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Market is waiting for Lula’s economic team, say economists

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Market is waiting for Lula’s economic team, say economists

On the first business day after the victory of the PT candidate, Luiz Inácio Lula da Silva, the market reacts in a predictable way, according to economists consulted by the CNN Brasil Business.

Early in the morning, the Ibovespa opened the day down and the dollar up, but in the afternoon, it reversed the losses and registered a drop of more than 2% of the American currency.

According to the analysis of Gustavo Cruz, strategist at RB Investimentos, volatility was already expected on the stock market this Monday (31). With PT’s victory, Cruz explains that he already expected a rise in shares in the education, construction and retail sectors and a drop in state-owned assets.

In fact, Petrobras PN dropped 5.22% and Petrobras ON dropped 4.14%, while Banco do Brasil yielded 3.48%. Even so, shares were already moving away from the lows, when Petrobras PN fell by 8% and BB fell by almost 6%, given the perception that the result did not trigger drastic reactions from political entities, bringing relative generalized relief in the market.

“We are also on alert regarding the situation of slaughterhouses after Lula’s speech in which he says he would control meat exports”, he comments.

Around 4:00 pm, JBS shares registered a drop of 3.72%, Mafrig retreated 3.45% and Minerva with a loss of 0.30%.

For Carlos Macedo, partner and specialist in investment allocation at Warren, depending on the government’s agenda, discretionary consumption, construction and education actions are more likely to perform better in the short term. “Due to the government’s agenda, discretionary consumption, construction and education actions are more likely to perform better in the short term,” he says.

New economic team

One of the government’s first changes will be in the number of Ministries. Today there are 23 ministerial positions, a number that has already reached 39 with Dilma (PT). Lula has already signaled that he will create 10 ministries.

According to the strategist at RB Investimentos, a first step is to dismember the Ministry of Economy. Planning, Farming, and a new Small and Medium Enterprise must re-exist. A Ministry for Native Peoples, Racial Equality, Human Rights, Women, Public Security, Fisheries and Culture would be created.

“Over the next few weeks, we should follow a negotiation for party alliances, which guarantee Lula’s support in Congress. Center parties should have folder commands being offered. This should lessen the animosity of Congress, which elected a relevant Bolsonarist opposition. Unlike the PSDB in the 2000s, we will see an active and noisy opposition”, he bets.

Macedo shows that previous surveys carried out with the market indicated an expectation of a fall of approximately 3% in shares and an appreciation of the dollar around 2% in the case of Lula’s victory without an institutional crisis.

“The market opened very close to these expectations and improved throughout the day. Alckmin’s signaling as a possible coordinator of the transition team helped as another signal of Lula to the center. In addition, speculation about the next minister of the economy continues”, highlights the Warren economist.

Market Expectation

After this first step, Cruz believes that the market will seek answers to what will be the priorities for 2023. How will the current payment of Auxílio Brasil behave, will the reduced level of PIS/Cofins, Tax Reform, Administrative Reform, Change in the Table of Income Tax, Real Adjustment of the Minimum Wage, Incentive to Fies, Incentive to Minha Casa Minha Vida, PAC, among other topics are being raised in interviews.

Another point presented is in relation to foreign investors. Cruz says that attention will also be paid to the Ministry of the Environment, which has greatly damaged Brazil’s image abroad.

“A new action plan, with more oversight, could be crucial to the current debate, in which the world closely follows ESG practices. Lula will have a certain ease in presenting this narrative abroad, we observe country leaders and part of the media inclined in favor of the new president”, he explains.

The bet is that the agreement between Mercosur and the European Union can finally get off the ground. This milestone, which will unlock international trade between the two regions, increases the possibility for Brazilian companies to access European buyers, which will benefit the country in the long run. “We should see a series of meetings with leaders from other countries. However, it is worth remembering that in the campaign the agreement with the European Union was questioned. Mentioning that they would like to add protectionist measures to the agreement”, concludes Cruz.

In the Toro Investimento report, the global economic scenario is full of challenges and the risk of a global recession is seen with caution by the market. Inflationary pressure around the world has led governments to adopt important changes in monetary and fiscal policy, which were previously stimulative, to contractionary measures, raising interest rates and controlling government spending, seeking to hold back the rise in prices.

“These movements are ‘draining’ part of the excessive liquidity that circulated through the economies over the last few years”, he says.

Source: CNN Brasil

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