Good morning guys. On Monday, the ISM Manufacturing index of the USA brought a pause in the sequence of contraction of the index that had lasted for 16 months, signaling a persistent robustness in the American economy, even in the face of high interest rates. This performance can be interpreted as a positive factor for the stock market, of course, as it suggests a possible stimulus to the growth of corporate profits.
However, there is a risk that this economic strength will continue to put upward pressure on inflation, which could lead the Federal Reserve to adopt a more cautious stance on reducing interest rates, a move widely anticipated by the market.
As a result, the indicator’s positive surprise contributed to an increase in pressure on global interest rates, strengthening the dollar and exerting a negative influence on stock markets around the world. For this Tuesday, the highlight is the JOLTS report on jobs in the USA.
Meanwhile, global markets are exhibiting a mixed trend this Tuesday, reflecting the pullback seen in Wall Street in the previous session. European markets are indecisive, with a mostly positive bias, in contrast to the fall in American indices this morning.
In the commodities scenario, the Petroleum records a new high, exceeding US$89 per barrel in the Brent type contract. This advance was prompted by an Israeli airstrike on an Iranian embassy compound in Syria, which resulted in the deaths of several people, including a prominent military commander.
The escalation of geopolitical tensions in Middle East highlights concerns about oil supplies, pushing prices to the highest levels in the last five months. In addition, iron ore is also rising, reflecting the warming of global economic activity, as indicated by the latest data from the USA and China.
Seeing…
· 00:56 — Political imbroglio
O Ibovespa followed the negative trend of global markets by opening the month in decline, reacting to indicators that point to an American economy still at a fast pace. Given this scenario, there was dollar rise It is of interest.
In this context, the Brazilian central bank announced an extraordinary foreign exchange swap operation, in addition to the regular auction, aiming to stabilize the national currency. This intervention, which has not occurred for more than a year, aims to maintain exchange rate stability, but may generate an increase in market volatility in the short term due to perception, especially in a year marked by the expectation of a change in BC leadership, with Gabriel Galípolo as a potential successor to Roberto Campos Neto, in addition to Marcelo Kayath and Paulo Picchetti as other possible candidates.
At the same time, in Brasília, the focus of parliamentarians in the first week of April is focused on consolidating party affiliations with a view to this year’s municipal elections, with the deadline for new affiliations ending on April 6th. Given the involvement of many congressmen in state party strategies, the option was for blended sessions in Congress, which should limit the advancement of legislative agendas this week. This pause in legislative activities occurs at a critical moment for the government, which is faced with the need to find additional revenue measures to meet the fiscal target set for 2025, in a scenario where current strategies seem insufficient for this purpose, contributing to fiscal tension in the short term. The horizon remains cloudy.
· 01:42 — Economy booming
In the United States, the first day of the new month and quarter was not very favorable for stocks. Despite a start to the trading session close to stability, the main indices ended up falling. The S&P 500, for example, had a slight decline of 0.2%.
This adjustment, although modest, reflects the market’s reaction to a more robust industrial activity indicator than anticipated. ISM Manufacturing, one of the main leading indicators of the American economy, exceeded expectations for March, highlighting the strength of the economy.
As a result, the market adjusted expectations, decreasing the likelihood of a 25 basis point interest rate cut by the Federal Reserve in June.
For today, eyes are on the JOLTS report, which should indicate 8.7 million vacancies available at the end of February, indicating a slight reduction compared to January. This reflects a ratio of 1.4 vacancies per unemployed person, a decrease since the peak recorded in March 2022.
Another awaited data is that of factory orders for February. These indicators, however, serve as a prelude to the March ADP private employment report on Wednesday and the nonfarm payroll employment report on Friday. Higher-than-expected numbers could lead the market to further adjust expectations regarding the Fed’s monetary policy, postponing the prospect of reducing interest rates.
· 02:38 — The tax gap
Ken Griffin, the founder of Citadel, shared his outlook for moderate economic growth for the coming quarters in a recent letter to his investors. However, he highlighted a particularly alarming issue: America’s growing debt. Griffin pointed to projections from the Congressional Budget Office, which indicate that net interest spending in the US is expected to reach 3.1% of GDP in 2023. The concern about US government spending patterns is valid, as over the past five months the Spending reached $2.7 trillion, marking a 9% increase compared to last year.
It is estimated that government spending could escalate to around US$6.7 trillion in fiscal year 2024, culminating in an increase in the US national debt of US$1 trillion every 100 days. This would place the debt at $35 trillion in May 2024, reaching $37 trillion by the US election and possibly $40 trillion in the second half of 2025. At the same time, a Bloomberg analysis concluded that after a million simulations Regarding the US debt outlook, in 88% of scenarios the debt trajectory is unsustainable. We really need to be concerned about this, especially given the lack of concrete proposals from politicians to face this challenge.
· 03:25 — The strength of immigration
The market expects growth of 2.2% for the US economy this year, a figure significantly higher than the September forecast. This upward revision also lowered expectations for a recession in the next 12 months to less than 35%, the lowest figure since July 2022 and well below the 55% seen in September. A notably impactful factor in this optimistic scenario is the strength of the job market, in part fueled by a crucial component: immigration.
The discussion around immigration is becoming increasingly central, with many market observers considering it a real lever for change, at least at the present time. The increase in the immigrant population is being pointed to by a growing share of the market as the engine behind the strength of the job market, even amid a cycle of restrictive monetary policy by the Fed.
This wave of migration represents a profound structural change not only for the United States but with potential effects on the world economy. To illustrate the magnitude of this transformation, the Congressional Budget Office revised its economic projections to include updated estimates on immigration, predicting that this factor will contribute an additional US$7 trillion to the American GDP over the next decade. It is a lasting structural transformation, a new phase in the economy.
· 04:19 — And the price of cocoa continues to rise
The current crisis in the chocolate sector is one of the most serious it has ever faced, with demand for chocolate significantly exceeding the supply of available cocoa. This has caused a sharp rise in cocoa prices, which will undoubtedly result in higher prices for chocolate products in supermarkets around the world. Recently, the price of cocoa on the futures market reached an all-time high, surpassing US$10,175.00 per metric ton, marking a 250% increase in one year. This increase forced the main African cocoa processors, responsible for converting raw cocoa into products usable by the chocolate industries and other sectors, to cut production due to the inability to acquire the beans at affordable prices.
The reason for high cocoa prices lies in the geography and ecology of its production. Cocoa trees only flourish in a narrow zone around the equator, which is why four West African countries — Côte d’Ivoire, Ghana, Cameroon and Nigeria — are responsible for almost 75% of the world’s cocoa supply, with Côte d’Ivoire Ivory alone producing almost half of global cocoa. However, recent harvests have been severely affected by adverse weather conditions, crop diseases and a lack of investment in new trees for decades, leading to a significant drop in production. As a result, this cocoa season will face an estimated shortage of 374,000 tons, a significant worsening compared to the previous season’s 74,000-ton deficit. The cost of chocolate is expected to remain high for some time.
· 05:04 — What I won’t recommend to you
The recent release of the book “The Anxious Generation: How the Great Reconfiguration of Childhood Is Causing an Epidemic of Mental Illness”, by Jonathan Haidt, professor at the NYU School of Business, has generated widespread discussion. Haidt suggests that the transition from a childhood centered on play to one dominated by smartphone use is a major cause of the rise in mental illness among teenagers globally. He proposes that smartphones be kept out of the reach of children, pointing to the serious impact of this change on youth mental well-being.
The discussion surrounding the book brings up the eternal debate about correlation versus…
Tags: Pressured global interest rates rising dollar oil prices falling stock markets month April started
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