Central Bank minutes signal faster tightening pace

The market increasingly expects a 50-basis-point hike in the Selic policy rate by November, with forecasts of 12% per year rate or higher gaining traction

09/25/2024

Solange Srour — Foto: Gabriel Reis/Valor
Solange Srour — Foto: Gabriel Reis/Valor

After the Central Bank’s Monetary Policy Committee (COPOM) maintained a notably harsh tone in the minutes of its last meeting, the market has increasingly consolidated the view that accelerating monetary tightening will be necessary starting in November. The likelihood of a 50-basis-point increase in the Selic policy rate at the next decision gained further support, with market participants viewing this scenario as increasingly probable. Meanwhile, the monetary authority emphasized its vigilance regarding the inflationary challenges posed by an economy operating above capacity and current inflation remaining above target.

In the digital options market, the probability of a 25-basis-point hike at the next meeting slipped slightly from 18% to 17%, while the likelihood of a more aggressive 50-basis-point increase rose from 64% to 66%.

J.P. Morgan was among the banks revising its projections, now anticipating a faster tightening ahead. The bank shifted its forecast from three more 25-basis-point increases in the Selic rate to a more accelerated pace in November and December, expecting the tightening cycle to culminate with the basic interest rate at 12% in January. In a report to clients, economists Cassiana Fernandez, Vinicius Moreira, and Mirella Sampaio highlighted concerns over fiscal risks and the relatively muted easing of the exchange rate.

According to the J.P. Morgan economists, recent developments in the fiscal sphere, particularly after the release of the bimonthly revenue and expenditure report, “cast doubt on the credibility of the fiscal framework and its key parameters, namely the spending cap and the primary result target.”

In the minutes, the COPOM dedicated more attention than usual to evaluating the fiscal situation. When outlining factors driving demand, the board pointed to expansionary fiscal policy. Another section emphasized the importance of a credible fiscal policy “based on predictable rules and transparency in its results,” as well as strategies that reinforce the commitment to the fiscal framework, which are crucial for anchoring inflation expectations and reducing risk premiums on assets.

The COPOM also indicated that its baseline scenario includes a gradual slowdown in public spending growth over time. The minutes further emphasized that “synchronous and countercyclical monetary and fiscal policies contribute to ensuring price stability.”

“It’s a tone of concern, and we know this has grown over time, especially with the output gap [a measure of economic slack] being positive. The minutes clarified the COPOM’s positions better,” said Solange Srour, director of macroeconomics for Brazil at UBS Global Wealth Management, highlighting the signals related to the fiscal framework. “It’s clear this will lead to a more restrictive monetary policy,” she adds, noting that the market is already pricing in an accelerated pace of tightening, even entertaining the possibility of a 75-basis-point hike in the Selic rate.

“What remains for the market, then, is the question: if the Central Bank is so ‘hawkish’ on activity, inflation, and the fiscal situation, why only deliver a 25-basis-point hike?” Ms. Srour asks. She suggests that the COPOM’s caution regarding a more gradual start to the tightening cycle “doesn’t seem to stem from domestic conditions” but is likely influenced by external factors, “which is somewhat inconsistent with the statement that there is no mechanical relationship between Fed policy and Brazil’s or between the exchange rate and interest rates.”

An acceleration of the pace is, therefore, necessary. “A 25-basis-point hike is minimal. I think it’s natural for the market to expect three 50-basis-point increases. Whether that will be sufficient depends heavily on external factors. Domestically, I don’t see anything significant that would make the cycle less aggressive,” argues Ms. Srour.

In the view of Porto Asset Management’s chief economist, Felipe Sichel, the minutes indicate that the COPOM’s gradualism was limited to the beginning of the cycle. He believes the restrained start of the Selic rate hike aligns with the Central Bank’s scenario, which includes robust economic activity, upward inflationary pressure, and the possibility that the neutral interest rate—the rate that neither stimulates nor contracts economic activity—may have risen.

“We started the cycle with gradualism. Our base case currently projects 25-basis-point increases, but it’s clear the COPOM is data-dependent,” Mr. Sichel notes. He adds that the firm’s projection for the Selic rate is under review and that they are waiting for the release of the Inflation Report on Thursday (25) for further clarity.

At Quantitas, chief economist Ivo Chermont now expects three 50-basis-point increases in the basic interest rate, followed by a final 25-basis-point hike in March, bringing the Selic to 12.5%. Previously, the firm had projected the rate to reach 12%.

