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 Temporary relief? Understand why Powell's speeches improved market sentiment

Rising American interest rates have been, in recent months, the main detractor of the real Ibovespa and DIs

The main monetary authority of the United States, the president of the Federal Reserve Jerome Powell, was responsible for providing relief for the Brazilian Stock Exchange, for the dollar and for interest rates this Wednesday (3). After speeches considered “less harsh” during an event at the Stanford Graduate School of Business, the market reacted positively both abroad and in Brazil.

Alexandre Mathias, chief strategist at Monte Bravo, mentions that Powell signaled that the Fed continues to see that the inflation trajectory is downward and that the monetary policy adopted is working – despite having also said that the institution needs a little more time to confirm that the interest rate cut cycle can begin.

“The idea is reiterated a little that the horizon has cuts of around 75 points this year. This brought a certain tranquility to the market and the drop in interest rates in the United States pulled down domestic fixed income”, he explains.

Powelll's speeches

The Fed president also signaled that he sees that there is a recovery on the supply side, which can benefit from the increase in productivity resulting from the advancement of intelligence. “The labor market has made substantial progress towards a better balance,” he said.

Recently, interest rates in the United States, due to the rise in oil prices and data showing a more heated economy, have been rising, pulling the Brazilian curve along and bringing down local risk assets. Other than that, it is also identified as one of the main factors for the outflow of foreign capital from B3 – and other emerging exchanges – as investors, with higher rates in the US, seek American fixed income, considered safer.

“Interest rates were rising in the morning, but lost strength after Powell’s speeches. The yield curve here followed the movement abroad”, adds Leandro Petrokas, Research director and partner at Quantzed.

Campos Neto and the dollar

Today the day started with some caution, with investors awaiting the American leader's speeches and also the comments from the president of the Brazilian Central Bank Roberto Campos Neto, who participated in a Bradesco BBI event.

Campos Neto, for experts, did not bring statements that affected the market.

For Beto Saadia, from Nomos, for example, the president of the Brazilian BC was “polite and bureaucratic”, but brought up important points. The first of them was in relation to forward guidance, which is the signaling of subsequent meetings that the Central Bank makes in the statement.

“He was very emphatic in saying that he will remove this sign, not only because of the increase in uncertainty regarding the economies and service inflation, especially in the United States and Brazil”, says the expert.

The second was about his succession as president of the BC. “He (Campos Neto) thinks that the name has to be announced officially, or at least unofficially, as soon as possible, so that this transition is more fluid. It is to prevent an interim director from having to go through a hearing and then the new president to go through another hearing”, he explains.

“Campos Neto, president of the Central Bank, emphasized the relevance of inflation in the US and the Fed's decision in June for monetary policy in Brazil. He highlighted the importance of the CPI (American consumer price index) and discussed the possible impacts on emerging countries, such as Brazil, if the Fed does not reduce its basic interest rate”, explains Jonas Carvalho, CEO of Hike Capital.

A milder Powell, then, helps explain the movement of the dollar, which is falling, and Brazilian interest rates, less stressed, and the Stock Exchange this Wednesday. Even though the Ibovespa closed with a slight drop, of 0.18%, at 127.3 thousand points, it was far from the day's lows, at 126.1 thousand points. In other words, the damage would have been great, with a ‘hawkish’ Powell.