Weeks of anxiety about what the government was doing with spending
Ibovespa fell 4.8% in September despite closing up 1.09% on the final day, marking the worst month since March due to persistent fiscal uncertainty. Government fiscal proposals remain contentious: the Renda Cidadã program faces criticism over its funding mechanism using court-ordered payments, while a proposed transaction tax draws opposition.
- Ibovespa fell 4.8% in September, worst month since March, despite closing up 1.09% on Sept. 30
- Brazil's unemployment reached 13.8% in May-July 2020, highest since 2012
- Dollar strengthened 2.46% against the real in September
- Government proposed Renda Cidadã program would delay roughly 1 million court-ordered payments annually
- U.S. private sector added 749,000 jobs in September, beating consensus forecast
Brazil's Ibovespa stock index closed higher on Sept 30 but posted its worst month since March with a 4.8% decline, driven by fiscal policy concerns following the government's abandonment of the Renda Brasil program. The dollar strengthened 2.46% against the real in September.
The Ibovespa closed Wednesday, September 30th, in positive territory—up 1.09% to 94,603 points—but the daily gain could not mask the month's broader damage. September had been brutal for Brazil's main stock index, which fell 4.8%, its worst performance since March. The culprit was a persistent anxiety about government spending and fiscal discipline that had shadowed markets since mid-month, when President Jair Bolsonaro shelved the Renda Brasil proposal. Over the full quarter, the index had barely moved, declining just 0.48%.
The fiscal uncertainty that weighed on Brazilian markets stood in contrast to the mood abroad. American stock exchanges finished the day higher, buoyed by remarks from Treasury Secretary Steven Mnuchin, who signaled that Congress would give serious consideration to a trillion-dollar stimulus package aimed at cushioning the economic blow from the pandemic. His assurance of a "reasonable compromise" helped push back the gloom that had settled over markets following a heated presidential debate between Donald Trump and Joe Biden. The two candidates had clashed sharply—Biden called Trump a "clown" and told him to shut up, while Trump repeatedly interrupted and again raised unfounded concerns about mail-in voting fraud. The acrimony raised fears that the election result itself might be contested.
Back in Brazil, the government was scrambling to manage the fallout from its failed social spending initiative. Economy Minister Paulo Guedes held a press conference to insist that his team had never proposed breaking the constitutional spending ceiling or financing programs improperly. Instead, he said, officials were studying how to consolidate 27 existing welfare programs into a single, more robust income-transfer scheme—a way to cushion the blow when emergency pandemic aid expired at year's end. The proposed Renda Cidadã program had drawn fire because it relied on redirecting court-ordered payments (precatórios) to fund it, a mechanism that could delay roughly one million judicial settlements annually. Some government figures were reportedly considering changing the funding sources, though Senator Márcio Bittar, the bill's rapporteur, insisted the proposal would be presented without alterations. The debate reflected deeper tensions: Chamber President Rodrigo Maia publicly questioned why Guedes had blocked discussion of a broader tax reform, particularly a proposed transaction tax modeled on an old financial levy that had drawn fierce opposition.
The dollar, meanwhile, had strengthened against the real over the month, gaining 2.46%, though it retreated slightly on the final day, closing at 5.615 reais on the buy side. Interest-rate futures across the curve declined, with the January 2022 contract falling nine basis points to 3.03%, suggesting market expectations for lower borrowing costs ahead.
On the employment front, Brazil's jobless rate had reached 13.8% in the May-to-July period, according to the continuous household survey released by the national statistics bureau—the highest level since the series began in 2012. The figure slightly exceeded economists' median forecast of 13.7%. In the United States, by contrast, the private sector added 749,000 jobs in September, according to the ADP employment report, beating the consensus expectation of 649,000. The American economy's second-quarter GDP had contracted at an annualized rate of 31.4%, slightly better than the median forecast of a 31.7% decline. China's manufacturing activity, measured by the purchasing managers' index, came in at 51.5 points in September, above expectations and up from 51.0 in August—readings above 50 signal expansion.
On the corporate front, several stories competed for attention. The Chamber of Deputies had approved a provisional measure releasing 20 billion reais in credit from the BNDES development bank to small and medium-sized enterprises, with the measure now headed to the Senate for a vote required by October 1st. The funds would flow through the Investment Guarantee Fund to companies with 2019 revenues between 360,000 reais and 300 million reais. In the sanitation sector, seven consortiums and companies had submitted bids for a water and sewage concession covering thirteen municipalities in Alagoas state, home to 1.5 million people—the auction was scheduled for Wednesday at the B3 exchange in São Paulo, marking the first major project under the newly reformed sanitation law. Among individual stocks, steelmaker CSN rose 16.5%, while pulp producer Suzano fell 3.2%. Drugstore chain Raia Drogasil announced plans to open 240 stores annually through 2022, while Lojas Americanas increased a bond offering to 500 million dollars and Camil announced a 350-million-real debenture issuance.
The market's attention remained fixed on the government's next moves on fiscal and tax policy, on whether American stimulus negotiations would succeed, and on the deepening employment crisis at home. In New York, Biden had threatened Brazil with "significant economic consequences" if it failed to protect the Amazon, offering 20 billion dollars in international support for ending deforestation—a warning that underscored how environmental stewardship had become entangled with trade and investment flows. The coming weeks would test whether Brasília could chart a course that satisfied both its creditors and its citizens.
Notable Quotes
His team was studying how to consolidate 27 existing welfare programs into a single, more robust income-transfer scheme— Economy Minister Paulo Guedes, on the government's approach to social spending
Biden threatened Brazil with significant economic consequences if it failed to protect the Amazon, offering 20 billion dollars in international support for ending deforestation— Joe Biden, during the first 2020 U.S. presidential debate
The Hearth Conversation Another angle on the story
Why did the market close up on the day but still post its worst month since March?
Because the daily moves don't always tell you what's really happening. That final day's gain was relief—some good news from the U.S. Treasury, a bit of optimism—but it couldn't undo weeks of anxiety about what the government was doing with spending and fiscal rules.
What specifically spooked the market in September?
The government killed the Renda Brasil proposal mid-month, then tried to revive it as something called Renda Cidadã, but the way they wanted to fund it—by delaying court-ordered payments to people—made it look like they were bending the rules. That kind of thing erodes confidence.
Is this just about one program, or something deeper?
It's about whether the government respects its own constraints. Brazil has a constitutional spending ceiling. When officials start looking for creative ways around it, investors wonder what comes next. It signals a loss of discipline.
What does 13.8% unemployment mean in human terms?
It means roughly one in seven Brazilians who want to work can't find a job. That's the worst it's been in nearly a decade. The emergency pandemic aid was supposed to be temporary, but now the government is scrambling to figure out how to support people when that money runs out.
Why would Biden's threat about the Amazon matter to Brazilian markets?
Because if the U.S. and other countries make trade or investment conditional on environmental protection, that's real economic leverage. Twenty billion dollars is significant. It's not just politics anymore—it's a potential cost of doing business.
What's the one thing the market is watching most closely right now?
Whether the government can actually pass a coherent fiscal and tax reform without breaking its own rules. Everything else—the unemployment, the stimulus abroad, the corporate deals—flows from that.