“Inflation expectations remain a concern because, even after a more ‘hawkish’ COPOM and its strong message of commitment to the target, the Focus report hasn’t improved,“ says Mr. Chermont, referring to the further deterioration in inflation projections released on Monday (23). “Part of the explanation likely stems from the fiscal situation, which has worsened in recent weeks,” he argues.

The Quantitas economist also highlights that their scenario revision wasn’t based on new data but on the Central Bank’s acknowledgment of a positive output gap and the inflation projection increase for the relevant horizon, from 3.2% to 3.5%.

Canvas Capital’s chief economist, Camila de Faria Lima, expects the Selic rate to reach 12% per year by the end of the cycle in January 2025. According to her, the COPOM will need to accelerate the pace of tightening at its November meeting unless economic activity and inflation cool down quickly.

“Unless we see a significant shift in activity or more positive surprises in the inflation breakdown, I believe the most likely outcome is a move to 50 basis points,” says Ms. Faria Lima. She adds that the minutes reiterated the Central Bank’s “deep concern” in reinforcing its commitment to hitting the inflation target within the relevant monetary policy horizon.

The demand for increased spending and attempts to exclude certain expenses from the fiscal target—such as expanding the gas allowance and combating fires—creates a “sense of lost transparency that is very damaging,” argues the Canvas economist. “The market doesn’t believe the government will pursue a better primary result to stabilize the public debt trajectory,” she said. “It would be beneficial to have clarity and a correction to this narrative.”

Still, she doesn’t foresee the Central Bank accelerating the pace of tightening beyond the 50-basis-point hikes she has projected, which the market has already priced in.

*Por Gabriel Caldeira, Victor Rezende, Gabriel Shinohara, Alex Ribeiro — São Paulo and Brasília

Souce: Valor International

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Arbitrators exit Eldorado case, citing threats from J&F

The Batista brothers’ holding company and partner Paper Excellence have been in conflict in various courts since 2018

09/24/2024

Control of the pulp producer Eldorado, which has a plant in Três Lagoas, is at the center of a R$15 billion dispute that has lasted more than six years — Foto: Anna Carolina Negri/Valor
Control of the pulp producer Eldorado, which has a plant in Três Lagoas, is at the center of a R$15 billion dispute that has lasted more than six years — Foto: Anna Carolina Negri/Valor

The president of the arbitration tribunal overseeing the dispute between J&F Investimentos and Paper Excellence over control of the pulp producer Eldorado, along with another arbitrator, resigned on Monday (23). According to letters reviewed by Valor, Juan Fernández-Armesto, who chaired the arbitration, and Paulo Mota Pinto stated that their decision was prompted by “direct threats” from the Batista family’s holding company, which owns meat producer JBS. The news was initially reported by columnist Malu Gaspar in the newspaper “O Globo.”

J&F did not respond to requests for comment.

“Given the direct threat against me, I no longer feel capable of making the decisions I believe to be just and in accordance with the law. Therefore, I am resigning,” Mr. Armesto stated in a document dated September 23.

These resignations are not the first in the Eldorado case and come amid new developments in a battle that has been ongoing for over six years. The latest issue revolves around a case in the Federal Regional Court of the 4th Region (TRF-4), which suspended the transfer of Eldorado shares to Paper more than a year ago.

While J&F claims that one of TRF-4’s decisions had already suspended the arbitration itself, Paper and the arbitration tribunal argue that only the transfer of controlling shares was suspended, along with the activities of the coordinating body established to balance decisions made at Eldorado. This is because Paper, which owns 49.41% of the pulp producer, has a minority stake on the board.

As a result, people familiar with the dispute said J&F had been asserting that the arbitration was violating a court ruling, risking legal penalties.

This clash of narratives was reflected in Itaú’s decision to withdraw from the dispute. The bank was the custodian of Paper’s funds for purchasing the shares of Eldorado still held by J&F, as well as the share book deposited in court by arbitration order. Itaú had sought clarification on the need to return the share book but ultimately ended the contract.

The partners were then given 60 days to find a new custodian, but no financial institution accepted the role. This deadline expired on September 16, and Itaú returned the share book to the company. According to people interviewed by Valor, J&F had sent notifications to these banks, indicating that acting as a depositary would constitute a breach of court ruling and a violation of the rights of both the holding and Eldorado.

Last week, the vice president of TRF-4, Judge João Batista Pinto Oliveira, ordered the suspension of the arbitration itself after a challenge from J&F. The president of the arbitration tribunal acknowledged this recent decision.

Judge Armesto said that the arbitration had always complied with judicial decisions, including those from TRF-4. For this reason, on September 20, he declared the arbitration suspended, following the second-instance judge’s position.

