After the turmoil at the start of the government, Ibovespa recovers and the dollar retreats with the “reorganization”: is the movement continuing?

Ibovespa closed this Friday down 1.23% (6), at 108,964 points. With the help of today’s trading session, the sharp declines that the main index of the Brazilian Stock Exchange recorded in the first two trading sessions of the year – and also by the government of PT Luiz Inácio Lula da Silva – were practically erased, but the benchmark however, it closed the week down by 0.70%.

In large part, the recovery took place after the new president signaled that he wanted to “put the house in order”. In a meeting with his ministers held today, Lula said that the government “doesn’t have only one head” and that it will try to reach common points.

“Ibovespa started the week in a lot of pain, after the statements of the ministers and the future president of Petrobras PETR4 were badly received by investors”, opens Ubirajara Silva, manager of Galapagos Capital. «Today, however, was the ministerial meeting of Lula. The impression that remains is that, given the first market impressions, the government has seen fit to calibrate the lines”.

If at the beginning of the week Carlos Lupi, Minister of Social Security, hinted at a revision of the Social Security Reform, Rui Costa, Minister of the Civil House, publicly declared that the government is not working on this front. In the case of Petrobras (PETR3; PETR4), it was the “possible future president”, Jean Paul Prates, who put a stop to his talk and said that there will be no interference in pricing policy.

“The market is volatile. The initial lines were crooked, but they lost strength. Today’s ministerial meeting brought the idea that they are still working and that it is too early for statements”, adds Silva.

Along the same lines Fabiano Vaz, partner and analyst at Nord Research: “Today everyone was attentive to what the ministerial meeting would be like. We’ve had members make signals and comments that the market doesn’t like. Putting on the agenda some setbacks in the economic part. This helped us to have strong declines at the beginning of the week,” he says. “Now we have had the recovery of assets, mainly those related to the domestic economy, not really for super positive speeches, but for the attempt to control the team”.

Still on the political side, there were other factors that helped improve market sentiment under the new government. Planning Minister Simone Tebet said he will try to meet social needs, but with fiscal responsibility.

Because of all of that, the week was volatile.

The dollar closed down 2.16% on Friday, at R$5.235 for purchases and R$5.236 for sales, down 0.83% for the week. On Wednesday, however, the North American currency was trading at R$ 5.4521 at the close.

The same thing happened with the yield curve. IDs for 2027, for example, traded 13.40% on Wednesday to close 12.79% today, down 28.5 basis points. The DIs of 2024 close at 13.59%, with minus 10.5 points, and those of 2025, at 12.85%, with minus 28.5 points. DIs for 2029 and 2031 both fell 26 points, to 12.84% and 12.83%, respectively.

Finally, in addition to the changes in the political discourse, Ibovespa and other Brazilian assets also benefited from the optimism of the external scenario.

The United States also helped Ibovespa

This Friday, in New York, the Dow Jones, the S&P 500 and the Nasdaq rose respectively by 2.13%, 2.28% and 2.56%, after the release of macroeconomic data referring to the North American economy.

Although the payroll employment report led to 223,000 job creation in December, above the consensus of 200,000, there was less upward pressure on wages. Additionally, the US Services PMI for December came in at 49.6, versus a consensus of 55, and Manufacturing Orders for November fell 1.8%, versus an expected decline of 0.8%.

“Payroll arrived hot, but compared to previous data, you can understand that US economic activity is cooling off,” said Ariane Benedito, an economist specializing in capital markets. “There is hope from investors that the US economy will be able to weather the inflationary scenario without significant impacts on the labor market, after the report indicates a cooling in wage pressures,” adds Mariane Vas, analyst at Gorila Invest.

For some investors, the issue of overseas inflation continues to be one of the main drivers of the year – and there will be major overseas publications on this front next week.

“The theme for 2023 abroad follows, for the moment, the same dynamics as at the end of 2022. It is necessary to understand whether inflation will reduce and whether the impacts of the sudden rise in interest rates and to high levels promoted by central policies will banks will be enough to curb inflation and if they cause recessions”, underlines Fernando Donnay, partner and portfolio manager of G5 Partners.

Investors remain cautious despite the hike

Despite the recovery of Ibovespa, some houses prefer to remain cautious regarding investments in Brazilian assets.

In a report released today, Morgan Stanley’s analyst team, for example, says it is “remaining on the defensive” when it comes to recommending allocations to Brazilian equities.

“Strong fiscal impulses and a lack of clarity on the new rule on this front could lead to interest rates staying higher for even longer,” said the team, led by Andre Lopes. “The new government’s moves so far point to a fiscal deterioration of more than two percentage points of GDP.”

Ibiuna, in a letter released to shareholders, also said that it prefers to remain cautious and with low involvement in Brazilian assets.

“New government, old ideas. Everything we have seen in the economic area during the transition period suggests a guideline similar to the one implemented by the PT government in the period 2011-2015 with widely known results”, argues the manager, who has in her team former directors of the Bank Central. “It’s hard to see how this agenda will boost the productivity of the economy and translate into more sustained growth.”

Related