The Credit Suisse crisis, how the market reacted to the 1st round and what matters in the economy

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The Credit Suisse crisis

Swiss bank Credit Suisse is experiencing a credibility crisis with investors.

After its shares tumbled and the bank’s CDS (Credit Default Swaps) bonds soared last week, executives spent the weekend trying to reassure large clients.

It didn’t work out very well. This Monday, the prices of its CDS reached the maximum, surpassing those of the 2008 financial crisis, and its shares came to fall 11% –but recouped losses on the positive day in the market.

Understand the scolding: Swiss bank papers had already been suffering during the year with the sourness in global markets, but the situation has become more complicated in recent days.

  • Rumors in the market about the bank’s need to raise capital at a high cost to go ahead with its restructuring plan made matters worse.
  • The priority is to reformulate the investment banking area (mergers and acquisitions, capital markets and equity issues), which is considered to be more deficient. The plan, which is expected to involve thousands of layoffs, is due to be presented at the end of October.
  • Deutsche Bank analysts estimated that he must leave a hole of 4 billion Swiss francs (BRL 22 billion) in the Credit Suisse cash register. The bank’s market value has halved since February and now stands at around US$ 10.6 billion (BRL 55.1 billion).

Executives reinforce stability: on Friday, the bank’s CEO, Ulrich Körner, sent a statement to calm employees.

  • “Our position on this is clear. Credit Suisse has a strong capital and liquidity position and balance sheet. The share price evolution doesn’t change that fact.”

Credit Suisse declined to comment.


Economists suggest Lula’s turn to the center

If Bolsonaro attributed the result of the first round to his successful strategy in the economy, economists heard by the Sheet do not see it that way and justify the voter’s choice to a conservative wave.

For them, Lula will need to adapt to this movement and head to the center to win the election and, if elected, maintain an alliance with parties that are located far from the poles of the ideological spectrum.

  • THE Sheet heard Elena Landau and Nelson Marconi, respective coordinators of the economic programs of Simone Tebet and Ciro Gomes, and former members of PT governments Nelson Barbosa and Bernard Appy.

Among the managers of the financial marketthe assessment was that the voter points towards a more central path, which reinforces the perspective of continuity of a more liberal policy and favors greater stability in the economy.

For them, the election of a Congress that should block agendas defended by the left, such as the repeal of the labor reform, should prevent a major economic change in the next government.

One of the rare contrary opinions came from the British economic consultancy Oxford Economics.

In a report, he said that a Bolsonaro victory in the second round would be the worst possible scenario for the markets, because “his greater support in Congress could allow him to fire Supreme Court justices, leaving him free to dissolve Congress and suspend free elections. , if you wish”.


Market euphoria after 1st round

Euphoria dominated the Brazilian financial market this Monday (3), the day after the results of the polls that indicated a second round disputed between Luiz Inácio Lula da Silva (PT) and Jair Bolsonaro (PL).

In numbers: also driven by the positive scenario abroad, the dollar closed down by 4.05%, at R$ 5.17. It was the biggest daily pullback for the US currency since June 8, 2018.

  • On the stock exchange, the Ibovespa jumped 5.54%at 116,134 points, the highest in a trading session since April 6, 2020, when the market was trying to understand the effects of the pandemic.

What explains? Analysts attribute the super positive day in the market to some trends that were extracted from the results of the elections in the 1st round:

  • Privatizations: the scenario less negative than the polls projected for Bolsonaro, a candidate with an agenda perceived as more liberal, encouraged a part of investors and boosted state-owned shares, such as Petrobras and Banco do Brasil.

State oil company shares jumped 7.99%while those of BB rose 7.63%.

Another highlight was the actions of Sabesp, a sanitation company controlled by the São Paulo government, which soared 16.94%.


UK withdraws from tax cut

After causing panic in the British market and downgrading the pound sterling to an all-time low against the dollar, the UK government’s plan to cut taxes was abandoned.

“It is clear that the end of the 45% tax rate [para 40%] has become a distraction from the primary mission of tackling our country’s challenges,” UK Finance Minister Kwasi Kwarteng said on Twitter.

Remember: the plan was one of the government’s first announcements by the new prime minister, Liz Truss. The idea was to avoid the effect of a probable recession with a sharp tax cut, at a cost of 45 billion pounds (R$ 257 billion).

  • In addition to the strong negative reaction in the market, the package was also criticized by the IMF, for exonerated to the richest part of the population just when the low-income people are most affected by inflation.

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