“While it is true that since the issuance of the partial ruling, J&F has adopted a confrontational approach with the Tribunal, this is the first time it has made such a brutal and ‘ad hominem’ threat, implying that I, as president, would be guilty of possible crimes of ‘malfeasance,’ ‘disobedience,’ or ‘abuse of authority,’” M. Armesto wrote.

Judge Mota Pinto, who joined the arbitration after Anderson Schreiber’s resignation—following accusations from J&F of omitting information that could indicate a conflict of interest—stated in his letter that the holding’s threats were directed not only at the presidency but at the entire tribunal.

“There are limits to the viability of establishing arbitration, which in this case have been largely exceeded concerning the president of the Arbitration Tribunal, regardless of the respect always due, asserted and practiced regarding the (better or worse) decisions of state courts,” he wrote.

“In any case, the threats directed at the Tribunal, along with the profound respect and full solidarity owed to the president…prevent me from continuing to serve as an arbitrator in this proceeding,” he added.

In a statement, Paper Excellence described the latest chapter in the dispute as “regrettable” and accused its partner of once again resorting to “criminal threats against some of the most renowned arbitrators worldwide, forcing their resignation.”

“This only confirms that J&F disregards contracts and the decisions against it, acting without the necessary seriousness and ethics in its business relationships,” it added, reiterating accusations that its partner uses “deceptive and dilatory procedural tactics to delay its inevitable defeat.”

J&F and Paper have been engaged in legal disputes across various courts since mid-2018, just before the Batista holding company annulled the purchase and sale contract for Eldorado, which was signed in September 2017. While Paper has won arbitration against its partner, it has yet to gain control of the pulp producer.

J&F is attempting to annul the arbitration ruling in a case currently proceeding in São Paulo’s judiciary. Furthermore, a TRF-4 decision has blocked the transfer of controlling shares based on legislation limiting land purchases by foreigners in the country for over a year.

*Por Stella Fontes — São Paulo

Source: Valor International

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Market distrust of fiscal policy grows as interest rate futures hit yearly high

Rates surpass 12% after disappointing report, impacting exchange rate and stock market

09/24/2024

Maurício Bernardo — Foto: Rogerio Vieira/Valor
Maurício Bernardo — Foto: Rogerio Vieira/Valor

The market once again voiced concern over the state of government accounts, leading to the third consecutive session of pressure on futures rates, which reached their highest levels of the year and settled above 12%. Investors were disappointed by Friday’s release of the bimonthly revenue and expenditure report, which revealed a reduction in the previously announced R$15 billion spending freeze from July. With the perception of a less stringent fiscal policy, risk premiums surged, impacting future interest rates and the foreign exchange and stock markets.

During Friday’s session, rising risk aversion caused significant market stress, which only deepened on Monday. Brazil’s interbank benchmark rate, known as CDI, for January 2029 surged from 12.31% to 12.475%, hitting a session high of 12.575%. On the foreign exchange front, the FX rate neared R$5.60 per dollar but closed at R$5.5344, up 0.25%, while the benchmark stock index, Ibovespa, dropped 0.38% to 130,568 points.

“The reduction in fiscal efforts, announced earlier, sends a negative signal, especially in light of the growing primary deficit,” says Roberto Secemski, chief economist for Brazil at Barclays. “It suggests the government’s tendency to spend up to the maximum limit allowed by the fiscal framework, despite the pressing need for structural, long-term spending adjustments.”

According to Mr. Secemski, the current skepticism in the domestic market stems less from concerns about compliance with the fiscal framework this year and more from a broader lack of confidence in addressing “underlying vulnerabilities” and the “perception of weak commitment to the effective stabilization of public debt.”

This view aligns with that of Luiz Alberto Basqueira, partner and head of fixed income at Ace Capital, who believes that the primary factor behind the market’s recent downturn is a growing “distrust of fiscal policy.” “The market has been skeptical of fiscal policy for some time, but recent small measures and government announcements have accumulated, reminding investors of the persistent challenges with government accounts,” Mr. Basqueira notes.

He points to the Supreme Court’s authorization of additional extraordinary credits, last week’s income and expenditure report, and the announcement of the gas voucher program, which, while likely to be altered by the government, “has already left a scar.”

“This is all unfolding against a very unfavorable backdrop, with increased market concern over the debt-to-GDP ratio. The market is troubled by two things: the perception that the government is not committed to delivering the surplus needed to stabilize the debt and the fact that while the current target can be met, it would be achieved mainly through revenue-side measures, many of which are ‘one-offs.’ The market views this as a low-quality adjustment,” says Mr. Basqueira.

