February 6, 2023

Bolsa now: Ibovespa reverses the sign and rises; Americanas (AMER3) Still Up for Auction, But Theoretical Price Points to Down 90%

A small mistake of R$20 billion

Overseas, Asian markets closed higher on Thursday, following largely positive cues from global markets during yesterday’s trading session, as investors take a bullish stance on the upcoming US consumer price inflation report today. In addition, Chinese inflation came in line with what was expected, which helps guide growth prospects in the Asian giant in 2023.

European markets and US futures are also enjoying support this morning, awaiting inflation data. The report is expected to show a slowdown in the annual rate of growth in consumer prices and may have a significant impact on interest rate expectations. In Brazil, we follow economic news from Brasilia, while we absorb the gap in Americana, which should reverberate in the retail sector, affecting Ibovespa.

We see…

00:44 – financial adjustment and a new framework

Here, the economic agenda is the most important, with great anticipation for Haddad’s announcement of the first measures of his ministry. It is understood that today’s package is already seeking the promised fiscal adjustment of 2% of GDP (we need, after all, to reduce the projected deficit of R$220 billion indicated in the budget).

The main balance will be a revenue reconfiguration, with measures such as canceling the reduction of PIS/Cofins chargeable to revenue from large businesses and other fuels. We shall have four provisional measures, in addition to ordinances and ordinances.

The adjustment is important, but secondary to expectations for a new fiscal framework. Apparently, one of the strongest proposals within the portfolio comes from the Economic Transformation team, which included the participation of Percio Arida, Andre Lara Resende, Guilherme Melo and Nelson Barbosa.

Although not disclosed, the new rule that will replace the spending cap is expected to guide the spending objective, with the goal of separating short-term current liabilities from long-term investment spending. Price will in the coming months on the curve.

01:38 – hidden error. Who ever?

One of the issues to take care of will be how the retail sector is performing today. The discovery of “accounting inconsistencies” in the range of R$20 billion will create a great deal of noise about Americana and its financial sustainability – financing of purchases deemed indebted and not adequately reflected in the balance sheet (more debt) has been identified.

The uproar was so great that the new president, Sergio Real, whom the market believed would solve global hunger in charge of the company, resigned after 11 days.

With him, Investor Relations Director Andre Kofer also left the post. Nobody wants a picture to be associated with a word. And who can not do the same movement? Reference contributors: Jorge Paulo Lehmann, Marcel Telles, and Carlos Alberto Secubera. The legendary group of businessmen need to think seriously about the whole problem; After all, an accounting deficit of R$20 billion is typical. Today we are witnessing those traditional moments in the Brazilian financial market that are still in history, such as what happened to Sadia and Aracruz more than 10 years ago.

02:32 – US consumer inflation

Today, the Consumer Price Index for December is released, as the market expects no change during the month. The index is expected to rise by 6.5% in the annual comparison, which will be a slowdown from the 7.1% recorded in November. Meanwhile, the core data, which excludes volatile food and energy prices, is expected to rise 5.7% year-on-year.

A slowdown doesn’t mean the Fed’s fight against inflation is over, especially if core data rose 0.3% in December (nearly twice the pace in line with the Fed’s annual inflation target of 2%). However, we cannot deny that we have already passed the peak of the inflation peak, verified in June 2022 at 9.1% annually (6.6% in the base).

In any case, Fed officials stressed that they need to see several months of encouraging data before they consider ending the rate hike campaign. Another slowdown in inflation in December would mark the third consecutive monthly decline, which is enough to represent the trend, but interest rates will continue to rise, even if at a reduced pace.

03:28 – European report and Chinese inflation

Today, the market also deals with the publication of the Economic Bulletin of the European Central Bank for the Eurozone, which can count on important forecasts for the economy in 2023 for the countries of the region. It’s no secret that feelings in Europe are not the best, with the war in Ukraine and the energy crisis still going on. It will be important for us to understand how much attention is required to balance several dishes.

Meanwhile, in China, we had a publication on consumer and producer price inflation, dominated by domestic concerns (such as food inflation) and little global interest. Consumer prices rose 1.8% in December, an acceleration compared to the 1.6% rate recorded in November, but in line with expectations. Meanwhile, producers saw a slowdown to 0.7%.

04:07 – when will we see a change in the dynamics of interest rates

Although inflation has eased recently, it is still well above the US central bank’s 2% target. As we know they will continue the course until the job is done, we should expect more interest in the coming months.

Last month, the Fed raised its benchmark interest rate to the highest level in 15 years, and some fear that rising geopolitical risks or uncontrollable events could happen again, sending inflation up again.

The Fed raised interest rates seven times in 2022, pushing its benchmark from a range of 0% to 0.25%, to the current 4.25% to 4.50%. However, smaller increases were implemented in December and officials indicated that they only plan to continue raising interest rates between 5% and 5.5% in 2023.

The improved outlook is already materializing, as many see the Fed continue to raise rates in the first quarter, pause in the second and possibly cut rates in the fourth.

Slowing demand and price discounts due to rising inventories and falling home prices, among other factors, will help moderate inflation, which in turn should prompt major central banks to pause and take stock of the recent string of historic interest rate hikes.

As supply chains recover and friction in labor markets reduces, we may see a sharper and broader decline in inflation, which could mean a slightly easier policy path and higher global growth.