General Summary

 

The main event awaited by the market this week was, certainly, the Federal Reserve’s (US’s Central Bank) meeting, which would define the directions of the key interest rate of the US’s economy. The Fed decided on raising the interests in 0.25%, to 2.5% a year, and emitted a statement in line with the document from the last meeting, in December, saying that there is the perception that the risks of inflation and the growth are balanced, indicating that the Fed will probably not be aggressive when it comes to the interest rate. The raise came inside the expected by the market and reflected positively in its operations. In the week was also released the IPC (Consumer Prices Index, one of the inflation’s data, but not the main one), which stayed under the predictions of the analysts, in 0.56%. On Friday, the market’s attention turned to an US’s data that is very important for the country, the one regarding the employment, known as “payroll”. The data showed that the job creation came under the expected. The announcement, despite being negative for the American economy, reduced the expectative of a bigger raise in the interest rate by the fed, and so keeping the positive flow of resources for emerging countries, like Brazil. Shortly after this announcement, the Fed’s president, Alan Greenspam, gave a statement indicating that the commercial deficit of the US should be reduced as the time passes by. The market took Greenspam’s statement positively. 

 

Currency (Dollar)

 

The dollar opened the week falling 1.4%, at R$ 2.610, dragged by the Brazilian emission of a 20 years title in the international market, in an operation that captured about US$ 1.25 billion. The market, though, was showing signs of expectative regarding the Fed meeting. The Fed’s decision on raising moderately, in 0.25%, the US’s key interest rate was well received by the Brazilian market. It seemed that not even the Banco Central’s (Central Bank of Brazil) interventions through the habitual purchases of dollars and the weekly auctions of “swap” contracts of sales, initiated on Wednesday, would be enough to hold the flooding of dollars in the Brazilian market. The dollar’s offer kept growing, tumbling the price of the dollar that on Thursday was negotiated at R$ 2.60. But, on Friday, the Banco Central’s action finally made the desired effect, raising the dollar’s price in 0.35%, to close the week at R$ 2.614. The BC’s auction came in a time in which the dollar was falling, and changed this tendency with the purchase of a significant amount of dollars, estimated between US$ 300 and 500 million. The dollar felt 1.25% in the week.

 

Stock Market (Bovespa – Bolsa de Valores de São Paulo)

 

The Bovespa (Sao Paulo Stock Exchange) started the week raising 1.6% on Monday, the last day of January. The high was helped by several positive news, among them the strong profit of Bradesco Bank, whose stocks rose more than 3%, the Brazilian external emission of titles and the elections in Iraq, which happened in a quieter than the expected way. The Ibovespa (Bovespa’s main index) finished January at 24,350 points, losing 7% in the month. In January the investors enjoyed the higher interests’ perspective in Brazil and in the US to pocket profits of a more than 13% high accumulated between last November and December. After backing up a little on Tuesday, in 0.83%, due to the expectative on the Fed’s meeting, the market received well the 0.25% elevation in the US’s key interest rate and started a high tendency that lasted the whole week. On Wednesday the Bovespa had a high of almost 2%. On Thursday it was released the IPC, an inflation data referring to Sao Paulo, coming under the expected, in 0.56%, maintaining the optimism in the market and making the Ibovespa to raise 1%. On Friday the market cheered with the negative data regarding the job creation in the US and rose 3.45%, the biggest high since May 27 of 2004, to close the week at 25,731 points.

 

Risco-Brasil (Brazil’s Risk)

 

The Brazil’s Risk (rating to measure the foreign investors’ confidence in the country) started the week close to the 420 points and, following the Brazilian market’s good performance and specially the Fed’s decision on moderately raising the interests, benefiting the emerging countries, the rating felt almost 2% to 409 points. The C-Bonds (main Brazilian title of public debt negotiated abroad) also valorized and was being negotiated in about 102.5% of its facial value.

 

Noteworthy News (week’s major related news)

 

- The real is the currency with the bigger valorization facing the dollar in the past six months, according to Bloomberg. The ranking considered the 16 main currencies in the world. In six months the real gained 15% when opposed to the dollar.

 

- The Brazilian Balance of Trade registered gains of US$ 2.183 billion in January, a 37.6% growth when compared to the same month of 2004.

 

 

* 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