Compounding the negative fiscal outlook is the onset of a monetary tightening cycle, with the Central Bank’s recent communication taking a notably hawkish tone. “The high inflation projection in the reference scenario signals to the market that the interest rate path in the COPOM’s model—already factoring in a 100-basis-point rise in the Selic rate—will need to be more aggressive,” Mr. Basqueira adds. It’s no surprise, then, that Ace Capital has maintained its “long” positions on rising interest rates across the curve.

Both short- and long-term interest rates have been climbing steadily, reflecting the market’s expectation of a more aggressive tightening cycle. The Focus Bulletin, released on Monday, now projects a Selic policy rate of 11.75% per year at the end of January, while the market is already pricing in a rate of 12.75% by mid-next year.

Despite this surge in interest rates, the Brazilian real has not found support. Although the currency gained on Thursday, it has been heavily penalized in recent sessions due to rising risk perceptions.

“The fiscal issue remains the ‘Gordian knot’—the country’s unsolvable problem,” said Andrei Basilio, head of foreign exchange at XP Treasury. “The government missed a key opportunity to show it is addressing fiscal concerns seriously, not just in the short or medium term, but structurally.”

Mr. Basilio emphasizes that it’s not just the numbers in the report that matter, but the lost opportunity. “The Central Bank is clearly grappling with stronger economic growth, which pressures inflation and leads to rate hikes. We’re also seeing improved tax revenues driven by expansionary fiscal policy. This should have been the time to build a fiscal cushion, not the opposite.”

If there are no further negative surprises on the fiscal front and the government delivers on its medium-term promises, the real remains a solid bet, according to Mr. Basilio. “But right now, there’s a bitter aftertaste due to the bimonthly report, as reflected in the yield curve.”

In this context, Maurício Bernardo, fixed-income manager at Vinland Capital, finds the rise in market premiums “reasonable,” given the disappointment with the income and expenditure report.

He notes that the yield curve was already under pressure due to expectations of a higher Selic rate. Now, concerns about fiscal policy have reignited uncertainty, prompting investors to question whether an even larger rate hike, beyond the anticipated 50 basis points in November, might be necessary.

“The risk premium weighs on the exchange rate and fuels market speculation about whether faster monetary tightening might be required. If more tightening is necessary, why not act sooner? The market is factoring that in,” says Mr. Bernardo. Last week, the digital options market for the next Monetary Policy Committee (COPOM) meeting in November briefly priced in a minority chance of a 75 basis-point hike.

In Mr. Bernardo’s view, the market still has room to price in additional risk premiums on the yield curve, driven by expectations that interest rates may need to rise further or concerns over fiscal risks. “If we don’t see positive developments on the fiscal front or more favorable inflation and activity data, it’s reasonable for the market to continue pricing a premium above 250 bp,” he says, referring to the Selic rate the market currently projects for the end of the tightening cycle.

ASA’s head of multimarket, Filippe Santa Fé, shares a similar perspective, calling the recent behavior in the interest rate market “natural.” “He adds, “I don’t think it’s a matter of positioning or that the movement is exaggerated at this point. Perhaps the speed of the adjustment has attracted attention, but we’re clearly not at any extreme in pricing.”

*Por Gabriel Caldeira, Arthur Cagliari, Victor Rezende — São Paulo

Source: Valor International

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Environmental ambiguity likely to draw criticism for Lula in New York

President Lula is expected to address the climate crisis, conflicts, and global financial reforms in his speech at the UN General Assembly

09/24/2024

President Lula in New York with European Commission President Ursula von der Leyen — Foto: Ricardo Stuckert/PR
President Lula in New York with European Commission President Ursula von der Leyen — Foto: Ricardo Stuckert/PR

The climate crisis, conflicts in Europe and the Middle East, and the urgent need for reforms in multilateral mechanisms will be at the center of President Lula’s speech this Tuesday at the United Nations headquarters in New York. However, the ambiguity in his environmental discourse—balancing Brazil’s desire to lead on green issues while simultaneously pursuing the exploitation of the last drop of oil—will not escape the scrutiny of more critical analysts.

As is customary, Mr. Lula will be the first leader to speak right after the secretary-general of the United Nations, António Guterres, and the president of the 79th United Nations General Assembly, Philémon Yang.

Climate, wars, and UN and multilateral reforms are “inescapable topics,” a government official told Valor. Brazil is experiencing unprecedented droughts and wildfires across the country. In May, the state of Rio Grande do Sul endured the devastation of severe flooding.

