2024-05-03 20:38:40
Relief. The financial markets had a first week of May to celebrate, with the stock market rising and the dollar falling, after an April in which the main indices closed in the red.
In the United States, concerns about a scenario of rising interest rates diminished, while in Brazil, unexpected news from the risk rating agency Moody’s surprised analysts.
Corporate news also continues to be busy, with new judicial recoveries and changes of command. We will talk more about all these subjects below. Follow along.
Markets in the week
- Ibovespa: +1,57% | 128,509 points
- S&P 500: +0,55% | 5,128 points
- Nasdaq: +1,43% | 16,156 points
- Dollar: -0,91% | R$ 5,0697
Employment falls, markets rise.
When we talk about fewer job vacancies being created, we can conclude that this is negative news, right? Not always.
In the United States, the Department of Labor announced this Friday the creation of 175 thousand new jobs – disregarding the agricultural sector – in April. The number was well below the 235 thousand projected by experts.
Soon after, the Stock Exchanges reacted sharply, in Brazil and the United States.
And why is that?
- The big theme for markets this year is when the United States will start cutting its interest rates. In a range of 5.25% to 5.50% per year, this is the highest level since 2001.
- The Federal Reserve (Fed), the American central bank, has the goal of bringing inflation to a sustainable level of 2% per year. But the stronger the job market, the more difficult it is to achieve this goal.
- Among its various impacts, rising interest rates tend to mean higher costs for companies, in addition to negatively impacting the calculation of their valuations and reduce the attractiveness of risky assets.
- Thus, variable income markets tend to react with gains when there is a prospect of a fall in interest rates.
And what are the projections like now?
On Wednesday, while Brazilian markets remained closed, the Fed decided to maintain its base interest rate, in a widely expected decision. More important than the decision itself were the statements made by its president, Jerome Powell.
Given the recent signs of persistent inflation in the American economy that we commented on in recent editions of this newsletter, speculation began not only about the postponement of the interest rate cut until next year, but also a possible increase in interest rates. Powell, however, surprised by ruling out this scenario.
“(…) Therefore, I think it is unlikely that the next movement in the base rate will be an increase. I would say it is unlikely”
Jerome Powell, May 1st.
Majority bets remain for the first interest rate cut in the United States in September this year.
Now, investors will continue to wait for new statements from Powell to assess possible adjustments to expectations – especially after the lower-than-expected employment data this Friday.
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Movement in the credit note
For almost a decade, Brazil has been viewed with suspicion on the international scene, being assessed as “speculative grade” by the main risk rating agencies.
But this week, we made important progress. A Moody’s raised the outlook for the Brazilian note (Ba2), changing from stable to positive.
What do you need to know:
- The positive outlook means that the agency is more likely to raise the rating, currently two levels below investment grade.
- Moody’s last move in relation to the Brazilian note was in 2016, when it removed the investment grade by downgrading the note by two levels at once. The outlook fluctuated between stable and negative in the following years.
- Last year, the other two main risk rating agencies on the world stage, Fitch Ratings and S&P Global Ratings, had already raised the rating to a level below investment grade.
- Investment grade notes offer a positive signal to foreign investors. In practice, it is an important seal for attracting foreign investment.
Keeping an eye on the tax situation
In its statement, the agency highlighted the more robust GDP growth in recent years, the importance of structural reforms that took place in several governments and spoke about continued, albeit gradual, progress in fiscal consolidation for Brazil.
While recognizing progress in the fiscal field, the agency also reinforced that the current note demonstrates “still relatively weak” fiscal strength.
Attention regarding public accounts continues to set the tone in local markets, while investors begin to prepare for the next Copom meeting, which announces the next decision on the Selic rate next Wednesday, May 8th.
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Total dedication to turnaround
It has already become fashionable. Another brand known to the Brazilian public presented its plan to renegotiate debts with creditors. Now, it was Casas Bahia’s turnundergoing extrajudicial recovery, which dominated the news at the beginning of the week.
It joins a recent group that includes names like Americanas, Light, Gol, Oi, 123Milhas, and many others that need to go to the table with their creditors to close new agreements.
This is a reality for many other companies, which are still suffering from the effects of the pandemic and the high interest rate scenario. They exist more than 4,000 companies in the debt renegotiation process.
Deal details you need to know:
- R$4.3 billion in financial debts are being negotiated.
- According to the company, 55% of debt holders have already agreed to the plan.
- In the proposal, the average debt duration should rise from approximately 22 months to 72 months.
- And the interest rate to be paid must fall from CDI+2.7% to CDI+1.2%, on average.
- The plan still needs to be approved at an extraordinary general meeting.
And what does this mean for the market?
The company’s shares rose more than 40% this week, but the shares continue to record losses close to 30% this year. The shares were also excluded from Ibovespa, the stock exchange’s main index, this week.
The BTG Pactual analysis team has a neutral recommendation for the stock, still seeing a difficult scenario for the coming years.
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“Woodstock capitalista”
This weekend begins one of the main events for lovers of the world of investments. This is Berkshire Hathaway’s annual conference in Omaha, Nebraska. This is the management company led by legendary investor Warren Buffett.
This is always a highly anticipated moment because Buffett usually details his investment strategy, his view on the main positions in his portfolio – Apple remains his largest allocation – and shares a series of learnings.
This will also be the first time in many years that the event will be presented without Charlie Munger, who passed away last year.
His speeches usually have repercussions in various media outlets. We will bring some of the main learnings in our next edition.
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How did the week affect your investments?
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