05/22/2024 – 17:56
The cautious minutes of the Federal Reserve (Fed, the North American central bank), released in the afternoon of this Wednesday, 22nd, contributed to making the taste of risky assets, such as shares on B3, which no longer it was favored earlier by poorly received comments made by the Minister of Finance, Fernando Haddad, regarding the appropriate level of inflation target that should be pursued in Brazil. Thus, the Ibovespa went negative for the month (-0.22%), retroacting this Wednesday to levels at the end of April, even with the partial recovery in Petrobras shares – which went positive this week, in ON as well as in PN.
To make matters worse, after the Fed’s minutes this afternoon, the CME platform indicated that the market once again believed in just one cut, and of just 25 basis points, in the United States’ benchmark interest rates this year.
With domestic and external risk aversion, the Ibovespa closed the day down 1.38%, at 125,650.03 points, the lowest closing level since April 25, then at 124.6 thousand points. At its lowest point, it touched 125,524.26, opening at 127,411.55, corresponding to the session’s maximum. Financial turnover rose to R$25.9 billion this Wednesday.
“Market stressed today, way down after two weeks on the sidelines and, today, falling more sharply. There is an adjustment of expectations still underway, reversing that more optimistic impression regarding lower inflation in the United States, which then fueled estimates of interest cuts there”, says Felipe Moura, analyst at Finacap Investimentos. Ibovespa’s loss this Wednesday was the biggest for the index since April 10, then down 1.41%.
“The slowdown in inflation in the United States was a factor that, until recently, encouraged the market, with two interest cuts being priced by the American Central Bank later this year. The Fed’s minutes, released this afternoon, did not bring much news, reiterating notes that the directors have made in recent months: they will pursue the target of 2% per year and there will only be an interest rate cut when there is certainty regarding the convergence of prices to the target”, says Camila Abdelmalack, chief economist at Veedha Investimentos.
She notes that the reference to the possibility of increasing interest rates could even be seen as a pro forma duty of the monetary authority, and that the minutes, without relevant news, ended up being an instrument for correcting the “excessive optimism” of the market when they emerged the first signs of a slowdown in inflation in the largest economy in the world.
A similar reading is made by the chief economist at B.Side Investimentos, Helena Veronese. “It is not surprising that the Fed minutes had a harsher ‘hawkish’ tone, as this has already been the stance of several committee members in recent weeks. With the exception of the last CPI reading in April, which showed the first slowdown in inflation since the beginning of 2024, the data still points to a heated labor market, albeit in a more moderate way, and pressured inflation. So it makes sense that this is the stance” of the Fed, she says.
“There is uncertainty regarding the persistence of inflation even among Fed leaders, and the data did not increase their confidence in a sustainable way”, observes Paloma Lopes, economist at Valor Investimentos. Thus, with the even temporary worsening of stock indexes in New York while the minutes were released, the tone used by the Fed led the Ibovespa, which was already falling around 1% earlier, to accentuate lows in the middle of the afternoon, reaching the lowest intraday level since April 26. At the close, Dow Jones showed -0.51%, S&P 500, -0.27%, and Nasdaq, -0.18%.
“I don’t see the possibility of a significant improvement for the Brazilian Stock Exchange in the short term. In the minutes, the Fed gives signs that inflation is not on the path that leaders expected, and that it will take longer than expected for convergence, which affects the outlook for US interest rates”, says Gustavo Harada, head of the variable income desk at Blackbird Investimentos, adding that, in the absence of catalysts that reverse sentiment, Ibovespa may seek the next support line, at 124.5 thousand points.
The Federal Reserve minutes showed that several directors of the American Central Bank mentioned their willingness to further tighten monetary policy, if the risks to inflation materialize in such a way that such action becomes appropriate. According to meeting minutes, committee members agreed that it would not be appropriate to reduce the Fed Funds target until they gain greater confidence that inflation is moving sustainably toward the official target of 2% per year.
Fed officials expect inflation to remain high for longer in the United States than predicted at the March meeting. Even so, a slowdown to the 2% target is still the most likely scenario in the medium term, according to the minutes of the Fed’s most recent monetary policy meeting, held on April 30 and May 1, in which the central bank American kept interest rates unchanged.
Harada, from Blackbird, observes that the development related to the Fed comes at an already delicate moment for the Brazilian Stock Exchange, also in relation to the flow, and in which the domestic scenario is affected by conditions that are still difficult to assess, such as the effect of the calamity in Rio Grande do Sul on GDP and public accounts. In this context, the question made this Wednesday about the appropriate level for the official inflation target, made by Minister Haddad, explains part of the market’s bad mood, even before the Fed minutes.
“If we want the 3% target, which is a bold target for Brazil’s history, no one denies it. But if we want to pursue this goal, we have to open the debate a little and think a little about the institutional issue and verify rules of sustainable linkage over time in light of the inheritance we received”, explained Haddad in a public hearing this afternoon in a committee of the Chamber of Deputies.
The minister stated that if the country has difficulty meeting a lower inflation target because it is more “insensitive” to interest rates, it is necessary to think about institutional conditions. “Why is it (inflation) resistant? It has an institutional dimension, and one of the issues is the fiscal framework”, said the minister in reference to budget links, such as health, education and social security benefits to the minimum wage.
Haddad defended that a better rule be found to resolve the debate on linkages and that can be respected and sustainable over time. He also said that the government will seek balance and put order in public accounts, and repeated that Brazil’s fiscal reality is better than it seems, with “nothing unanchored” – just, perhaps, due to communication failures, journalists report from Brasília Fernanda Trisotto and Giordanna Neves, from BroadcastGrupo Estado’s real-time news system.
With so much caution in the environment, the specific improvement observed in Petrobras (ON +0.94%, PN +1.36%) in the session, which rose by 0.52% and 1.34%, respectively, in the week, was insufficient for Ibovespa, on a very negative day for other heavyweights in the index, such as Vale (ON -0.79%), Itaú (PN -1.55%) and Bradesco (ON -2.00%, PN -2, 24%, both at the day’s lows at closing).
At the winning end of the Ibovespa, “Soma (+1.34%) and Arezzo (also +1.34%) stood out among the risers, in the wake of the companies’ final merger process”, says Dierson Richetti, partner at GT Capital . “At the next meeting, the new name of the company will be voted on, which should be Azzas 2154. With the merger, it will have revenues of close to R$12 billion and more than 2 thousand stores, which encourages the market”, he adds. Also noteworthy this Wednesday are the advances of Telefônica Brasil (+1.79%) and TIM (+1.57%), ahead of Petrobras PN.
On the opposite side of the Ibovespa, the expert points out, a negative highlight for Minerva (-8.65%), after the Coprodec body, in Uruguay, blocked the three units that Marfrig would sell to the company, and also to Rede d’ Or (-6.03%), due to the sale of part of the shares held by Carlyle, in an operation corresponding to 1.6% of the company. Also on the losing end of the Ibovespa, names like LWSA (-7.19%), Lojas Renner (-7.09%) and Eztec (-6.75%).
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