Considering the extreme climate impacts on Brazil, Mr. Lula is expected to call out industrialized nations for their role in the global crisis, emphasizing the delay in fulfilling the promise to allocate $100 billion annually to developing nations starting in 2020. This target was only met in 2022, two years later, with nearly 70% of the total coming in the form of loans.

On Monday, President Lula held three bilateral meetings—with German Chancellor Olaf Scholz, European Commission President Ursula von der Leyen, and Haitian Prime Minister Garry Conille.

With Germany, he continued discussions from last November in Berlin regarding cooperation on renewable energy and hydrogen. With Ursula von der Leyen, Mr. Lula discussed advancing the conclusion of the agreement between the European Union and Mercosur. With Garry Conille, the Brazilian president committed to helping Haiti and mobilizing other powers to do the same.

The most uncomfortable situation for Mr. Lula so far in New York was a meeting kept off the official agenda—a one-hour session with the global CEO of the British oil company Shell, Wael Sawan, and the president of Shell Brasil, Cristiano Pinto da Costa.

As reported by BBC Brasil, the meeting took place Monday morning at the residence of Brazil’s permanent representative to the UN, Ambassador Sérgio França Danese, where Mr. Lula and First Lady Rosângela da Silva are staying. Presidential aides told the BBC they had been instructed not to disclose the meeting.

Mr. Da Costa told Valor earlier this month that Shell is considering exploring oil areas on the Equatorial Margin, particularly in the basin at the mouth of the Amazon River, should the government decide to move forward in the region stretching from Amapá to Rio Grande do Norte.

Another important event on President Lula’s agenda this Tuesday at the United Nations will be a conference co-organized by the Brazilian president and Spanish Prime Minister Pedro Sánchez. “It will not be a gathering of left-wing leaders but a defense of democracy and a stand against extremism,” a government official said.

Leaders such as Justin Trudeau (Canada), Gabriel Boric (Barbados), Gustavo Petro (Colombia), Emmanuel Macron (France), and Charles Michel (President of the European Council) are expected to attend. However, the U.S. will likely send a lower-ranking official, Deputy Secretary of State Kurt Campbell, as reported by Folha de S.Paulo.

The meeting, titled “In Defense of Democracy: Combating Extremism,” is a key item on the Brazilian president’s agenda in New York. Mr. Lula reportedly invited Joe Biden in a phone call back in July.

On Monday night, there was some tension between President Lula and Mr. Biden’s security team at an event hosted by former U.S. President Bill Clinton’s foundation. Mr. Biden had confirmed his attendance at the last minute, leading to heightened security measures, including the arrival of U.S. Secret Service agents. When the Brazilian delegation arrived, some members were denied entry. Protocols were broken, with demands to search ministers and ambassadors. President Lula, reportedly irritated, canceled his participation.

President Lula then attended a Bill and Melinda Gates Foundation event, where he participated in a talk show-style discussion with Bill Gates and received an award for his fight against poverty and hunger.

Mr. Lula was sharply critical of global wealth concentration during his remarks, highlighting the poor’s lack of access to decision-making platforms. “It’s not acceptable that a single individual has more money than Brazil, with its 200 million inhabitants.”

In a highly critical tone, Mr. Lula pointed to the ineffectiveness of the UN’s decisions, continuing the theme of his Sunday speech in New York.

“The world is ungoverned, no one respects anyone. The UN had 51 member countries at its founding in 1945, now there are 193. More than 140 didn’t participate in the creation of the UN. It had the strength to create the State of Israel, but the UN doesn’t have the courage to create the State of Palestine,” he said, earning immediate applause from the hundreds of people in the auditorium.

He continued by stating that current geopolitical conflicts, such as Russia’s war against Ukraine and Israel’s occupation of Gaza, could have been avoided “if the UN fulfilled its role as a global power.”

One of Mr. Lula’s final events in New York before returning to Brazil will take place on Wednesday, when he will open the second meeting of G20 foreign ministers at the UN headquarters. For the first time in history, the world’s largest economies will jointly call for reforms to the multilateral system.

*Por Daniela Chiaretti, Naiara Bertão — New York

Source: Valor International

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Brazil reinforces commitment to sustainability

First Lady Rosângela da Silva says Brazil experienced setbacks in public policies

09/20/2024

Speaking at the SDGs in Brazil, an event held by the UN Global Compact Brazil on Thursday (19), in New York, Ambassador Sérgio Danese emphasized the importance of sustainable development as one of the fundamental pillars of international politics. He highlighted the importance of the 2030 Agenda and the Sustainable Development Goals (SDGs) as a crucial achievement in Brazil’s advocacy for multilateralism and global cooperation.

