Copom decides on Selic after Lula's re-election in a week of stock market crash and interest rate hike

The first week after Lula's (PT) reelection saw strong pressure on Brazilian markets. According to InfoMoney, the stock exchange recorded its worst weekly drop since March 2020, after five trading sessions. In the same period, the dollar rose and future interest rates soared. Now, the focus turns to the Copom, which decides the Selic this Wednesday (4).

The decision gains weight because it involves a hypothesis that until recently seemed distant. According to InfoMoney, the Selic cut cycle could end at 13.75% per year, a level that, according to the same report, seemed far away until the eve of the second round.

What is at stake, therefore, is whether the Copom will confirm this reading or whether the interest rate scenario still leaves room for new movements. The outcome will also tell how the Central Bank responds to a scenario of rising future interest rates immediately after the election.

The reaction of assets reinforces this reading. The fall in the stock market, the rise in the dollar and the rise in future interest rates occurred together, which indicates that the movement was not restricted to a single market. For readers who follow fiscal issues, the episode shows how the interest curve reacts when the electoral result enters the price.

What changes for the investor

For those who invest and operate, this Wednesday's decision serves as a reference for the Selic, the dollar and the stock market at the same time. If the Copom signals that the cutting cycle ends at 13.75% per year, the future interest rate curve is the first channel to observe, and the exchange rate and the stock market can follow this movement. If the signal is different, the market will have to review its bets on interest rates, which also affects the prices of rate-sensitive assets. It is worth following the Copom statement carefully.

Automatically translated from Portuguese.