Top 5 Things to Watch in the Markets This Week By

© Reuters.

By Noreen Burke and Leandro Manzoni – Petrobras (SA:) announced a new fuel price readjustment in Brazil last Friday (17th) with strong reaction from the political world, which should continue this week when the preview of inflation of June.

Federal Reserve Chairman Jerome Powell will once again be in the spotlight this week in his appearance before Congress in the wake of the US central bank’s biggest rate hike since 1994. Powell’s comments, along with speeches by several other Fed officials, who will make statements during the week, will be closely watched as markets try to gauge the size of the rate hike expected at the next monetary authority meeting in July.

The US economic calendar is light, but updates on the health of the housing market will be in evidence amid signs of rapid cooling. European Central Bank President Christine Lagarde is due to appear at the European Parliament on Monday to face questions about the bank’s new crisis coping tool. Meanwhile, stock market volatility is expected to continue, as well as the crypto crash.

Here’s what you need to know to start your week.

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1. The political consequences of the increase in fuels in Brazil

The political reaction of the readjustment of the price of gasoline (5.2%) and diesel (14.2%) at Petrobras refineries last Friday continues this week, which promises to be hectic. On Monday, Chamber President Arthur Lira (PP-AL) and House leaders will meet to discuss the possibility of doubling Petrobras’ Social Contribution on Net Income (CSLL) rate and alternatives to Petrobras’ current pricing policy. state-owned.

President Jair Bolsonaro (PL), who said over the weekend that Petrobras could lose BRL 30 billion in a possible CPI to investigate the company, is expected to sanction Complementary Law Project (PLP) 18 approved last week by Congress, whose objective is to limit the ICMS levied on fuel prices to 17% or 18% and to eliminate the collection of federal taxes (PIS/Cofins and Cide) on gasoline and vehicular natural gas (LNG) until December 31. It remains to be seen whether the president will sanction the section in which a “trigger” is created so that state governments are compensated if ICMS collection drops by more than 5% after the limitation of incidence on fuels.

PLP 18 was an “evolution” of PLP 11, which was approved in March of this year and provided for the establishment of tax monophasia (when the tax is charged only once in the production chain of a commodity) for fuels in the States, in addition to of a rate unification. However, the law needs regulation by the National Council for Finance Policy (Confaz), which brings together the State Finance Secretaries of all federative units, which was postponed.

On Tuesday, the Minister of Mines and Energy Adolfo Sachsida will debate the price of fuels and the privatization of Petrobras in the Chamber of Deputies. On the same day, Economy Minister Paulo Guedes should also speak at the Chamber about the restructuring and increase of Public Security Agents, although the topic of fuel prices may appear.

The threat of installing a CPI to investigate Petrobras is also expected to continue this week, with support from the government and the opposition. Palácio do Planalto aims to speed up the departure of the current Petrobras CEO, José Mauro Ferreira Coelho, who denies leaving and whose replacement, Caio Mário Paes de Andrade, has already been appointed by the Ministry of Mines and Energy, but who needs an endorsement. of the State Council.

In addition, investors will monitor legal proceedings and STF decisions on the matter. In Congress, it is worth mentioning the procedures for the Ethanol PEC (which aims to institute a 30% lower rate than gasoline for ethanol), the Fuel PEC (which creates a mechanism to compensate states that eliminate ICMS on fuels and, in exchange, receives a financial aid funded by the Union outside the spending ceiling), Bill 1472 (which changes Petrobras’ fuel price policy and creates a tariff stabilization program, in addition to a “gasoline aid”) and the decision of Minister André Mendonça of the STF that obliges States to standardize the ICMS tax rates on gasoline, diesel, ethanol, biodiesel and gas throughout the national territory as of July 1st.

2. Powell’s Testimony

Powell is due before the US Congress in hearings on Wednesday and Thursday, and he is expected to reiterate the Fed’s commitment to reducing inflation, currently at its highest level in 40 years.

On Friday, the Fed said its commitment to fighting inflation was “unconditional.” The US annual advanced at the fastest pace since 1981 in May.

Last Wednesday, the Fed raised interest rates by 75 basis points, from 0.75% to 1.5%, and signaled a faster pace for further increases. Powell said the Fed cannot control all the factors that contribute to higher inflation, such as the war in Ukraine, which has forced energy prices to rise.