According to the ambassador, Brazil has been a historic advocate of development as one of the three fundamental pillars of the United Nations, alongside peace and security. “Brazil is seeking to convey the message of the importance of sustainable development as one of the pillars of global politics,” he affirmed.

During the event, Mr. Danese emphasized that Brazil is launching the Global Alliance against Hunger and Poverty, within the G20. The proposal aims to create international synergies to combat poverty, including the creation of a database of social policies and promote an exchange of knowledge and strengthening of instruments to combat poverty on the global stage.

The ambassador also highlighted Brazil’s advances in social policies, citing the latest UN State of Food Security (SOFI 2024), released in July. “The UN report shows that severe food insecurity fell by 85% in 2023 when 14.7 million people were spared from going hungry in the country,” he said.

Despite the advances, the ambassador warned of the challenges still faced by Brazil in the environmental sphere. He mentioned the recent flood disasters in Rio Grande do Sul and the fires currently destroying parts of the national territory as some signs of the urgency of stronger actions to mitigate climate change.

At the event, First Lady Rosângela da Silva said the country experienced “setbacks” in recent public policies and cited COP30, which will take place in Belém in 2025, as a crucial opportunity to advance global climate negotiations. She emphasized the importance of the conference in addressing environmental challenges, especially in the Amazon rainforest, and restoring Brazil’s leading role in the fight against climate change.

Ms. Silva cited the crucial role of the next Climate Conference (COP30) in Belém in advancing global climate negotiations. According to her, when the 2030 Agenda was launched, in 2015, UN countries were committed to maintaining progress on the Millennium Development Goals. However, Brazil went through a period of dismantling and setbacks, which negatively impacted its ability to achieve the established goals.

*Por Robson Rodrigues — New York

Source: Valor International

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Central Bank pushes futures interest rates higher, boosts real’s value

The hawkish stance taken by COPOM on Wednesday strengthens the Brazilian currency, which stood out during the session; Ibovespa closes lower

09/20/2024

Luís Garcia — Foto: Rogerio Vieira/Valor
Luís Garcia — Foto: Rogerio Vieira/Valor

The more hawkish tone adopted by the Central Bank’s Monetary Policy Committee (COPOM) triggered a significant adjustment in domestic assets during Thursday’s session. Markets have now fully embraced the likelihood of an accelerated Selic policy interest rate hike from November, leading to a surge in future interest rates and a drop in Brazil’s benchmark stock index (Ibovespa). However, the Brazilian real gained from the widening interest rate differential, driving the foreign exchange rate to its seventh consecutive decline and marking its lowest level in a month.

In the digital options market for the November COPOM meeting, the probability of a 50-basis-point rate hike reached 65% by the end of the day, compared to a 22% chance of a 25-basis-point increase and a 9% likelihood of a more aggressive 75-basis-point hike.

“The odds of a 50-bp increase at the next meeting have risen,” noted Evandro Buccini, manager at Rio Bravo Investimentos, though he expressed surprise that the real’s appreciation wasn’t as pronounced as the upward shifts in the futures yield curve throughout the day.

The exchange rate finished the session down 0.70%, at R$5.4241. Meanwhile, Brazil’s interbank benchmark rate, known as CDI, for January 2026 surged from 11.77% to 12.05%, with the curve now pricing in a Selic rate of approximately 12.5% by the end of the tightening cycle.

Market participants highlighted several key points from the COPOM statement, including a positive outlook on the output gap (the measure of economic slack), an upward revision of inflation projections over the relevant horizon, and concerns about unanchored inflation expectations—all of which could justify a more forceful start to the tightening cycle.

Contrary to the prevailing market view, Camilo Cavalcanti, partner and manager at Oby Capital, sees the COPOM’s announcement as balanced and does not signal a more aggressive pace of interest rate hikes. “We interpreted the statement as more neutral. The language seemed more like a defense of the initial interest rate adjustment rather than guidance suggesting an accelerated pace,” Mr. Cavalcanti explains. He expects more clarity when the minutes are released. Mr. Cavalcanti also noted that the Central Bank’s acknowledgment of the output gap as positive was more of a formality, aligning with market expectations.

In his assessment, the market’s reaction during the session was “exaggerated,” and he predicts the COPOM will likely maintain a more gradual pace of 25-bp Selic rate increases per meeting until January 2025, with the rate ending at 11.5%. He pointed to the fact that the projection horizon will soon include the second quarter of 2026, which may show more moderate inflation and reduce the need for aggressive hikes.

