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Monday, October 3, 2022

Possible recession in the US economy threatens the money of investors in Brazil

Investors stock exchanges laugh at us in vain USA e no Brazil with an impressive recovery in major stock indices since hitting their lowest levels this year, but a risk looms on the horizon: a possible recession in the US economy threatens to put water on beer for those with money in the stock market.

Before yesterday’s close at 113,512 points Ibovespa is already up 18.1% from its lowest close of the year on July 14. Despite this, investors say the Brazilian stock market is still cheap.

This rally is not the merit of Ibovespa, as its results followed the unexpected rise in US stock indices over the past four weeks.

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Without a reform agenda, Ibovespa is dependent on what happens in the US. A photo: Amanda Perobelli/Reuters

For example, the S&P 500 rose over 11% in the last 30 days to yesterday. The Nasdaq Index, which is made up of tech stocks, is up nearly 15% over the same period.

What fueled the recovery in US stock markets was market expectations that Federal Reserve System (FRS) may slow down the pace of tightening at its next monetary policy meeting in September, in addition to not meeting all of the interest rate hikes already targeted for 2022 and 2023.

In Brazil, most analysts already take it for granted that Central Banko will not raise the rate again Selic after the last increase of 0.50 percentage points to 13.75% at the beginning of the month.

With the latest US inflation data coming in much lower than expected, investors have also upped their bets that the Fed will cut rates sooner than expected a few weeks ago.

As a result, interest rates on futures contracts fell sharply abroad and here, prompting investors to migrate back to the stock exchanges. In Brazil, the rate on the January 2027 DI contract, the benchmark for the long end of the yield curve, fell nearly 2 percentage points in less than a month.

For now, expectations about the next steps taken by central banks outweigh the risks ahead for stock exchanges. But if indicators of activity worsen and rekindle fears of a recession, the stock market will be vulnerable to a price correction.

On Monday, for example, stock indices started to trade lower after disappointing economic data from China and the US. And investors do not even react to what could happen to the Brazilian economy after the presidential election. Without a reform program, Ibovespa depends on what happens in the US.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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