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Restraints return in Shenzhen city after Covid-19 outbreak knocks commodities down and dredges Brazilian shares

EPITACIO PERSON/STATE CONTENTDollar advances as investors await interest rate decision in Brazil and the US

The main indicators of financial market closed in the negative field this Monday, 14, dredged by the fall in commodities with the announcement of a lockdown in the Chinese city of Shenzhen after a new outbreak of Covid-19. Investors are also waiting for the interest rate hike in the United States for the first time in four years, and the acceleration of the Selic rate by the Central Bank (BC). The two decisions will be announced on Wednesday, 16th. dollar ended with an increase of 1.3%, at R$ 5,120. The exchange rate reached the maximum of R$ 5.139, while the minimum did not exceed R$ 5.038. O Ibovespa, a benchmark on the Brazilian Stock Exchange, closed down 1.6% at 109,927. This was the worst level in the trading session since January 24, when it dropped to 107,937 points. The drop was driven by commodity stocks, mainly Vale, CSN and PetroRio.

The Beijing government announced on Monday the immediate lockdown of the city of Shenzhen, an important technology hub that concentrates more than 17 million inhabitants. The measure was enacted after the discovery of cases of new coronavirus. With the worsening of the pandemic, China began to adopt the policy of “zero tolerance” with the emergence of outbreaks of Covid-19. The measure impacted the drop in the barrel of oil and iron ore with the fear of a slowdown in the second largest economy in the world. Still on the international agenda, the Federal Reserve (Fed), the US monetary authority, is expected to announce the first interest rate hike since 2018, this Wednesday. The rate is between 0% and 0.25% and analysts are divided on the expectation of a rise between 0.25 and 0.50 percentage point. The rise comes amid soaring US consumer inflation to the highest level in 40 years.

In the local scenario, the Monetary Policy Committee (Copom) will also announce interest rate changes on Wednesday. The market estimates an increase of 1.25 percentage points, which would take the Selic to 12% per year, the highest level since 2017. On several occasions, the BC made it clear that it will promote monetary tightening to the extent necessary to anchor expectations in 2022 and 2023 — period considered to have a relevant horizon. Recent inflationary pressure with the conflict in Ukraine has led analysts to increase expectations of the upward trajectory and final level of interest rates to close to 14% per year. Also in the domestic news, the federal government is studying raising the Auxílio Brasil to contain the effects of fuel. THE Young pan, assistants to the Ministry of Economy stated that the measure is seen as an alternative that is less harmful to the Executive’s accounts and more effective from a social point of view than proposals for subsidy or price freezes. The move, however, would only be possible with the declaration of a new state of calamity by Congress.

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