As traders await the COPOM’s minutes to refine their Selic rate forecasts, which should be released in the next week, the real strengthened, ranking among the day’s top-performing currencies due to the rising interest rate differential, which favors bets on its appreciation.

Jorge Dib, manager at Galapagos Capital, sees a positive outlook for the real if U.S. data holds no surprises. “Among Brazilian assets, what we like today is the real,” he said, revealing a long position on the Brazilian currency against the dollar. He emphasized the real’s liquidity among emerging market currencies, making it an attractive option for quick inflows and outflows.

Mr. Dib believes the U.S. yield curve has already priced in a substantial rate cut. “At some point, the market may even push up long-term interest rates in the U.S., which could slow the demand for the Brazilian currency,” he notes, though he still expects the real to appreciate in the short term. For Mr. Dib, the current environment suggests a stronger real, not just against the dollar, but also compared to other currencies like the Mexican peso.

According to Luís Garcia, CIO of SulAmérica Investimentos, the growth differential between Brazil and the U.S. is more significant for the real’s performance than the widening interest rate gap between the two countries. “Both the U.S. Federal Reserve and the Central Bank are making monetary policy decisions based primarily on the overall health of the economy, with less focus on short-term inflation changes,” he explains. “This sends a strong signal that the relative performance of the two economies is diverging.”

Mr. Garcia notes that while Brazil’s economy is delivering positive growth surprises, the U.S. economy is starting to show signs of slowing. “This growth differential is more impactful than the interest rate spread alone.”

“Previously, the interest rate differential was a factor, but now, with the added growth differential, the outlook for the real is even more favorable,” says Mr. Garcia. He sees potential for further appreciation of the Brazilian currency. Because of this combination’s promising potential, the executive believes there is room for further appreciation of the real. “Of course, we’ve gained some support from the international market, but the fiscal debate remains critical,” he adds.

The surge in future interest rates directly impacted the Ibovespa, which closed down 0.47% at 133,123 points, marking an intraday low in a session marked by volatility. “With the COPOM’s tougher stance, investors are likely repricing the entire curve, which isn’t beneficial for the stock market in the short term,” says Alexandre Póvoa, strategist at Meta Asset Management. However, he believes that rising Brazilian interest rates, backed by credibility coupled with a decline in U.S. rates, could ultimately favor the Ibovespa in the long term.

Among the blue chips, Vale’s common shares were a highlight, gaining 1.20% to R$58.23, driven by an increase in iron ore prices.

Mr. Buccini, from Rio Bravo, notes that he sees value in holding a long position in Vale, citing iron ore’s solid but volatile performance. He acknowledges that Vale’s stock has suffered due to weaker growth prospects in China but argues that the slowdown has likely reached its peak, leaving room for potential recovery in the raw material’s performance.

*Por Arthur Cagliari, Bruna Furlani, Gabriel Caldeira, Maria Fernanda Salinet — São Paulo

Source: Valor International

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Goldwyn president lists urgent reasons for energy transition

Brazil has access to clean energy, which is an advantage, David L. Goldwyn says

19/09/2024

The energy transition to a low-carbon model is critical for at least three reasons, said David L. Goldwyn, president of Goldwyn Global Strategies.

One reason is the very extreme environmental consequences, such as those seen in Brazil, Europe, and the United States. Another is geopolitical, with climate migration having very serious impacts, such as civil unrest. The third is opportunity. “We are talking about a transformation of the global economy and this is a tremendous opportunity for jobs for Brazil,” he summed up.

Mr. Goldwyn pointed out that Brazil has access to clean energy, which is an advantage. “But it takes a lot of political work to get to where we want to be.”

*Por Valor — New York

Source: Valor International

https://valorinternational.globo.com/
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H&M set to open first stores in Brazil in second half of 2025

Swedish fast-fashion chain expects to have stores nationwide within three years

09/19/2024

H&M will also sell products made in Brazil, in addition to imported items — Foto: Casper Hedberg/Bloomberg
H&M will also sell products made in Brazil, in addition to imported items — Foto: Casper Hedberg/Bloomberg

Swedish fashion chain H&M will open its first stores in Brazil in the second half of 2025, the company said on Wednesday, in its first interview since revealing its entry into the country, which was announced by the group in 2023.

Valor has learned that the stores are expected to open between September and October of next year, in the cities of São Paulo and Rio de Janeiro. The first stores will be launched in Allos, Iguatemi, and Multiplan malls, as Valor previously reported.

