Stock markets today: Ibovespa closes higher, but accumulates a drop of 4.5% in the first quarter; dollar rises and returns to R$5

A GIANT IS GONE

The day after the death of Daniel Kahneman, pioneer of behavioral economics, financial markets remain attentive to the next release of data on the economy and inflation in the United States.

Recently, a member of the Federal Reserve expressed skepticism about the possibility of interest rate reductions this year, echoing sentiments already expressed by other authorities since the last monetary policy meeting.

This expectation will be tested today with the release of final US fourth-quarter GDP data, ahead of the specific release of the personal consumption expenditures (PCE) index.

In response, North American markets start the day with bearish trends, contrasting with the more optimistic atmosphere in Europe.

In the Asian scenario, the first quarter of 2024 registered a slight advance, driven by the wave of optimism generated by successive records on Wall Street and the growing enthusiasm for artificial intelligence.

]Particularly noteworthy is China’s economic recovery from mid-February and a significant good performance of the Japanese Nikkei index, which, despite a drop today, accumulated a gain of more than 10% in dollar terms in the quarter.

However, these positive aspects were partly overshadowed by concern about the prospect of higher interest rates for prolonged periods in the USA, especially in a context where inflation indicators in the country still indicate little deceleration.

Seeing…

00:57 — One eye on the fish and one on the cat

In the Brazilian scenario, the wave of optimism that swept through global markets positively influenced the performance of shares, leading the Ibovespa to a positive closing yesterday, mitigating the falls observed in previous sessions.

For today, investors’ attention is focused on two critical domestic fronts.

One of them is the expectation for the publication of the Quarterly Inflation Report and PNAD data on employment, including the national unemployment rate, particularly after mentions in the Copom statement about the robustness of the labor market and rising wages as elements of inflationary pressure. about services.

These indicators assume exceptional importance in the current context, guiding investors’ expectations regarding the future direction of the country’s monetary policy.

At the same time, there is growing concern about public finances, traditionally a vulnerable point in the Brazilian economy.

The most recent figures point to a fiscal deficit of R$58 billion in February, a result slightly higher than projected.

In the 12 months up to February 2024, the primary deficit reached R$253 billion, representing 2.26% of GDP, an alarming figure even given the increase in revenue observed at the beginning of the year.

In this context, the possibility of the Ministry of Finance convincing President Lula to authorize the distribution of extraordinary dividends is being discussed, an emergency measure that would be extremely well received.

The seriousness of the fiscal situation is such that Minister Haddad himself recognized the improbability of achieving the fiscal surplus target of 0.5% in 2025.

This concern is directly reflected in the premiums demanded by investors in long-term government debt securities, which already have real interest rates above 6% (this week we witnessed the most unfavorable bond auction of the year, highlighting the absence of buyers) .

Any news from the economic team in this regard today could have some impact on prices, as was the case with the repercussion of Haddad’s note about GDP growing by 2.5% this year.

If that is the case, we could have some additional slack on the fundraising front.

01:54 — Fall or not fall?

Last night, Fed member Christopher Waller expressed his cautious view on lowering interest rates, highlighting that recent economic indicators support a pause or decrease in the frequency of rate cuts expected this year.

He cited the robust economy and a strong job market as factors allowing the Fed to await more evidence that inflation is effectively heading toward the 2% target.

As a direct result of his observations, a rise in US Treasury bond yields was observed this morning.

The position of Waller, known for his stricter stance on monetary policy, does not come as a surprise.

Still, I stand by my prediction that the Federal Reserve will make a total of 75 basis points in rate cuts this year, starting in June, spread across three steps of 25 points each.

With Waller’s statements coming after markets closed, the scenario in the US on Wednesday was one of strengthening in the stock market, with the Dow Jones Industrial Average achieving its best performance of the year.

The market experienced a broad recovery, ending a period of correction, with increases in all sectors of the S&P 500.

