Ibovespa Surges Nearly 3% as U.S. Inflation Data Fuels Rate Cut Speculations

The Ibovespa index jumped over 3,000 points following U.S. inflation data that increased expectations for further interest rate cuts by the Federal Reserve.

On Wednesday, the Brazilian stock market closed with a 2.81% gain, reaching 122,650.20 points. This surge reflected broad investor enthusiasm, with only two stocks in the index closing lower.

The dollar also experienced a decline, finishing at R$ 6.0252, down 0.35%. Investors reacted to new economic data from Brazil, including a 0.9% drop in service sector volume for November compared to the previous month.

Analysts had anticipated a smaller decline of 0.3%, indicating weaker-than-expected economic activity. Rogério Ceron, the Secretary of the National Treasury, confirmed that government accounts remained within the tolerance range of the fiscal target for 2024.

The accounts are close to the midpoint of the goal. Meanwhile, President Luiz Inácio Lula da Silva met with Finance Minister Fernando Haddad to discuss upcoming regulations related to tax reform.

Ibovespa Surges Nearly 3% as U.S. Inflation Data Fuels Rate Cut Speculations. (Photo Internet reproduction)

Among the stocks traded, Gafisa (GFSA3) saw a remarkable increase of over 30% during the session. Hapvida (HAPV3) also gained attention with an increase exceeding 10%.

Marcopolo (POMO3) continued its upward trend following positive coverage from Citi, which initiated a buy recommendation for the company. Major banks benefited from increased risk appetite and ended the day among the most traded stocks.

Market Movements and Economic Indicators

This movement gained momentum from positive results in the U.S. banking sector, raising expectations for upcoming earnings reports. Vale (VALE3) and Petrobras (PETR4; PETR3) both recorded gains of over 1%, supported by strong commodity performance.

The most traded iron ore contract for May closed at 782.5 yuan (approximately $106.73) per ton on China’s Dalian Commodity Exchange, marking a daily increase of 0.71%. Earlier in the session, it reached its highest value since January 2.

On the downside, Marfrig (MRFG3) and Klabin (KLBN11) represented the only declines in Brazil’s main index as these companies faced pressure from international market exposure linked to currency fluctuations.

In the United States, Wall Street reacted positively to weaker-than-expected Consumer Price Index (CPI) data and strong earnings results from banks at the start of earnings season.

The CPI rose by 0.4% in December, closing out 2024 at an annual rate of 2.9%. The core CPI, which excludes volatile food and energy prices, fell to 0.2% last month and registered a year-over-year rate of 3.2%.

On January 14, the Producer Price Index (PPI) increased by 0.2% in December after a prior rise of 0.4% in November. Economists had projected a higher increase of 0.3%.

Over twelve months leading up to December, PPI accelerated to 3.3%, up from 3.0% in November. Following these weaker data points, market participants raised their bets on more aggressive monetary easing by the Federal Reserve throughout the year.

Traders now estimate a 30.5% chance that the Fed will lower interest rates to between 3.75% and 4% this year—a rise from previous estimates of 25.5%. Currently, rates stand between 4.25% and 4.50%.

For January, most predictions suggest that rates will remain unchanged during the Federal Open Market Committee (FOMC) meeting scheduled for January 28-29.