Tax Reform and Copom Attack Propel Stock Market to New Heights, Sending Dollar Tumbling

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On Wednesday, November 7th, the Brazilian Stock Exchange, known as the Bolsa de Valores, experienced a significant surge as the dollar fell due to tax reform and Copom’s recent actions. This resulted in the market reaching a record high and investors turning their attention once again to domestic economic conditions.

The Ibovespa, which is the primary indicator of the performance of Brazilian stocks, concluded the day with a growth of 0.69%, surpassing the 119,000-point mark, reaching 119,249.35 points. It was a notable achievement, considering that the previous day had ended with a 0.23% increase, reaching 118,400,000 points.

The most significant event of the day was the approval of Senator Eduardo Braga’s amendment to the tax reform bill by the Senate Constitution and Justice Committee (CCJ). This Proposal to Amend the Constitution (PEC) No. 45/2019 received the support of twenty committee members, while only six voted against it. President of the Committee, Davi Alcolumbre, abstained from casting a vote as a protocol. The manuscript was submitted on October 25, giving the commission members a two-week period for review.

As part of the effort to reform the economy, President Luiz Ine1cio Lula da Silva had a meeting with Senate and cabinet leaders on the night of November 6th to discuss the details of the vote. The government has prioritized economic reforms for the year, and this PEC had already been approved in two rounds by the Chamber of Deputies in the first half of the year. The next step is for the document to be voted on in the full Senado on Thursday, November 8th.

Another significant factor shaping the market was the release of the minutes from the most recent meeting of the Comitea de Poltica Monetaria (Copom) of the Banco Central (BC) that had taken place the previous week. The Governing Council had decided to cut the basic interest rate (Selic) by 0.5 percentage points, bringing it down to 12.25% per year.

According to the Copom’s latest ATA, monetary authorities are expressing concerns about the government’s ability to meet its fiscal targets. The Committee believes that a reduction in efforts towards structural reform and fiscal discipline, an increase in targeted credit, and uncertainty surrounding the stabilization of public debt could potentially raise the economy’s neutral interest rate. This would have negative effects on the effectiveness of monetary policy and, consequently, on the economy.

The positive performance of retail-related stocks played a significant role in driving the early gains of the Ibovespa on Wednesday. One notable stock was Magazine Luiza, which experienced the biggest gain of the day, with a growth of almost 23%, mirroring the gains observed in the previous week.

The drop in the value of the real currency can be attributed in part to positive news regarding interest rates. The Copom’s reduction of the Selic rate and the decision to keep interest rates in the United States unchanged contributed to this effect. Although the interest rate in the United States is currently at its highest level in 22 years, it remained unchanged for the second consecutive meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve (Fed).

At the end of the trading day, the dollar was trading at a lower value than it had been throughout the day on the Bolsa. The US dollar experienced a 0.25% decrease against the Brazilian real, with an exchange rate of R$ 4.875. Overnight, the dollar dropped by 0.16%, reaching R$ 4.887, its lowest level in over a month.

As a result, the Brazilian currency has lost 3.29% in value this month and 7.64% this year. This has significant implications for the Brazilian economy and further bolsters the positive performance of the stock market.

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