Stock market today: Dollar falls to R$5.11 with inflation in the USA; Ibovespa recovers 126 thousand points with NY and increases 1% in the week

WE RETURN TO THE RISK OF STAFLATION IN THE USA

Today, international markets are trying to recover after a day of intense risk aversion yesterday, driven by concern about possible signs of stagflation in the US, due to recent data on American economic activity.

Indices in Europe are rising this morning, and US futures are also showing a recovery, stimulated by the positive results of technology giants Alphabet and Microsoft.

The expectation for the announcement of the March Personal Consumption Expenditure Price Index (PCE) in the US adds a dose of anxiety, but does not prevent a certain optimism in the markets.

The scenario in Asia was also one of gains, concluding the week on a high, especially after the decision by the Central Bank of Japan to keep interest rates stable. Kazuo Ueda, president of the Bank, reinforced that Japanese monetary policy will remain flexible for now.

However, the yen saw further depreciation, with the dollar reaching the 156 yen mark.

In the commodities market, oil registered an increase, exceeding US$89 per barrel, while iron ore showed stability, with a slight upward trend. These movements are of interest to Brazil, which still needs to process preliminary data on local inflation.

Seeing…

00:51 — Normalization on the horizon

In Brazil, the Ibovespa fell again yesterday, predominantly affected by the drop in Vale shares, despite the progress seen in Petrobras shares.

Investors’ reaction to Vale’s first quarter balance sheet, which was in line with expectations, did not prevent the shares from falling.

These were also influenced by the proposed merger by BHP, the world’s largest mining company, with Anglo American, which saw its shares rise 16.05% to a nine-month high, valued at £31.1 billion.

On the other hand, the increase in Petrobras shares, after the approval of the distribution of 50% of extraordinary dividends for 2024, helped to mitigate the index’s losses, reinforcing the expectation of similar payments by the end of the year.

Furthermore, the focus of the day was on the release of the April IPCA-15, which slowed to 0.21% in April, after 0.36% in March.

Qualitatively, resilient inflation is still expected in the services core, while the situation for industrial goods remains favorable. For inflation accumulated over 12 months, the deceleration was from 4.14% in March to 3.77% in April.

However, even with this inflationary normalization, expectations for the Selic at the end of the year lean more towards 9.75% and 9.50% than towards 9%.

This scenario remains tense, especially in a context where foreign investors seem to give preference to markets like Mexico, to the detriment of Brazil.

01:47 — Space for a milder climate in Brasília

In Brasília, Fernando Haddad had two encouraging news this week. Firstly, in addition to the extraordinary dividend already mentioned from Petrobras, President Lula authorized the release of the second installment of these dividends, previously withheld, which could represent an increase of more than R$6 billion for the National Treasury.

The second good news came from the Federal Supreme Court (STF), where minister Cristiano Zanin responded to the government’s request to suspend parts of the legislation that extended the payroll tax exemption for municipalities and certain productive sectors until 2027.

This measure is temporary and will be evaluated by the virtual plenary of the STF starting tomorrow. Despite potentially generating friction with the Senate, this decision paves the way for smoother negotiations with the Chamber of Deputies.

Additionally, this same week, Arthur Lira, president of the Chamber, expressed his reservations about the viability of the five-year PEC, foreseeing significant resistance within the house and questioning its progression in the Senate, given the concern about the budgetary impact of the inclusion of several categories in the proposal.

This is another moderate victory for the economic team, adding to the partial compromise regarding Perse. This improvement in relations is crucial to neutralize potential explosive agendas in Congress.

With the expectation that the economic agenda will be more protected from conflicts, the market may begin to perceive the political scenario in a more positive way.

Another indication of improvement was Lira’s promise to reduce tensions with his opponent, Padilha, indicating an effort to reduce clashes.

02:33 — The fear of stagflation

In the United States, the GDP data released yesterday surprised everyone, recording annualized growth of just 1.6%, which was below all economists’ expectations.

This more modest result was mainly due to lower inventory build-up and a wider trade deficit.

In isolation, this weaker growth could be interpreted positively, as it would indicate greater scope for interest cuts.

However, the personal consumption expenditure (PCE) price index as a GDP deflator came in stronger than expected, jumping from 1.8% to 3.4% from the last quarter of last year to 2024.

This combination of high inflation and slow growth raises the alarm about the possibility of stagflation in the US — a scenario in which economic growth stagnates while inflation remains high, harming household consumption and corporate profits.

Although it is still an unlikely scenario, it becomes more plausible after recent data suggesting high interest rates.

Therefore, it is crucial that we analyze the PCE index today, which is the Federal Reserve’s preferred measure of inflation. The market predicts a 0.3% increase in both the total and core index. A better-than-expected result could negatively impact not only the American market, but also global markets.

Meanwhile, we are still processing the excellent results from Alphabet and Microsoft and await the results of other important companies, such as Charter Communications, Chevron, Colgate-Palmolive, Exxon Mobil and HCA Healthcare.

03:24 — The strength of technology companies

In the United States, there was great expectation around Microsoft and Alphabet, especially after Meta Platforms left investors apprehensive with its predictions.

As I mentioned in yesterday’s edition of M5M+ in the last minute of the newsletter, our trust was placed in Microsoft and Alphabet, as we have reinforced in recent months, to the detriment of companies like Meta and Intel. This expectation proved to be correct.

Microsoft reported a rise in quarterly sales and profits that surpassed projections, driven by enterprise demand for its cloud and artificial intelligence solutions.

In turn, Alphabet, Google’s parent company, also exceeded revenue expectations for the first quarter, benefiting from the growth of its cloud computing unit.

Specifically, Microsoft was under intense expectation to demonstrate a return on its investments in artificial intelligence, and the results did not disappoint.

The highlight was the performance of its cloud computing unit, Azure, which registered a growth of 31%, exceeding estimates that predicted 30%, with a contribution of seven percentage points coming from initiatives linked to AI, an improvement in relation to six points from the previous quarter.

Similarly, Alphabet has also shown that AI gains are beginning to materialize, suggesting that these tech giants will likely continue to dominate the sector.

04:18 — Fear of debt levels

Jamie Dimon, CEO of JPMorgan Chase, expressed deep concern about the global geopolitical situation, which he calls the most intricate and threatening since World War II.

He particularly emphasized the invasion of Ukraine by 300,000 Russian troops, an attack on a democratic nation on NATO’s borders marked by threats of “nuclear blackmail.”

Additionally, we must also highlight the intense conflict in Israel, which has transformed the region into an even more volatile place. These conflicts directly affect international trade.

In this context, we cannot forget the increase in tensions between the USA and China, which also challenges the global order established after the Second World War, supported by agreements and organizations such as Bretton Woods, the World Trade Organization and the UN.

It is worth noting that a possible Russian triumph in Ukraine would be a crucial challenge for NATO, founded to ensure the freedom and security of its members through political and military means, representing a serious and imminent risk.

This scenario amounts to a new Cold War, which could be even more dangerous than the previous one, according to the perspective of the late Henry Kissinger.