MY PLACE IS SURROUNDED WITH STRUGGLE AND SWEAT, HOPE FOR A BETTER WORLD
Outside of it, Asian markets traded in a directionless manner on Wednesday, with investors from several countries returning from the Lunar New Year holiday. The prevailing tone has been positive, even though there are fears of a global recession. Some regions have not yet returned and will only leave the holidays next week, such as China itself.
While stocks have enjoyed a strong start to the year as slowing inflation gives central banks room to moderate their interest rate hikes, the focus is now on the impact of last year’s rate hikes on the economy, offset by the reopening of China.
European markets and US futures struggled again this morning after US manufacturing and services activity numbers showed sectors contracting. In Brazil we are a bit distant from the global reality, even if we are attentive to the trajectories of the goods.
00:46 — At St. Paul’s 469th birthday party, the party is the work
Around here, in the midst of the anniversary of São Paulo (the market is functioning normally), investors are following some data abroad that could strengthen the euro against the dollar, in a movement that could be favorable for emerging markets, like Brazil.
We still see some caution with the political backdrop, especially regarding the moves by the economic team vis-à-vis the National Monetary Council (NCC), the Central Bank and the new fiscal framework.
Yesterday was the day to recover some of what we have lost in the recent volatility and perhaps today, with reduced liquidity, we can continue this move. We await the formalization of Jean Paul Prates for the command of Petrobras, whose name is expected to be approved by the board on Thursday. His first measures as president of the company should have a systemic nature, given the weight of the company on Ibovespa.
01:27 — More corporate results
In the US, the negative tone once again dominated investor sentiment, with the indices experiencing significant volatility, shaken by some earnings reports and economic data. More than 40% of the S&P 500 reported fourth-quarter results this week, across a broad range of sectors.
Yesterday’s highlights included 3M, which offered sobering insight into the economy and consumer spending, sending shares down 6%. General Electric showed progress in its recovery, while Johnson & Johnson warned about the economy but delivered a better-than-expected financial outlook.
Overall, the latest results have maintained the sentiment of a decidedly mixed season so far. Few companies are showing the strong earnings growth of 2022, and the outlook for 2023 isn’t as good. Today we will have a digest of Microsoft’s numbers, which rose by more than 4% in yesterday’s after-hours, but all back in sequence.
The company was the first tech giant to comment on its results, announcing the layoffs of more than 10,000 people. The company’s slower growth since 2016 precludes clearer optimism. Today we have Tesla, AT&T, Boeing and IBM. The market will certainly be watching.
02:29 — How is European inflation going?
In Europe, investors are focusing on December producer price inflation in the UK and Spain. The general expectation is that price pressures will continue to decelerate, as we have seen in recent months, giving the ECB room to reduce the aggressive tone in its monetary tightening. Producer prices represent the pricing power of firms; that is, they end up having more evident consequences on the consumer at a later time.
Meanwhile, in Germany, we have the traditional business sentiment survey. After a warm winter, the media narrative has been more positive in Europe, with sentiment data supporting the need to improve the environment.
It is important for us not to have such a hard recession on the continent, despite the increase in interest rates in several countries, not just in the Eurozone. Even if the slowdown does come, it shouldn’t be so brutal.
03:15 — A place to watch in China
A historic shift is underway in China that is likely to have long-term repercussions on the global economy. The country’s total population reportedly fell by 850,000 in 2022 to 1.4 billion, marking the first decline since 1961. China has been a major source of jobs and demand, but its birth rate continues to decline in time. decide not to have children.
The move comes despite the end of the government’s one-child policy in 2015 and incentives launched in 2021 that encourage people to have more children (tax deductions, housing benefits and longer maternity leave). The high costs of education have also led to one of the lowest fertility rates in the world, as well as a trend towards rapid urbanization in a historically rural country.
The demographic trend questions whether China will grow old before distributing wealth to all. The United Nations also predicts that, by 2023, China will lose its status as the world’s most populous country to India, whose estimated population of 1.4 billion is still growing. In the long run, India is projected to have the largest working-age population and could become the world’s leading manufacturing hub.
04:17 — Global debt
The world is in debt and recently hit a record high for debt: $300 trillion – this is the total amount governments, households and corporations worldwide owed in 2022, as estimated by the Institute of International Finance . That number represents about 350% of global gross domestic product and the equivalent of $37,500 in debt for every person in the world.
Global leverage is much higher than it was before the global financial crisis. The problem is that the demand for debt to help consumers with inflation, rebuild infrastructure and tackle climate change continues to grow. At the same time, rising interest rates and slowing economies are making the debt burden heavier.
Federal funds and European Central Bank rates increased by an average of 3 percentage points in 2022. That could mean $3 trillion more in interest expense. At the same time, debt has become less productive since 2007, meaning that the multiplier effect of every extra dollar borrowed has diminished.
There is no easy way out of a global debt crisis. Avoiding it will require unpopular actions and a “major reset” of the mindset of policy makers. In the coming years, credit will be more cautious, reducing excessive consumption and restructuring unprofitable projects or institutions.
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