Tax Reform and Copom Attack Spark Soaring Stock Market, Sending the Dollar Tumbling


The Brazilian stock market experienced a significant surge on Wednesday, November 7th, with the primary indicator, the Brazilian Stock Exchange (Bolsa de Valores), reaching a record high. This upward trend was driven by investors once again directing their attention towards domestic economic conditions. The market closed at an impressive 0.69% increase, surpassing the 119,000-point mark, specifically at 119,249.35 points. The previous day’s performance also contributed to this positive momentum with a 0.23% increase, reaching 118.4 million points on the Ibovespa index.

Among the noteworthy events of the day, the Senate Constitution and Justice Committee (CCJ) approved Senator Eduardo Braga’s amendment to the tax reform bill. This Proposal to Amend the Constitution (PEC) No. 45/2019 received the support of twenty committee members, while six voted against it. The commission members had two weeks to review the manuscript after its submission on October 25. On Tuesday night (6/11), President Luiz In’e1cio Lula da Silva (PT) met with Senate and cabinet leaders to discuss the details of the impending vote. The government has emphasized the importance of reforming the economy as one of its top priorities for this year. The PEC, already approved in two rounds by the Chamber of Deputies in the first semester, will now move on to a vote in the full Senate on Thursday (8/11).

Meanwhile, the release of the Comit’ea de Poltica Monet’ea (Copom)’s minutes from their most recent meeting at the Banco Central (BC) the week prior caused a stir among investors on Wednesday. The minutes revealed that the Governing Council had reduced the basic interest rate (Selic) by 0.5 percentage points, bringing it down to 12.25% per year. According to the Copom’s latest report, they expressed concerns regarding the government’s ability to meet their fiscal targets. They further highlighted that a reduction in structural reform and fiscal discipline, an increase in targeted credit, and the uncertainty surrounding public debt stabilization could potentially raise the economy’s neutral interest rate. Such a scenario would have adverse effects on the effectiveness of monetary policy and, consequently, the overall economy.

The positive performance of retail-related stocks was the driving force behind the Ibovespa’s early gains on Wednesday. Notably, Magazine Luiza had the largest gain of the day, soaring by almost 23%, mirroring the upward trend seen in the previous week. Furthermore, the devaluation of the Brazilian real can be partially attributed to favorable news regarding interest rates, such as the Copom’s reduction of the Selic and the United States Federal Reserve’s decision to maintain interest rates at their previous level. Though the 22-year high in American interest rates remained unchanged during the second consecutive meeting of the Federal Open Market Committee (FOMC), it had a noticeable impact on the value of the real, causing its depreciation.

By the end of trading, the US dollar had fallen lower on the Bolsa than it had been throughout the day. It experienced a 0.25% decrease against the Brazilian real, resulting in a trading rate of R$ 4.875. Overnight, the dollar dropped an additional 0.16%, reaching a trading rate of R$ 4.887, marking its lowest level in over a month. Subsequently, the Brazilian currency has depreciated by 3.29% this month and 7.64% throughout the year.

Overall, the Brazilian stock market witnessed a substantial surge on November 7th, buoyed by positive economic developments and market confidence. The approval of the tax reform bill amendment, the release of the Copom’s minutes, along with the positive performance of retail-related stocks, all contributed to this favorable outcome. Additionally, the devaluation of the US dollar served as an added boost for the Brazilian economy. As the year progresses, the future performance of the Brazilian stock market will continue to be influenced by local economic conditions and global market trends.