{"id":95100,"date":"2025-07-28T11:45:36","date_gmt":"2025-07-28T14:45:36","guid":{"rendered":"https:\/\/murray.adv.br\/?p=95100"},"modified":"2025-07-28T11:45:36","modified_gmt":"2025-07-28T14:45:36","slug":"spx-says-election-already-part-of-market-reality","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/spx-says-election-already-part-of-market-reality\/","title":{"rendered":"SPX says election already part of market reality"},"content":{"rendered":"
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Brazil interest-rate strategy chief Gabriel Hartung sees room for rate cuts amid signs of economic slowdown<\/strong><\/em><\/h6>\n<\/div>\n<\/div>\n
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07\/28\/2025\u00a0<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n

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Brazil\u2019s domestic interest rate market still carries an excessive risk premium, despite mounting evidence of slowing economic activity and declining inflation\u2014factors that support a more aggressive monetary easing cycle in 2026, according to Gabriel Hartung, head of Brazil rates at SPX Capital, in an interview with Valor Econ\u00f4mico. One threat to that outlook is the escalating trade conflict with the U.S. following Donald Trump\u2019s new tariffs, at a time when the 2026 presidential election is already influencing market dynamics.<\/p>\n<\/div>\n

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\u201cAlthough we\u2019re still a year and three months out from the election, the race is already shaping market behavior, and that influence will only grow,\u201d Mr. Hartung says. His base case sees a tight contest but assigns higher odds to the opposition winning. \u201cThere\u2019s still a lot that can happen, but based on what we\u2019re seeing today, we think an opposition victory next year is more likely.\u201d<\/p>\n<\/div>\n

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This view stems, he says, from growing signs of structural unpopularity in President Luiz In\u00e1cio Lula da Silva\u2019s administration, as well as the potential for the opposition to be led by well-rated governors from the South, Southeast, or Center-West regions. \u201cIt\u2019s a competitive race on both sides, but there are clear signals that the opposition has a real shot.\u201d<\/p>\n<\/div>\n

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Electoral dynamics are already impacting asset pricing. Mr. Hartung notes that recent market deterioration coincided with a bump in Mr. Lula\u2019s popularity. He believes the \u201celection trade\u201d will only intensify, and by the second half of 2026, markets may become almost entirely election-driven. \u201cFor now, investors are still focused on inflation, activity, and fiscal issues… And on that front, fiscal uncertainty is mounting due to the government\u2019s expected response to Trump\u2019s tariffs\u2014what kind of support package it might roll out for affected companies.\u201d<\/p>\n<\/div>\n

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Depending on the scope of that support package, risk repricing may follow. \u201cIt\u2019s a cause for concern,\u201d Mr. Hartung says, warning it could complicate the Central Bank\u2019s work if the aid proves large enough.<\/p>\n<\/div>\n

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He adds that rising tensions between Brazil and the U.S. remain on his radar. \u201cThe tariff risk is what\u2019s been driving recent volatility in the yield curve. Not so much because of the 50% hike itself, but because of fears of escalation. From a trade dispute, it could extend to financial flows,\u201d Mr. Hartung warns, noting the U.S. is a crucial source of both direct and portfolio investment in Brazil.<\/p>\n<\/div>\n

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\u201cIt\u2019s the single largest source of FDI and also of portfolio flows into the country,\u201d he says. \u201cThere\u2019s an estimated stock of U.S. investment in Brazil worth close to 15% of GDP. If that flow is restricted, we\u2019ll see significantly more market stress. That\u2019s why people are getting nervous. When the Brazilian government criticizes the U.S., the market reacts badly. And when the U.S. hits back, the market suffers too.\u201d<\/p>\n<\/div>\n

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This fear, Mr. Hartung says, is contributing to a higher risk premium in the domestic yield curve, which has steepened recently due to a jump in long-term rates\u2014now approaching 14%. \u201cIt\u2019s unlikely we\u2019ll actually see restrictions, because those would be extreme measures and rare for the U.S. But the risk is there, so the premium is too.\u201d<\/p>\n<\/div>\n

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SPX\u2019s base case sees economic activity, already showing signs of slowing, weakening further by year-end\u2014despite near-term noise from a large court-ordered payment of government debts (precat\u00f3rios). \u201cThe trend is clear\u2014we\u2019re slowing down, and this is already evident in investment and consumption data. By the end of the year, it\u2019ll likely be visible in the labor market too. If the Central Bank does nothing, the slowdown could become self-reinforcing.\u201d<\/p>\n<\/div>\n

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That\u2019s where SPX sees room for interest rate cuts. \u201cThere\u2019s space for yields to decline. Selic is at 15%\u2014an unusually high level, even for Brazil. It\u2019s hard to imagine we won\u2019t see some easing next year. And based on current pricing, markets are still projecting only a modest rate-cut cycle,\u201d Mr. Hartung says.<\/p>\n<\/div>\n

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He reveals that SPX holds long positions in nominal rates (which gain when rates fall) and currently prefers the nominal curve over real rates extracted from inflation-linked NTN-Bs. Shorter maturities have already priced in a significant drop in \u201cimplied inflation,\u201d but mid-curve inflation expectations remain elevated. \u201cSo, in a scenario of slower growth and falling inflation, we expect further compression in the belly of the curve. Real rates may fall, but not as much as nominal ones. That\u2019s why we see nominal rates as more attractive right now.\u201d<\/p>\n<\/div>\n

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Mr. Hartung also notes a global trend of steepening yield curves, driven by sharply expansionary fiscal policies in developed economies. \u201cOver time, governments compete for capital to finance their deficits. That usually pressures the long end of the curve,\u201d he explains.<\/p>\n<\/div>\n

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In the U.S., Mr. Hartung sees growing expectations that a future Trump administration would appoint a more dovish Federal Reserve chair. \u201cIf that happens, it would push the short end of the U.S. curve down but could lift long-term yields, reflecting greater inflation tolerance,\u201d he says.<\/p>\n

*By\u00a0Gabriel Roca\u00a0and\u00a0Victor Rezende, Valor\u00a0\u2014 S\u00e3o Paulo<\/p>\n

Source: Valor International<\/p>\n

https:\/\/valorinternational.globo.com\/<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/article>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Brazil interest-rate strategy chief Gabriel Hartung sees room for rate cuts amid signs of economic slowdown     07\/28\/2025\u00a0 Brazil\u2019s domestic interest rate market still carries an excessive risk premium, despite mounting evidence of slowing economic activity and declining inflation\u2014factors that support a more aggressive monetary easing cycle in 2026, according to Gabriel Hartung, head […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8106],"tags":[26281],"class_list":["post-95100","post","type-post","status-publish","format-standard","hentry","category-murray-news","tag-signs-of-economic-slowdown"],"yoast_head":"\nSPX says election already part of market reality - Murray Advogados<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/murray.adv.br\/en\/spx-says-election-already-part-of-market-reality\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"SPX says election already part of market reality - 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