Dollar rises with an eye on PEC and Gilmar Mendes’ decision on Bolsa Família

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The dollar rose against the real this Monday (19), as the processing of the PEC on Spending in the Chamber of Deputies enters a decisive week, with investors still eyeing the decision of STF Minister Gilmar Mendes to grant an injunction that withdraws the Bolsa Spending cap rule family.

At 9:16 am (Brasília time), the spot dollar advanced 0.84%, at R$ 5.3369 on sale.

On B3, at 9:16 am (Brasília time), the first contract dollar futures contract rose 0.33%, to R$ 5.3490.

The announcement of new members of the economic team of the finance minister of the elected government, Fernando Haddad, is also on the radar of financial agents this week.

On Friday (16), the US currency fell sharply against the real throughout the trading session, with the postponement of the vote on the PEC (proposed amendment to the Constitution) of Gastança in the Chamber of Deputies encouraging investors.

The currency ended trading in the last trading session of last week at a low of 0.41%, at R$ 5.2940 for sale. In the accumulated result for the week, there was a decrease of 0.34%, with a decrease of 5% in the year.

Negotiations around the PEC da Gastança, which raises the ceiling and releases R$ 168 billion in expenses for the new government of Luiz Inácio Lula da Silva (PT), skate in the Chamber amid disputes for ministries and uncertainties about the future of rapporteur’s amendments after judgment at the STF (Federal Supreme Court).

The President of the House, Arthur Lira (PP-AL), announced that the vote on the text was scheduled for next Tuesday (20) – a day after when a final verdict from the Court on the amendments is expected. Analysis of the topic was suspended this Thursday and will be resumed on Monday.

“The resistance that the agenda faces in the Chamber increases the chances of the project’s dehydration, since the future government intends to approve it later this year and Congress goes into recess next week”, say analysts at Levante Investimentos in a note.

The expectation of financial agents that changes in the State-owned Law that shields public companies from political excesses will find it more difficult in the Senate to advance in the way that occurred in the Chamber also helps in the fall of the American currency.

“The postponement of the PEC [da Gastança] and the possibility that both it and the change in the State-owned Law pass to the next legislature was seen positively, as in addition to avoiding giving such a waiver of expenses so desired by the government, it forces a deeper discussion of the issues”, says Jason Vieira, chief economist at Infinity Asset in a report.

Stocks fall back with tough message from BCs on global economy in 2023

On Friday, the Brazilian Stock Exchange followed the greatest aversion to risk in global markets, with the Ibovespa index ending the day with a devaluation of 0.85%, at 102,855 points

Against the grain of the market, the shares of state-owned companies rose, reflecting investors’ relief with the postponement of the measures intended by the elected government to increase spending and change the law on state-owned companies — Banco do Brasil shares advanced 2%, while the common shares of Banco do Brasil Petrobras rose 0.3%.

On the US and European Stock Exchanges, the main stock indices also retreated, in the wake of signals transmitted by the global monetary authorities indicating a scenario ahead with new interest rate hikes to combat persistent inflationary pressure.

In the US market, the S&P 500 lost 1.11%, while the Nasdaq lost 0.97% and the Dow Jones dropped 0.85%.

On European stock exchanges, the pessimistic tone also prevailed, with losses of 1.27% in the FTSE-100 index, from London, a drop of 1.08% in the CAC-40, from Paris, and a drop of 0.67%, from the DAX , from Frankfurt.

“Central bank week brought a bitter signal to part of the market that monetary policies should remain contractionary, despite recent signs of a cooling of inflation and economic activity”, says the economist at Infinity Asset.

Although it has reduced the pace of interest rate hikes from 0.75 percentage points in recent meetings to 0.50 points at this Wednesday’s meeting, the US central bank (Federal Reserve) said it expects to raise the basic interest rate even further and that should keep it elevated for longer than previously anticipated, signaling that its efforts to contain high inflation are likely to mean further growth in unemployment and a possible recession.

In Europe, the feeling of risk aversion also predominates, after the ECB (European Central Bank) raised interest rates for the fourth consecutive time this Thursday, although in a smaller magnitude than in its last two meetings.

The central bank of the 19 euro zone countries has raised the interest rate it pays on bank deposits from 1.5% to 2%, moving further away from a decade of ultra-loose monetary policy.

Still, the decision marked a slowdown in the pace of tightening after increases of 75 percentage points in each of the two previous meetings of the ECB, which promised further increases and presented plans to drain money from the financial system as part of its fight against the inflation.

“The Governing Council considers that interest rates still have to rise significantly at a steady pace to reach levels restrictive enough to ensure a timely return of inflation to the 2% medium-term target,” the ECB said.

The European Monetary Authority also raised its inflation forecasts for the euro zone and said price growth would remain above its 2% target over a projection horizon that now extends to 2025.

The bank now sees inflation in the bloc at 6.3% next year, compared with expectations of 5.5% made in September. Its forecast for 2024 has been raised from 2.3% to 3.4% while, in its first estimate for 2025, the ECB sees inflation at 2.3%.

At the same time, economic growth will suffer greatly in the coming year as a result of the war in Ukraine, particularly its impact on rising energy prices.

The ECB now sees GDP growth at 0.5% next year, compared to the 0.9% forecast in September, while in 2024, growth is forecast to be unchanged at 1.9%. In 2025, the ECB predicts growth of 1.8%.

With Reuters

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