Stock market fluctuates as Fuels PEC revives fiscal risk

Stock market fluctuates as Fuels PEC revives fiscal risk

The Brazilian Stock Exchange started the first trading session of the week low on Monday (7). The pressure of high fuel prices on inflation is on the market’s radar due to its potential to stimulate measures that affect tax collection. Concerns about fiscal risk once again appeared prominently in analysts’ reports to investors.

At 12:29 pm, the Ibovespa, the stock exchange’s reference index, rose 0.04%, to 112,260 points, after having spent the entire morning in decline. The dollar fell 0.60%, to R$ 5.2920.

The role of the Central Bank in trying to remedy the rise in inflation by raising the Selic rate is one of the factors supporting the fall in the US currency. High interest rates increase the attractiveness of Brazilian fixed income for foreign investors, who bring their dollars into the country.

For the stock market, however, the appreciation of fixed income represents competition. The rise in the Selic rate may, therefore, exert negative pressure on the performance of the Stock Exchange.

Market analysts were less worried about domestic interest rates this early week. Instead, they highlighted the movements of President Jair Bolsonaro (PL) in search of a quick response to control inflation.

The government already fears a spike in inflation in the third quarter of this year, at the height of the election campaign. This concern triggered the decision of President Jair Bolsonaro (PL) to sponsor the PEC (proposed amendment to the Constitution) that will allow reducing taxes on fuel.

In its morning report, Banco Original highlighted that the economic team still insists on the idea that tax reductions should be done through a bill, not a PEC. This, in theory, would lessen the impact on revenue.

Genial Investimentos warned that, after a cycle of highs in the stock market in January, the end of the parliamentary recess brings back the noise of politics to the market.

It also stands out in the brokerage firm’s analysis of proposals in progress in Congress that allow for the removal of fuel taxes, without offsetting the increase in other taxes, as required by the Fiscal Responsibility Law.

“If all the states and the federal government move in this direction, we could have a reduction in tax revenues and an increase in the primary deficit between R$ 57 billion and R$ 100 billion. Fiscal risk in the vein”, wrote Genial analysts.

Fiscal risk is the name the market gives to the possibility that the Union may not be able to meet its budget. By increasing spending and giving up revenue, the government increases this risk. In the run-up to presidential elections, concerns about fiscal risk often cause the stock market to fall and the dollar to rise, as investors seek safety in assets linked to the US currency.

The source of pressure on fuel prices is the rise in oil prices on the international market. The Brent barrel, a world reference, rose 0.19%, to US$ 93.45 (R$ 497.88). The commodity is at the highest level since 2014.

It is the imbalance between the tight supply maintained by the main exporting countries and the high demand that is mainly responsible for the rise in oil. The crisis involving Russia, which threatens to invade Ukraine, has worsened this scenario. Russia is a major producer and a conflict could further reduce supply.

The target of criticism from the political world due to its fuel price policy, which follows the variation of the international market, Petrobras’ shares were unable to take advantage of the rise in oil. The state-owned shares retreated 1.41%.

Among the positive highlights of the beginning of the session on the Brazilian Stock Exchange, BB Seguridade rose 3.3%. The company presented a balance sheet with results above market expectations.

In the United States, investors are trying to assess whether data on job creation and income behavior in the US economy, which came in well above expectations last week, will increase pressure on the Fed. to accelerate interest rate hikes. The rate, currently zero, is expected to start rising in March.

The main US market indices were mixed. The Dow Jones was down 0.08%. The S&P 500, a benchmark for the New York Stock Exchange, rose 0.09%. Nasdaq advanced 0.87%.

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