Stock market today: Ibovespa is falling with higher-than-expected inflation in April; dollar gains strength

CALIBRATING POSITIONS: WHAT CAN CHANGE THE MOOD IN THE SHORT TERM?

After the sharp correction observed yesterday in Brazil, which contrasted with the more optimistic climate abroad, today we turn our attention to the consolidated inflation data for April.

While important, this data is now less crucial than the Copom minutes, which will be released next week, due to Copom’s confusing statement last Wednesday, which revealed significant internal disagreement, as we discussed yesterday.

Outside, markets are trending higher this morning, with European markets and American futures rising.

In the United Kingdom, in fact, sentiment was boosted by GDP growth in the first quarter, which exceeded expectations, taking the country out of technical recession.

Interestingly, it appears that European central banks may initiate interest rate cuts before the Federal Reserve in the US. The Bank of England, for example, is moving cautiously towards a more flexible monetary policy despite signs of a more robust GDP, as inflation is still expected to continue to slow.

The European Central Bank (ECB) should follow a similar trajectory, with the expectation of reducing interest rates between June and August.

Today’s agenda also highlights the scheduled speeches of five Fed members this Friday, which could introduce volatility into Treasury bond markets. Furthermore, the consumer sentiment index for May, measured by the University of Michigan, is another relevant piece of data for the day.

Seeing…

00:52 — What is the chance of minimizing negative mood?

In Brazil, as I mentioned previously, the highlight of the day is the April IPCA, which accelerated to 0.38%, compared to 0.16% in March.

If the result were below expectations, similar to that observed in the IPCA-15, it could alleviate the pessimism generated by the Copom division, amid uncertainties about the future composition of the Central Bank from January 2025, when Roberto Campos Neto and more two directors will be replaced by President Lula’s nominees — next week, we will also have American consumer inflation (CPI) for the month of April, which could help international sentiment, including in Brazil, if it comes in below expectations .

Market insecurity led to an increase in the interest rate curve, appreciation of the dollar and a drop in the Stock Exchange to 128 thousand points (the overall performance was worse than suggested by Ibovespa, partially offset by a positive day for Petrobras and Vale) .

It is clear that we have not yet reached the end of the monetary cycle and the Central Bank could still make two or three cuts of 25 basis points each, depending on local and international economic data.

A more cautious stance was already anticipated, especially after the tragic events in Rio Grande do Sul, where there are proposals for Petrobras dividends to be allocated to a disaster fund.

However, poor communication from the Central Bank, accompanied by worrying indications that the institution could adopt a more political stance at a crucial time to anchor expectations, exacerbated tensions.

According to reports, even BC directors were surprised by the market’s reaction.

Fortunately, they will have the opportunity to clarify the situation next Tuesday, when the minutes of the meeting will be released. Let’s see if they can turn the game around. The short term remains bad.

01:47 — Good signs for markets

In the US, the stock market continued its May rally yesterday after initial jobless claims data surpassed forecasts.

The S&P 500 came within less than 1% of its all-time high, reaching its highest level since early April.

After a challenging month, the market is extending a rally driven by expectations that the Federal Reserve could cut interest rates later this year.

Initial jobless claims, which I mentioned, rose to 231,000 last week, a figure above consensus expectations and the highest since last summer.

While the magnitude of the increase surprised many, weekly growth was expected, especially considering this is a common pattern after school holidays in New York.

In fact, more than half of the nationally non-seasonally adjusted increase originated in New York, with more than 10,000 claims per week.

So even if the seasonally adjusted number is not guaranteed to return to 210,000 next week, there is already reason to anticipate a significant reduction in orders looking ahead.

For today, statements from Fed members are in focus, as happened yesterday with the president of the San Francisco Fed, Mary Daly.

Additionally, the agenda includes the May consumer sentiment survey, highlighting consumers’ inflation expectations for next year.

02:38 — European vision

European parliamentarians approved a significant review of the European Union’s budgetary rules in recent days. The new scheme aims to make the rules more transparent, conducive to investment, adaptable to the specific conditions of each country and more flexible.

The main objective is to preserve the investment capacity of governments. Under the new rules, countries with debt exceeding 90% of GDP must reduce it by an average of 1% per year, while those with debt between 60% and 90% of GDP must reduce it by 0.5% per year.

If a country’s deficit exceeds 3% of GDP, it must be reduced during periods of economic growth to reach 1.5%, in addition to establishing a spending reserve for adverse economic times.

The rules also extend the period to achieve the objectives of the national plan from four to seven years, marking an advance in the European fiscal scenario.

Furthermore, another notable move by the European Union, although still preliminary, is the plan to use part of the $225 billion in Russian financial assets to finance military and humanitarian aid for Ukraine (this plan would focus on the income generated by these assets). .

The measure still needs to be voted on and officially approved by all 27 member countries, but it already represents an important step.

The agreement proposes releasing up to $3.2 billion annually to Kiev, 90% of which could be earmarked for purchasing ammunition and other military equipment — with the first tranche of funds potentially arriving in Ukraine as early as July.

Although there are controversies about the legality of appropriating Russian properties, this strategy stands out as a way of financially supporting Ukraine without imposing high direct financial costs, similar to what happens in the USA.

03:24 — African elections

After three decades under African National Congress (ANC) rule, South Africa approaches a possible political turning point in this month’s elections.

The party, which was led by Nelson Mandela and played a crucial role in combating apartheid, promoting the repeal of racist laws and boosting economic development, as well as expanding access to healthcare and education, now faces a critical moment.

However, the ANC’s performance in the last decade left something to be desired: the economy stagnated amid constant power blackouts and logistical problems that compromised the country’s productivity; unemployment reached 32%; and levels of crime and corruption have become extremely high.

Recent polls indicate that support for the ANC has fallen below 40%, a drastic reduction of around 20 percentage points since five years ago, marking the worst performance since the end of white minority rule.

Therefore, it is very likely that the party will lose its parliamentary majority in the May 29 elections, needing to form alliances to remain in power.

A particular concern lies in the possibility of a coalition with the Economic Freedom Fighters (EFF) party, which advocates the nationalization of mines and the nationalization of all land. Such an alliance could represent a disastrous path for a country that already faces multiple adversities.

04:13 — Artificial Intelligence as a weapon

A debate is emerging among major global military powers about the need to establish safeguards for the implementation of artificial intelligence (AI) in military operations.

Although there are already efforts to ensure the safe use of AI in general, it is becoming increasingly urgent to expand this discussion to encompass its use in military contexts, where the risk to human lives is substantial.

Yes, the regulation of AI is recognized as a critical need, but to date, little attention has been devoted specifically to the implications of its use in the military, a field that will likely expand in the coming years under the concept of “DefTech.” defense).

Consider potential risks, such as the possibility of a person being misidentified as a legitimate target for a drone strike, or the types of AI applications seen in Ukraine, where facial recognition and other data are used on the battlefield without clear regulations.

Thus, it is crucial that discussions about the safety of AI not only address its safe use in general, but also focus specifically on appropriate practices for using AI in war, combat, and conflict contexts, in line with what we have done with the nuclear weapons.

It is vital that there are clear guidelines, established by democratic nations, that ensure that the use of AI in military operations is aligned with international and humanitarian law, promoting a rules-based global order.