Why Did Oil Prices Fall?
The pullback in oil prices was driven by expectations that the United States and Iran could reach a peace agreement, according to market data compiled by Mercado Hoje. The diplomatic move between Washington and Teheran brought optimism to the global supply outlook for the commodity, triggering a sharp sell-off throughout the week. Brent crude posted a steep weekly decline, settling at $97.44 after accumulating losses, with a negative return of -8.59% on the day of Mercado Hoje's market close. In another trading session reported by Reuters, Brent crude futures fell 2.1%, finishing at $104.32 a barrel after trading in the $104 range in late afternoon. This drop occurred despite ongoing Houthi attacks against Saudi Arabia that still threaten global supply, showing that financial markets weighed diplomatic negotiations more heavily.
How Does the Drop in Oil Affect Inflation and Interest Rates?
The commodity's decline eases global inflationary pressure and helps lower government bond yields, market analysts note. The relief in oil prices helped stabilize U.S. Treasury yields. The 10-year Treasury yield, which hit an intraday high of 5.2297%, pulled back to 5.1625% by the end of the session, nearing its previous close of 5.162%. In the domestic Brazilian market, this external relief contributed to a decline in future interest rates (DIs). The DI rate for January 2028 closed at 13.645%, down 2 basis points from the previous settlement of 13.667%. At the long end of the curve, the January 2035 DI fell 7 basis points to close at 13.98%, compared to 14.054% in the previous session. This decline in future interest rates occurred despite local inflationary pressures, such as the acceleration of September's IPCA-15 inflation index, which rose 0.7% across a broad range of sectors, exceeding expectations and narrowing the margin for interest rate cuts by the central bank.
What Was the Impact on New York Stock Exchanges?
New York stocks closed higher on Friday and posted weekly gains, buoyed by relief in Treasury yields and optimism around technology, according to exchange data. The sharper drop in oil prices calmed inflation fears and cleared the way for gains on Wall Street. The Dow Jones Industrial Average rose 0.93% on the day to close at 51,828.62 points, with a weekly gain of 0.28%. The S&P 500 advanced 0.51% to finish at 7,743.41 points, accumulating a 1.22% rise for the week. Meanwhile, the Nasdaq gained 0.48% to close at 27,068.72 points, up 2.06% for the week. The technology sector led the gains, driven by artificial intelligence: Microsoft rose 3.66% after announcing new capabilities for Copilot, and Akamai Technologies stood out after closing a long-term agreement with Anthropic. The banking sector also followed the positive trend, with JPMorgan Chase and Goldman Sachs posting gains of over 1% each.
Why Did the Ibovespa Fall Despite External Optimism?
The Ibovespa closed down 0.25% on Friday at 183,476.86 points, pressured directly by declines in Petrobras shares, according to B3 data. The drop in Brent crude on international markets drew capital away from major commodity exporters on the Brazilian exchange, triggering profit-taking in stocks such as Petrobras (PETR3, PETR4). For the week, the benchmark index accumulated a 0.95% decline, with a financial trading volume of R$ 23.99 billion on Friday. The Ibovespa hit an intraday low of 182,151.01 points during the session, but improving external conditions and a positive bias on Wall Street helped pull the index away from its lows to reach an intraday high of 184,214.48 points. Beyond the commodity factor, the domestic market reacted to a Datafolha poll showing a tight race between Luiz Inácio Lula da Silva and Flávio Bolsonaro in the presidential campaign, as well as the higher-than-expected IPCA-15 reading. On the upside, shares of Azzas (AZZA3) jumped 13% to lead the Ibovespa's gains, driven by reports that the sale of Farm Rio is nearing completion.
What Should Investors Watch Moving Forward?
Individual investors should monitor geopolitical developments in the Middle East and the trajectory of domestic inflation, which continue to dictate asset directions. The possibility of a peace agreement between the United States and Iran could establish a lower baseline for Brent crude, favoring global inflation control and opening room for long-term interest rate declines in both the United States and Brazil. However, for those investing in Brazilian equities, this scenario calls for extra caution regarding commodity-linked companies, which lose revenue potential when oil prices drop. Investors also need to keep a close eye on the Brazilian central bank's monetary policy, as the 0.7% IPCA-15 inflation reading shows that price pressures remain widespread, which could limit further cuts to the Selic rate and keep future interest rates elevated for longer.