Market participants fear that the Fed’s path of aggressive rate hikes risks throwing the economy into recession, and with signs of slowing growth and the fact that US equities are now in a bear market , Powell may be pressed for more details on how the Fed will be able to curb inflation without causing too much friction in the economy and markets.

3. Lagarde’s Testimony

ECB President Christine Lagarde will appear before the European Parliament in Brussels on Monday and is expected to be questioned in detail about the progress of the monetary authority’s new crisis coping tool since its announcement last week.

The ECB is outlining plans for a new procurement regime aimed at combating “fragmentation”, that is, the widening gap between borrowing costs paid by and the most indebted countries on the periphery of the eurozone, such as , and .

Government borrowing costs have skyrocketed in the euro zone’s periphery since the ECB announced earlier this month its plans to raise borrowings to tackle the current crisis, which is currently four times the ECB’s 2% target.

With markets currently pricing in a 0.25 percentage point rate hike from the ECB in July, plus at least a half-point hike through September, some analysts believe the new tool could give the central bank scope to implement more aggressive interest rate hikes if necessary.

4. US and Brazilian economic data

The economic calendar is light in the week ahead, with updates on the health of the housing sector the main highlight in the US.

Tuesday’s US data is expected to show a slowdown in May as mortgage rates continue to rise. The US is due to release data on Friday, with markets looking for signs of a recovery after May’s 16.6% drop.

The data on the labor market are expected to be presented on Thursday after last week’s figures have pointed to a certain slowdown in the labor market, although conditions remain restrictive. Preliminary data on the activity of the sector and also have release scheduled for Thursday.

Meanwhile, several Fed officials, including James, Thomas, Charles and Patrick, are expected to make appearances throughout the week.

In Brazil, the agenda will be busier. On Tuesday, the one that increased the Selic rate from 12.75% to 13.25% will be released. On Thursday, the most recent will be published, as well as the meeting of the National Monetary Council (CMN).

Finally, Friday will be the turn of the June inflation preview, measured by the . Market expectations are high for monthly acceleration from 0.59% to 0.61%, with annual deceleration from 12.2% to 11.98%.

CHECK: Brazilian stock quotes on

5. Stock market volatility and crypto winter

All three of Wall Street’s main indexes fell for a third straight week last week – as did Brazil – hit by fears about the growing likelihood of a recession as the Fed and other central banks around the world try to stamp out inflation.

The , the benchmark index, accumulates a year drop of 23% and recently confirmed that the bear market triggered on January 3rd. The is on the verge of confirming its own bear market. The Ibovespa closed below 100 thousand points on Friday, but has accumulated a 5% drop in the year.

“Right now, we’re going to see a lot of volatility, mainly because the Fed is going to be carrying all these rate hikes, trying to feel the pulse of the inflation scenario, and it’s all very cloudy for now,” Megan Horneman, director of investment strategy portfolio of Verdence Capital Advisors, of Hunt Valley, Maryland, told Reuters. “Just expect volatility, it’s here to stay, and it will continue until we get a little more clarity on whether we’ve really peaked in inflation.”

North American markets will be closed on Monday in celebration of the Juneteenteenth holiday.

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Risk aversion contaminates the cryptocurrency market. was trading around $19,632 on Sunday after falling to a low of $17,593 on Saturday – its lowest since December 2020.

The asset has lost about 60% of its value this year, while rival cryptocurrency, backed by technology, is down 74%. In 2021, Bitcoin hit a high above $68,925.

“Breaking through $20,000 shows the collapse of confidence in the crypto sector and what we’re seeing are the latest tensions,” Edward Moya, senior market analyst at OANDA, told Reuters on Saturday.

Moya said that “even the biggest enthusiasts of the big rally are now quiet. They are still bullish for the long term, but they are not saying this is the time to buy the dip.”

The cryptocurrency sector has been hit by increasing signs of industry stress following the blockchain collapse last month. Earlier this month, credit firm Celsius froze withdrawals and transfers between accounts, while cryptocurrency firms began laying off employees. Crypto hedge fund Three Arrows Capital announced last week that it has suffered huge losses.

The debacle coincided with a sell-off among equities, which could further jeopardize investor confidence in the cryptocurrency industry.

– With information from Reuters, Valor Econômico and Necton Investimentos

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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