The company has not confirmed these details. However, it stated that contracts have already been signed for the first two stores, said Maria Fernanda De Luca, H&M’s chief financial officer in Brazil.

“There is a well-researched strategic plan in place, and the pace of expansion will, of course, depend on the results [of the stores],” she said. “We had to explain to them [the controlling shareholders] that we are full of regulations, bureaucracies, and that it is already a complex subject to discuss. It’s even a bit embarrassing to address this because it truly takes time to get certifications and approvals, which surprised them quite a bit, as they couldn’t understand it,” she said during a presentation at the Latam Retail Show on Wednesday evening.

After being asked at the event in São Paulo, the company confirmed that, within a maximum of three years, it will have stores in every state. “Perhaps even before that,” Ms. De Luca said. If this progresses, an average of 8 to 9 stores will be opened each year.

Additionally, the plan is to enter the country with “affordable prices,” Ms. De Luca said, ensuring a competitive market position. Other foreign chains, like Zara, have a more premium brand positioning in Brazil.

H&M will also sell locally produced products, in addition to imported items, following a strategic shift by the global leadership.

“When I joined the company, the plan was for everything to be imported, but over time, the global team realized that it wouldn’t be feasible. Some things simply can’t be imported. So, we are working with local partners to purchase national products,” the CFO explained.

When asked about the risks other foreign brands faced in the country, like Forever 21, which ceased operations in Brazil after a few years, the executive dismissed such concerns.

“H&M has never exited any market it has entered, except for Russia, by choice. There’s no point in discussing the economy—we believe in our product. All the markets where we still operate speak for the company,” Ms. De Luca said.

“The Swedes conducted an in-depth study of all the local competitors. We have a luxury partner with expertise here who is also helping us,” said Augusto Krambeck, H&M’s director of human resources, at the event.

He added that the retailer would almost immediately begin omnichannel operations in the country. In other words, the website and store sales channels will already be integrated.

“It will take one to two months to launch the omnichannel,” Mr. Krambeck said.

He noted that H&M has been planning its entry into Brazil for the past ten years. “It’s been ten years of monitoring, ever since we started in Chile. We didn’t come here with just a year and a half of planning. The fact is, Brazil has been through a lot—World Cup, Olympics, recession, impeachment. And H&M wanted to create a ‘buzz.’ This entry would have gone unnoticed,” he said.

H&M has 51 stores and 3,800 employees in Chile, Peru, and Uruguay, after a decade of operations in these countries.

*Por Adriana Mattos, Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Petrobras foresees $11.5bn investment in renewable energy

Director said company has reduced greenhouse gas emissions by 40%

09/19/2024

Mauricio Tolmasquim — Foto: Vanessa Carvalho/Valor
Mauricio Tolmasquim — Foto: Vanessa Carvalho/Valor

Maurício Tolmasquim, executive director of energy transition and sustainability at Petrobras, said on Thursday (19) that the state-owned company has set aside $11.5 billion to investments in renewable energies.

In a presentation at the Brazil-US Climate Impact Summit 2024, organized by Valor and AmCham at the United Nations (UN) headquarters in New York, Mr. Tolmasquim pointed out that the company has already reduced its absolute greenhouse gas emissions by 40% and its methane gas emissions by 70%. The company will allocate 11% of its investments to the energy transition.

According to him, these amounts are three times higher than emissions from Brazilian domestic aviation.

Mr. Tolmasquim, who used to be president of the Energy Research Company (EPE), responsible for planning the sector in Brazil, pointed out that the goal of limiting the rise in temperature to 1.5 degrees Celsius implies a 7% annual reduction in greenhouse gas emissions.

The Petrobras executive stressed that this 7% drop is equivalent to what happened during the COVID-19 pandemic. “We’d need one COVID a year to meet the target. So we can see the size of the challenge,” he said, noting that this reduction, unlike what happened during the pandemic, should happen without the impacts on the economy and society caused by COVID-19.

He pointed out that this need for reduction will have a significant geopolitical impact, increasing the need for dialogue between countries and a change in primary energy sources.

Mr. Tolmasquim pointed out that Brazil has the advantage of having a renewable energy mix, with 50% of the total coming from renewable sources. For this reason, he said, Brazil can deepen trade partnerships with the United States, China, and the European Union.

In electricity, the level jumps to 91%, while the world average is 30%. In transportation, he stressed, 35% of the Brazilian matrix is renewable.

*Por Robson Rodrigues, Rafael Rosas — Nova York, Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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