Regarding the economic agenda, we await the release of the final estimate of Gross Domestic Product (GDP) growth for the fourth quarter, anticipating that growth will remain stable at 3.2%, as per the previously released preview.

In addition, additional data will be presented, such as the February Pending Home Sales Index and the Chicago Business Barometer from the Institute for Supply Management, although these are considered less relevant given the weight of GDP data and expectations for the Home Price Index. Personal Consumption (PCE) to be released the following day.

02:48 — The Buffett Indicator with today’s GDP

In 2001, Warren Buffett introduced a methodology that he considers the most effective for evaluating the stock market over a given period, known as the “Buffett Indicator”.

This tool compares the total value of the US stock market, represented by the Wilshire 5000 index, with the country’s Gross Domestic Product (GDP), using the latest available quarterly estimate.

This calculation results in an indicator that offers a clear perspective on the evaluation of prices in the stock market, helping to identify whether it is overvalued or undervalued compared to the country’s economic activity.

This is based on the logic that if the stock market grows at a faster rate than the economy, it could be an indication of a speculative bubble.

Recently, the “Buffett Indicator” reached its highest point in the last two years, suggesting the possibility of an adjustment in the market.

According to the view of Berkshire Hathaway, led by Buffett, a value of 100% in the indicator is considered balanced; below 70% indicates that the shares are very cheap; and above 200%, it warns that investors are taking too much risk.

Right now, the index is at approximately 190%, a high level not seen since 2021-2022, when it reached 211% and was followed by a 19% drop in the S&P 500 in subsequent months.

This recent increase is attributed, in part, to investor enthusiasm for technology stocks focused on artificial intelligence.

As we have already discussed, I have difficulty seeing a bubble in the market at current levels, which does not mean that corrections cannot occur.

03:41 — Brazil in the world

Currently, we are witnessing an intense debate about the current global governance model, amid questions about the effectiveness of multilateral institutions established after the Second World War, such as the UN, the WTO and the WHO.

These entities face criticism for their apparent inability to address the complexities of global challenges, signaling an era of decline and search for new mechanisms of cooperation that can restore trust between nations.

Eurasia’s Ian Bremmer analyzes this transition, highlighting the evolution of global leadership from the G-7 to the G-20 and, currently, to a scenario called “G-0”.

This term reflects an absence of collective leadership in a context marked by intense geopolitical fragmentation, exacerbated by the growing rivalry between the United States and China.

In this scenario, it becomes imperative for nations like Brazil to explore strategic alliances in key sectors such as agriculture and biofuels, maximizing their participation in various forums to promote national interests.

This scenario of geopolitical realignment opens new avenues for countries in the Global South, offering unprecedented freedom in choosing partnerships and strategic positions.

Brazil, in particular, has the opportunity to stand out as an influential voice, potentially alongside India, in defending and representing the interests of countries in the Global South, seeking a more protagonist role in the world.

04:35 — Remembering Daniel Kahneman: interpreter of human understanding

Daniel Kahneman, Nobel laureate in Economics in 2002, left us yesterday at the age of 90.

Distinguished professor emeritus at Princeton University in the United States, Kahneman is celebrated for his innovative approach to economics, introducing a psychological perspective that underpinned behavioral economics.

This strand challenged the classical notion of economic rationality, instead exploring how cognitive biases and heuristics shape decisions in unexpected ways.

Together with Amos Tversky, through “Prospect Theory”, he uncovered how people evaluate gains and losses unequally.

Kahneman also deepened the understanding of heuristics and cognitive biases, elucidating their impact on the formation of judgments and decisions.

His main work, “Fast and Slow: Two Ways of Thinking”, scrutinized the duality of human thought, alternating between the intuitive and the analytical, vastly expanding behavioral economics.

Kahneman’s legacy goes beyond the financial environment, influencing fields such as public policy and marketing, in addition to contributing significantly to discussions about happiness and well-being.

It is worth reading the obituary written by Felipe Miranda for Brazil Journal about the life and work of this giant.