Ibovespa, Petrobras (PETR4), change: which explains the moderate reaction after the acts in the DF, despite the risks on the radar

The attacks by coup plotters in Brasilia the day before (8), with the looting of the buildings of the Federal Supreme Court (STF), the National Congress and the Planalto Palace, raised fears of new riots and an institutional crisis. This initially triggered the alert in market operators of a hitherto dormant risk, regarding the acceptance of the electoral results.

Initial analyzes were of a negative impact on the Brazilian market, which in fact happened, with February 2023 Ibovespa futures opening more than 1% and the trade dollar up about 1%, in addition to the advancement of future interests . Although they were negative, not even the most negative moments of the day showed a scenario of severe stress for the market.

Furthermore, it was estimated that the impact would be short-term on the market, between considerations on the circumstances of the acts and institutional responses.

“As the day-to-day work of government resumes, attention should return to the macro issues that are gaining prominence and, slowly but surely, the micro-regulatory changes that are starting to gain more space in government discussions,” JPMorgan noted. in a parse statement.

For the bank team, Sunday’s episodes are not a January 6, 2021, when there was an attack on the Capitol by Donald Trump supporters. “Unlike what was seen in the US in 2021, there is no clear demand from ‘protesters’, called criminals and terrorists in various networks. We have a situation here where the president has already been sworn in, the cabinet has been appointed, and the government has been running for 8 days.”

The strategists also pointed out that there is a crucial difference that the buildings were practically empty at the time of the invasion, thus limiting the damage in terms of the number of injuries and loss of life. “It was more of a media event than anything else.”

Read also: Interests up, stocks down? The market is expecting a volatile trading session on Monday after the coup encroachments in Brasilia

Itaú BBA noted that he expected Brazilian asset prices to suffer given the increase in the institutional risk premium, “but over time the impact tends to diminish as the focus is likely to return to the policy debate. economic. We should expect equity markets to suffer, interest rates to rise and the real to depreciate, though not for long, as has happened in similar episodes in other countries,” they underline.

“Given that the situation appears to be under control in Brasilia, I expect any impact on the asset class to be short-lived,” said Alejo Czerwonko, chief technology officer for emerging markets Americas at UBS Global Wealth Management.

Carlos Eduardo Furlanetti, a professor at the FIA ​​Business School, predicts that a strong reaction from institutions, including the National Congress and the STF, in support of the president could also help the Lula government politically in the medium term. Bruno Komura, an analyst at asset manager Ouro Preto Investimentos, also stressed to expect an initial negative reaction from the markets, with interest rates rising and the exchange rate and stock market falling. But Komura expects markets to recover until the end of the week, also given a strong institutional reaction against the invaders.

As a result, even before the opening of the spot index, the future already showed a sharp deceleration of losses. The Ibovespa’s open was bearish, with the index hitting as low as 0.76% at its low point, which is still considered moderate, but the index mitigated even more losses in the first hour trading and started swinging between slight losses and gains. The Exchange benchmark then returned to lows, but far from extreme scenarios.

It should also be noted that the more positive international news helped Petrobras (PETR3;PETR4), with the rise in oil prices after the reopening of China: the Brent futures contract advanced in the morning and early afternoon by about 3 %, above US $80 a barrel. The company was in the spotlight after protests once, that, in addition to being a state-owned company, there were also threats of attacks on the company’s refineries. However, Petrobras stressed that it had taken the necessary measures and the Ministry of Mines and Energy said it had guaranteed the national fuel supply. At 00:20, PETR3 assets were up 0.56% to R$27.063, while PETR4 was down 0.25% to R$23.68.

Bright day for international markets as China reopens on the eve of earnings season and amid speculation that the Federal Reserve may slow the pace of interest rate hikes as inflation shows signs of moderating after data releases last Friday indicate cool wages in December.

The biggest impact during the full session was seen on the dollar, with a 1.22% increase in the commercial currency, at around R$ 5.29, and on the main interest futures contracts, which mainly affect domestic equities , such as retailers and manufacturers. The January 2024 rate contract (DIF24) was up 11 basis points to 13.71%, for 2025 it was up 18 points to 13.03%, for 2027 it was up 14 points to 12 93%, while that for 2029 rose 14 points, to 12.98%.

As a result, EzTec (EZTC3), Petz (PETZ3) and Soma (SOMA3) were among the index’s biggest movers during the session.

Attention points on the radar

Despite the relatively “quiet” reaction from assets into this Monday’s session, a few points of attention are on investors’ radar further ahead.

