Pre-Market: Is there an offer from Eletrobras (ELET6) there?

Good morning people!

Outside, Asian markets fell on Thursday (26), after Chinese Premier Li Keqiang warned that the world’s second economy was worse now than during the early days of the pandemic. Keqiang’s comments dealt a blow to investor confidence, overshadowing yesterday’s recovery in the West, bolstered by a less aggressive stance by the US Federal Reserve.

While China persists with a zero Covid policy to eradicate the virus, Europeans are now counting on the closure of the Economic Forum in Davos, Switzerland. The main stock exchanges there are up this morning, even with the possibility of new taxes in the UK, partially accompanied by American futures (Dow Jones and S&P 500 rise, while Nasdaq falls again).

Brazil has a lot of its own dynamics to absorb, despite being liable to react to the revision (final reading) of the US first quarter GDP, which had shown an annualized drop of 1.4% in the preliminary delivery carried out recently. Here, we have issues involving ICMS, Petrobras and Eletrobras for us to monitor closely.

See you…

Between the Petrobras board and the Eletrobras offer

This Thursday, local investors were aware of the consequences of the approval in the Chamber of the project that limits the ICMS rate for fuels and electricity to 17%, which could have a significant impact on Brazilian fiscal prospects, especially state ones. . There were 403 votes in favour, 10 against and 2 abstentions, and all the highlights that intended to change the text were rejected. Thus, the text now goes to the Senate for analysis.

According to the president of the Chamber, we will have more projects next week that aim to reach fuels and electric energy, such as the one that will seek to create more transparency in the composition of petroleum derivatives prices practiced by Petrobras. Speaking of Petrobras, the company’s board of directors delayed President Bolsonaro’s agenda to change the command of the state-owned company, delaying the convening of a general meeting.

But the oil company is not the only Brazilian giant in the spotlight. That’s because Eletrobras can enter the CVM and SEC today, with the launch of the billion dollar offering of shares. In addition, this Thursday we will have an analysis of vetoes in Congress, including the one that authorized the capitalization of Eletrobras. To override a presidential veto, 257 votes are needed in the House and 41 in the Senate, but we should not have any negative surprises from this front in relation to the market.

After 100 trading days

Yesterday, US stock exchanges celebrated the 100th trading day of 2022. I mean, it wasn’t really a celebration. Over the period, the Nasdaq is down 26.9%, the S&P 500 is down 16.5% in its worst start to the year since 1970, and the Dow Jones Industrial Average is down 11.6%. On Wednesday (25), however, stocks, which suffered so much in 2022, were helped by the release of the minutes of the Federal Reserve’s last monetary policy meeting on May 3 and 4.

The minutes of the Federal Reserve meeting didn’t tell economists anything they didn’t already know, most notably that the Fed is expected to raise rates by 0.5 percentage point at its June and July meetings. But the slower pace of tightening appears to be the more likely and therefore less lethal path for markets.

Today, we have the second estimate for first-quarter US gross domestic product. The consensus estimate is that GDP declined at a seasonally adjusted annual rate of 1.4%, unchanged from the estimate released at the end of April. The data may influence investors’ expectations for the stagflation scenario so feared today.

China causing trouble

Unlike what is happening in much of the world, China is giving fiscal and monetary stimulus. On Thursday, on the other hand, Chinese Premier Li Keqiang warned of economic growth, stressing that government and corporate actions are needed.

China’s challenge has always been to stimulate its domestic economy as global demand for goods normalized, with pandemic restrictions affecting domestic activity more than the export sector.

China’s commitment to a “zero Covid” policy means it will almost certainly fall short of its economic growth target. Beijing has admitted to missing the target just once since setting it three decades ago — by just 0.2 percentage point in 1998.

Write it down!

Today, we have the speech of the president of the Central Bank, Roberto Campos Neto, who participates in the meeting of the Financial Stability Committee. In addition to him, the Minister of Economy, Paulo Guedes, gives a press conference this morning. It will be important for us to design a narrative of the April collection results, to be released by revenue. We also have a Datafolha survey on presidential succession. In the US, we have first-quarter GDP and jobless claims for the week through 5/21.

What changes in my life?

In China, President Xi Jinping laid the groundwork for treating the GDP target as one goal among many for the authorities in 2022 — for the Chinese government, GDP should no longer be the “only criterion for success”. Because of this and the pandemic restrictions, Beijing has not mentioned the growth target since March. Instead, officials repeatedly emphasized stabilizing employment.

By all indications, projections for GDP growth this year have dropped to 4.5%, well below the official target of around 5.5%. With the growth target seemingly unattainable, China’s propaganda machine began to accelerate.

While Beijing can come to terms with failing the target, that doesn’t mean it has given up on growth altogether. If China slows down too much, it could be overtaken by the US for the first time since 1976.

Regardless, a Chinese slowdown is very bad for the global economy, especially for Brazil, which has the Asian giant as its main trading partner. Developments from this slowdown will be felt here.

A hug,

Jojo Wachsmann