Bolsonaro spending to rein in Lula enters the market’s radar

Negative pressure from abroad due to decisions on interest rate increases and reduction of financial stimuli in some of the main world economies once again shared space with the domestic fiscal risk in the analysis of stock markets this Friday (17th).

Amid this scenario, the Brazilian Stock Exchange retreated 1.04%, to 107,200 points. The result for the week is a drop of 0.52%, the first after two weekly highs.

The dollar closed the day with a slight gain of 0.07%, at R$ 5.6840. The weekly high, however, reached 1.24%. The risk of imbalance in the internal accounts makes the US currency an even more interesting refuge at this time, as the signs of higher interest rates in the United States tend to appreciate the currency.

Electoral polls showed former president Luiz Inácio Lula da Silva (PT) with chances of defeating president Jair Bolsonaro (PL) in the first round of the 2022 elections. improve your performance at the polls.

“The already cautious scenario was aggravated by increased concerns about the fiscal scenario and prospects for further increase in spending by the current government,” said Cristiane Quartarolli, an economist at Banco Ourinvest.

“This perspective was accentuated today, with signs of weakness in the third way and in the current government,” stated the economist.

“Domestic assets are being penalized precisely because of the possibility that the government will spend more in 2022 and, in addition to the PEC dos Precatórios, find other ways to continue with some electoral appeal”, commented Camila Abdelmalack, chief economist at Veedha Investimentos

“Investors are starting to pay attention to other measures that may come to light at the beginning of the year, in what is dubbed by the market as the Bolsonaro electoral package,” said Abdelmalack.

Other political developments this week also fueled concerns about the fiscal landscape.

Under pressure from Bolsonaro, the Ministry of Economy suggested to Congress the reallocation of nearly R$2.9 billion in the 2022 Budget to pay for salary increases for some civil servant careers.

Although the categories to be benefited have not been mentioned, there is an expectation that the increase will fulfill a promise made by the president to federal police officers, who are part of his electoral base.

With the support of opponents and allies of Bolsonaro, Congress this Friday overturned the veto of the R$ 5.7 billion Electoral Fund for next year, reinforcing the prospects for an increase in public spending on the elections.

According to João Agostini, a specialist at the variable income desk at Valor Investimentos, the Bolsonaro government has already caused the main damage in the market’s assessment of the country’s fiscal risk by circumventing the spending ceiling through the PEC dos Precatórios to be able to pay the Auxílio Brasil de R$ 400 in 2022. “Bolsonaro was already under pressure since the first electoral polls”, stated Agostini.

For the analyst, the market decline this Friday has a stronger relationship with the external scenario and some specific facts about Brazilian companies, such as the 2.36% drop in Petrobras.

This Friday, the state-owned company acquired the exploration and production rights for volumes exceeding those of the transfer of rights rights in the maritime fields of Atapu and Sépia, exercising its legal permission to participate in the consortium that won the tender.

The result of the auction was considered weak and reflected a lower appetite for risk in the sector, which has been increasingly targeting renewable energies.

Petrobras shares were also affected by the sharp drop in oil prices. The barrel of Brent retreated 2.80%, to US$ 72.92 (R$ 415.30).

In New York, the main stock indexes closed down. Dow Jones and S&P 500 were down 1.48% and 1.03%, respectively. Nasdaq gave 0.07%.

In addition to the pressure caused by the monetary tightening announced by the Fed (Federal Reserve, the US central bank) last Wednesday (15th), the American market was affected by a technical movement, the expiration of options – a type of derivative that has a term for be sold.

“It’s a great option expiration day,” said Joe Saluzzi, co-trading manager for Themis Trading in Chatham, NJ. “And on top of that you add a little bit of omicron and there is volatility, and I think that creates a lot of uncertainty among investors,” he commented.

with Reuters