JPMorgan stresses that it is necessary to observe whether these protests will recur and, if so, their intensity. “Yesterday’s protests were concentrated in Brasilia and it is essential that they do not spread on a large scale to other states or cause a cascading effect, such as a truckers’ strike,” the strategists assess. Some roadblock movements were observed during the morning, but without generalized impacts.

José Raymundo Faria Junior, director of Wagner Investimentos, points out that, from a market perspective, yesterday’s events will generate short-term upheavals and the question that remains is how much they can damage the perception of investors, mainly foreign, with the country. This comes after foreign capital inflows broke a record in 2022, with an accumulated total of R$119.8 billion, the highest value since the data began in 2008.

Swiss bank Julius Baer points out that the latest equity flows continue to show that foreign investors remain more optimistic about the Brazilian market than locals, as foreigners increased their equity positions, while locals remained net sellers and reduced their exposure.

“Given the strong international media coverage of the riots, we expect foreign investors to reduce their optimism a bit,” he assesses.

On the other hand, while not excluding the possibility that new violent protests could weigh on the market in the short term, investors’ attention should continue on macroeconomic issues, in particular on the formation of the new fiscal framework for Brazil, foreseeable for the coming months. .

“We await further signs that the government is able to allay the market’s fiscal concerns, which could lead to Brazilian equities gaining positive momentum on the back of attractive valuations and dividends, improved earnings prospects from the reopening of China and a higher US dollar. “, he adds.

However, analysts also point out that the economic agenda could be delayed, taking a back seat to the political turmoil.

The BBA also believes that the day’s event could weaken the opposition, increasing political support for the federal government. However, it could make the federal government more reluctant to enact unpopular measures, such as raising fuel taxes, earlier in the year. “The government will probably turn to strengthening its institutional support, rather than economic policies,” he assesses.

This Monday morning it was announced that the Minister of Finance, Fernando Haddad, is on his way to Brasilia, but still had an undefined agenda for the day after the protests.

In a pessimistic tone, the Levante analysis team highlighted that a parallel was drawn between the impact on the markets and the turmoil of January 6, 2021, when thousands of protesters in Washington invaded the Capitol, the seat of the American legislative power. The impact on Wall Street that day was relatively small, which may indicate a tepid reaction here as well.

However, what had supported the resilience of the American markets in the session was not the political perception that the events in Washington would not matter, but rather, on that occasion, interest rates close to zero, the maintenance of an expansionist policy by the Federal Reserve (Fed) the American central bank, and also the prospect of improving corporate results in 2021, after the economy has passed the worst phase of the pandemic.

The situation is different in Brazil, underlines the analysis team, with the perception of high interest rates for a longer time and not the best expectations for the Brazilian economy.

Levante cites this Monday’s Focus report, which showed gross domestic product (GDP) growth expectation in 2023 decreased slightly, to 0.78%.

“In absolute and relative terms, the decline of just two basis points is not relevant. However, by any metric,
growth below 0.8% is a bad performance for the economy. And expected inflation is at 5.36%, slightly higher than projections one and four weeks ago. In any case, the forecasts exceed the ceiling of the inflation target, which is 4.75% (3.25% plus a tolerance of 1.5 percentage points more or less)”, he points out.

Therefore, he estimates that even if Sunday passed without news, the scenario for equities is negative due to high interest rates and the poor outlook for inflation and expected economic growth. “With an increase in political tension, which can have a negative effect on both governance and the conduct of economic policy, the scenario worsens even more,” he points out.

On the other hand, there are those who are more optimistic about assets. “We still think that as soon as the dust settles, especially in terms of macro/fiscal visibility, the global scenario (China reopening, US interest rate spike) should take center stage in determining the prices,” evaluates JPMorgan. For now, the scenario is one of volatility, with domestic uncertainty constraining assets for now, he reflects.

For political risk consultancy Eurasia, Sunday’s episode is unlikely to generate a short-term crisis or a sustained outbreak of unrest. House analysts also assess that the near-term repercussions are likely to produce more political support for Lula.

Nonetheless, the January 8 demonstration in Brasilia is a stark reminder that Lula will face a mobilized opposition with the potential to turn violent, a vulnerability that could later translate into governance challenges if it loses popular support in a context of greater economic hardship. “If the political rights of [Jair] Bolsonaro were removed in the future (higher probability after yesterday, even if still unlikely), the risk of social tensions would increase even more ”, he evaluates.

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