Ibovespa retreats with October inflation and PEC of Precatório on the radar; dollar falls

The Brazilian market began on Wednesday (10) digesting higher-than-expected inflation in October and the approval of the PEC dos Precatórios in the Chamber of Deputies the day before.

Around 10:45 am, the Ibovespa registered a drop of 0.25%, to 105,270 points. The spot dollar fell 0.45%, quoted at R$ 5.455.

Inflation

Brazil’s official inflation accumulated in 12 months entered the fourth quarter at the highest level of the year, after prices reached a maximum for one month of October in 19 years, pressured by fuel.

In October, the Extended National Consumer Price Index (IPCA) rose 1.25%, after rising 1.16% in the previous month, reaching the highest change for the month since 2002 (1.31%).

The rate accumulated in 12 months thus increased to 10.67%, from 10.25% in September, the strongest result since January 2016 (+10.71%).

The results released this Wednesday by the Brazilian Institute of Geography and Statistics (IBGE) were above expectations in a Reuters survey and an increase of 1.05% on a monthly basis and 10.45% in 12 months.

PEC of Precatório

On Tuesday, the São Paulo stock exchange rose with the expectation of approval of the matter that makes room in the budget for Brazil Aid, and the dollar closed at the lowest rate in three weeks, at R$ 5.49.

There were 323 votes against 172, a larger margin than the first round. Now, the bill is going to be considered by the Federal Senate, where it should have more resistance. The strong support in the votes of the highlights of the PEC dos Precatórios and the decision not to paralyze the progress of the PEC, by Rosa Weber, helped to boost the actions.

The market sees the advance of the PEC with good eyes for two main reasons: the first is that the damage caused by the hole in the ceiling with the PEC was already “in the price”, so the approval only confirms an already negative scenario for the public accounts.

Secondly, the PEC is the well-known path, so it brings some relief because it reduces uncertainties and removes the risk of solutions to support Auxílio Brasil that would make the bills even worse. As an analyst summarizes, the advance of the PEC, in a way, turns this page.