On the eve of the participation of Jerome Powell, the president of the Federal Reserve (Fed), at the annual symposium of Jackson Hole and amid growing tensions in the Afghanistan, the overall backdrop for business was one of caution from the start of the day. However, reflecting local fears, such as the worsening of the water crisis, O Ibovespa it returned to a performance much worse than its peers and ended in a steady fall, losing the level of 119 thousand points.
The Ibovespa ended the session at 118,724 points, down 1.73%, close to the day’s lows of 118,808 points. The aggregate financial turnover on the local stock exchange today was R$ 27.1 billion. In New York, the S&P 500 ended the day down 0.58%, the Dow Jones retreated 0.54% and the Nasdaq lost 0.64%. In Europe, the Stoxx 600 closed down 0.32%.
Abroad, the more patient posture of global investors was justified by the proximity of the main global monetary policy event. Tomorrow, comments are expected from the Fed chairman on the institution’s plans to start reducing its bond purchases, which has the potential to heighten volatility in global markets and particularly in emerging countries.
For Alex Lima, portfolio manager at Lifetime Investimentos and former operator of the New York Fed interest table, Powell should announce tomorrow that the start of tapering – the process of reducing asset purchases – should take place at the end of the year or in January.
“From then on, the New York Fed desk should set up a schedule, indicating the pace of reduction in purchases. The market has already been pricing this, a decrease of US$ 20 billion in Treasuries per quarter next year – what would end the program at the end of the year,” he says.
A surprise, he said, would be an indication that tapering will start at the next meeting in September, which could cause increased volatility in the markets. On the opposite side, a further delay in reporting a reduction in asset purchases could give risky assets a boost, he said. “Given the strong recovery of the American job market – which created 1.8 million jobs in the last two months – and the high levels of inflation, I see this as unlikely,” he said.
Despite this, the global scenario does not fully explain the poor performance of the Ibovespa today.
Managers and market professionals report that the perception that the water crisis has been worsening has definitely entered the investors’ radar, especially after the press conference given by the Ministry of Mines and Energy (MME), on Wednesday night.
“The impression was that the cat climbed the roof”, says a variable income manager, who also points out that the negative perceptions of important members of the financial market in Expert da XP, help to consolidate a negative view for Brazilian assets.
There is still concern that, given the increase in electricity costs, a firmer pace of monetary tightening promoted by the Central Bank could further reduce demand for variable income assets.
“When you talk about electricity on the stock exchange, obviously you will feel higher costs in all companies that have local operations, especially factories. They need to correct prices because costs are already increasing”, says Rodrigo Franchini, partner at Monte Bravo Investments.
The topic was also addressed by Credit Suisse today. According to bank analysts, hydrology in Brazil remains disappointing, and with just 63% of the long-term average since the start of the last rainy season, the Brazilian government is preparing a series of additional measures to avoid a greater risk of rationing for 2021 and 2022.
“As hydroelectric plants have a share of around 65% in the Brazilian system and the scenario has been deteriorating, we believe that concerns about the balance between supply and demand in 2022 are greater now and we depend on better hydrology for the next rainy season – from October 2021 to April 2022 – to ensure a good balance for the higher consumption that is expected for the summer in Brazil”, say the bank’s stock analysts, Carolina Carneiro and Rafael Nagano.
“For Brazil, we anticipate impacts from higher tariffs – a potential impact of 12% for 2022, depending on thermal dispatch and flag mechanism tariffs. Sectors that are asset-heavy and electricity intensive, but not self-sufficient in terms of electricity, can also be impacted by high energy costs,” they state.
The scenario is further compounded by high political risks. Investors continue to monitor the tensions between the powers, especially until the arrival of September 7th, when demonstrations in support of the government are scheduled and which are likely to bring criticism from members of other institutions.
“Bolsonaro’s insistence on creating endless political noise comes at a time when the country had reason to celebrate,” say Elizabeth Johnson and Wilson Ferrarezi, economists at British consultancy TS Lombard.
According to them, despite the limited hesitation of Brazilians to take vaccines, the improvement in the numbers of the pandemic, the prospects of economic recovery and signs of short-term improvement in the country’s revenue, the political climate continues to weigh on the growth prospects of the country. Brazil.
“Instead of taking advantage of this moment, President Bolsonaro chose to stay on the path of war, which is not only limiting the market’s recovery, but also weighing on the positive medium-term economic prospects,” they conclude.