Stock market today: Ibovespa falls with banks and NY before Vale’s results (VALE3); dollar rises to R$ 5.14

ANOTHER CHAPTER OF THE SAGA INVOLVING TAX REFORM WILL BEGIN

On the international stage, the US stock market is optimistic, especially with Tesla, which, despite a significant drop in profits, saw its shares rise more than 10% in the year. after hours due to plans to introduce new low-cost models.

More results will be released today and could further shape investor expectations.

At the same time, in Brazil, where the results season has also begun, Vale stands out, which will announce its numbers after the market closes. However, the market does not live solely on corporate results.

For example, on a geopolitical level, the US Senate passed legislation banning TikTok unless its Chinese owner sells the company within 270 days.

This development not only potentially impacts the content creation industry, but also marks a new episode in tensions between the US and China.

Furthermore, the focus today is on March durable goods orders in the US and the analysis of business sentiment indices in Germany and the United Kingdom.

In Europe, the European Central Bank is moving closer to reducing interest rates if the data corroborates its representatives’ expectations.

Other financial results are expected from the European continent, where the market is rising this morning, as are American futures. This comes after Asian stocks closed significantly higher, reacting to yesterday’s weak US PMI, which reignited hopes of a possible interest rate cut by the Fed soon.

Meanwhile, oil prices fall this morning, but iron ore experiences a strong rise.

In Brazil, the presentation of the text that regulates the Tax Reform is awaited, marking another chapter in this extensive saga.

Seeing…

00:51 — The strong revenue in the first quarter is not exciting

In the local market, the Ibovespa showed a drop yesterday, but remained above 125 thousand points, influenced by the decline in commodity prices, particularly iron ore.

Today, we see a recovery that could strengthen the index. Tuesday’s negative performance was marked by the fall in Usiminas shares, which published a balance sheet for the first quarter with projections below expectations, negatively affecting market sentiment in relation to the sector.

The release of Vale’s results, scheduled for this evening, is expected to further clarify the outlook for the mining and steel sectors.

A crucial element will be the increase in China’s steel import tariff to 25% and the setting of quotas, which, in theory, should be positive for the market.

On the economic agenda, we are paying attention to the presentation by Gabriel Galípolo, director of monetary policy at the Central Bank, considered one of the main candidates to succeed Roberto Campos Neto at the end of the year.

Furthermore, the Focus report adjusted upwards the projections for the Selic rate in 2024 and 2025, going from 9.13% to 9.50% per year, and from 8.50% to between 8.50% and 9.00% per year, respectively. Expectations for economic activity and inflation were also revised upwards.

Although the Focus report brought not so encouraging news, March’s fundraising data told another story.

The Brazilian Federal Revenue reported a collection of R$190.6 billion in March, in line with market expectations and accumulating almost R$658 billion in the first quarter.

The contribution of exclusive funds stands out, which generated R$15 billion in revenue, exceeding forecasts.

Despite this, the robust collection numbers are still insufficient to offset the increase in spending, which limits its positive impact on the market.

01:48 — We return to the Tax Reform debate

Today, we will send tax reform regulatory projects to Congress. There is a possibility that President Lula will personally deliver the document, which, according to Haddad, is 300 pages long.

The minister believes in approving the text by the end of the year and admitted that there may be changes to some points, such as the inclusion and exclusion of items from the basic food basket.

The president of the Chamber, Arthur Lira, prefers to complete the regulation of the reform this semester, because Congress will be emptied by municipal elections starting in August. It makes sense. The sooner we close this new chapter of this saga, the better.

In fact, an important point is that the regulation of the reform will be made in two complementary bills (approved by the absolute majority of members of the Chamber and the Senate) and one ordinary bill (approved by the simple majority of each House).

The first and main complementary bill, which will be sent to Congress today, will deal with the common rules for the state Goods and Services Tax (IBS) and the federal Goods and Services Contribution (CBS), new taxes that will be created by the reform.

The second complementary bill, which is still undergoing dialogue between the parties involved and which should only be presented soon, will have specific issues regarding the transition from ICMS to IBS, such as the form of organization of the Steering Committee, the federative distribution of tax revenue and administrative litigation over the new state tax.

Looking at the bigger picture, I am optimistic about how much the VAT reform will grow the economy. When it is fully implemented (which may take a while) it will improve the country’s growth and even before; after all, a simpler tax system is always welcome.

02:37 — A new rhythm of activity

In the United States, the three main stock market indexes ended the day higher for the second day in a row, reflecting the decline in Treasury yields compared to their April peaks.

This trend came to light after indicators showed a more moderate growth in business activity in the country this year. Specifically, the yield on the 2-year Treasury note fell to 4.93%, after reaching 5% at the beginning of the month, while the 10-year fell to 4.61%.

Although recent data points to higher-than-expected inflation, I still consider it unlikely that the Federal Reserve (Fed) will decide on further increases in interest rates.

Only a sharp resurgence of inflation, accompanied by an increase in price expectations, could justify a more restrictive monetary policy.

On the other hand, I observe a greater probability of the Fed keeping rates stable, especially if inflation and growth indicators exceed expectations in a positive way.

Furthermore, if the inflationary scenario allows, I anticipate the possibility of two interest rate cuts in 2024, the first in September and the second in December.

03:25 — Optimism about Tesla

Highlights of the week so far include the financial results, with emphasis on Spotify and General Motors, which presented favorable numbers.

Although the earnings season has just begun, data from FactSet indicates that, of the approximately 100 companies in the S&P 500 that have already released their results until yesterday, 76% exceeded market expectations, which is a positive indication.

However, not even Apple’s iPhone sales, which had their worst quarter in China since 2020, could divert market attention from Tesla.

Tesla shares experienced a surge in after-market trading on Tuesday despite reporting below-forecast earnings and revenue for the third consecutive quarter. Investors are focused on the company’s plans to launch more affordable models.

Tesla, which has seen a decline in sales, has plans to begin production of more fuel-efficient vehicles before the second half of 2025, a previous promise from the company.

Currently, however, the company’s financial situation shows signs of pressure, with a 47% drop in annual profit, reaching 45 cents per share, and a 9% reduction in revenue, totaling US$21.3 billion.

In response to the drop, Tesla also chose to reduce 12% of its factory employees in Texas, which represents about 2,700 employees. Despite these challenges, the company’s shares managed to maintain market optimism this Wednesday.

Later this week, we await the results from Meta and, later, from Microsoft and Alphabet.

04:12 — Intervention in Japan

Japan is on the verge of intervening in the currency if the yen continues to weaken. With US and Japanese interest rates remaining unchanged, the yen’s rapid depreciation against the dollar could trigger official action.

Furthermore, the market’s reaction to recent US economic data could influence a decision to intervene by Japanese authorities.

The yen, which had hit 34-year lows, rebounded significantly following Nikkei reports that the Bank of Japan will discuss the currency’s weakness at its next monetary policy meeting.

Mitsuhiro Furusawa, Japan’s former deputy finance minister, is considering the possibility of an interest rate hike by the Bank of Japan as early as July, although the majority of the market predicts no change for this week’s meeting.

Japan is experiencing a peculiar period: the economy is robust, inflation is showing signs of heating up after decades of inactivity, and the stock market recently reached new historic highs.

Despite this, the yen’s vulnerability is a cause for concern, especially in a context where US interest rates remain high for an extended period. This shows that it is not just emerging countries that face exchange rate challenges.