministry of Development.
Gustavo De Boni
Economic Office in Brazil
State of Israel