General Summary
The last days of the year were pretty euphoric for the Brazilian economy. On Monday two important data pointed the confidence of the investors in the Brazilian market: The C-Bonds and the Brazil Risk (rating to measure the foreign investors’ confidence in the Brazilian market) reached its best levels in the last seven years. The dollar depreciation in the worldwide scenario and the good performance of the markets abroad also reflected in a good behavior of the national market, in a week with a low volume of business. In this week the Banco Central (BC - Central Bank of Brazil) entered the market a couple of times, to once again effectuate auctions for the purchase of dollars. This week the BC announced that it has already acquired US$ 2.166 bi since it returned to act in the dollar market, in December, and also said that the BC needs now close to US$ 1 bi to be able to honor the commitments with the external debt that expire until the middle of 2005. With this statement the BC reaffirms that the auctions are really made with the intention of recomposing the international reservations, and not to control the dollar’s price as many people thought.
Currency (Dollar)
This was a week with a low volume of business in the dollar market, due to the year’s end holidays. Being so, the market turned itself to the external scenario in which the dollar continued to depreciate when related to the euro, and there was o huge year’s end excitement. On Monday the dollar were negotiated at R$ 2.689. The dollar felt also when facing other currencies worldwide, and a new low record when facing the euro, at US$ 1.365. During the week the BC (Central Bank of Brazil) effectuated a couple of purchase auctions in the dollar market, but after announcing that it already bought US$ 2.1 bi since it returned to act in the dollar market in December, and saying that close to US$ 1 bi is needed to pay the external debts until the middle of 2005, the BC made it clear that the intentions of the auctions are not of interfering in the dollar’s price, but recompose the international reservations. Being that way, the market operated looser and the dollar felt in the week, closing the year at R$ 2.654, the lowest level since June 10th 2002. The dollar ended the year with a depreciation of 8.58% when related to the Real.
Stock Market (Bovespa – Bolsa de Valores de São Paulo)
The week was marked by the back to back record breakings, making the Ibovespa (Sao Paulo Stock Exchange main index) to close in its highest level ever. In the beginning of the week the Oil’s price was falling and this was helping even more for the market’s good mood, and the Ibovespa marked 25,936 on Monday. Throughout the week the volume of business reduced with the proximity of the year’s end holydays.
Risco-Brasil (Brazil’s Risk)
After a few ups and downs the Brazil’s Risk ended the week at the same 382 points in which it closed in the last week. In the end of 2003 the indicator was of 436 points, so there was a 17.5% fall in 2004. In September 2002 the Risk reached its history’s highest level at 2,436 points. In 2004 the indicator scared the market again, reaching the eight hundreds in May due to the pessimist expectations relating the interest rates in the US and the Geopolitical tensions, such as the War on Iraq and the Terrorism, but the internal and external situation got better and the Risk felt again.
Noteworthy News (week’s major related news)
- The positive evaluation of the Lula’s Government rose 10% to 45% in the last four months. The ones who think that the Lula’s Government is regular are 40%. 13% finds it bad or horrible and 1% of the interviewed didn’t know what to think of it.
Source: Folha de São Paulo
- The Congress approved in a symbolical voting (without the nominal counting of votes) the Union Budget for 2005. The written opinion from the Budget’s reporter predicts a minimum wage of R$ 300 starting from May and investments in the order of R$ 21 bi. The Budget now follows for the sanction of the president Lula, who has the power to modify certain aspects in the Budget. The total amount predicted in the Budget is of R$ 1.640 tri. The value of the expenditures is exactly the same as the incomes.
Source: O Estado de São Paulo
- The president Lula sanctioned the law that creates the Public-Private Partnerships in this week. Along with the sanction, the Ministry of Planning released the first list with the projects to be contracted. A total of 23 projects were listed, in a total amount of R$ 13.067 bi in infra-structure works in the highway, railroad, harbor and irrigation sectors.
Source: Folha Online
- Even after four straight highs in the country’s key interest rate, the Banco Central still believes that the inflation will still be over the goal for the next year. In the Inflation Report, the BC affirms that the IPCA (main inflation index in the country) should reach 5.3% in 2005. The goal for this year is of 4.5% with a margin of error of 2.5%.
Source: Folha Online
* Sources: Folha de São Paulo, O Estado de São Paulo, Gazeta Mercantil, Invertia.com.br, Investnews.com.br, Terra.com.br.
Gustavo De Boni
Economic Office in Brazil
State of Israel