Weekly review: Ibovespa hits new high; dollar hits one-year low; Covid advances; Pazuello unpunished; Brazil on Economist cover

RIO DE JANEIRO, BRAZIL – The Ibovespa index registered its 7th consecutive high on Friday, June 4, surpassing the 130,000-point mark. Thus, the index posted gains of 3.63% in the week, marked by the continued commodities rally, which mainly benefits the shares of blue chips Petrobras (PETR3; PETR4) and Vale (VALE3) and the better-than-expected performance of Brazilian GDP (Gross Domestic Product) in the first quarter.

On Tuesday, June 1, the IBGE (Brazilian Institute of Geography and Statistics) announced that the Brazilian economy grew 1.2% over the preceding quarter and 1% in relation to the first three months of last year. Economists had expected an increase of 1% compared to the fourth quarter and 0.8% on an annual basis, something that prompted a wave of revisions in economists’ projections for the 2021 GDP.

However, Friday opened with a weak stock market performance, with a contrast between the ADR performance, the shares of Brazilian companies traded on the New York Stock Exchange the day before, and the rise of international stock markets after the U.S. Jobs Report thwarted expectations.

As for ADRs, while the B3 was closed due to the Corpus Christi holiday, the Dow Jones Brazil Titans index and the ETF EWZ posted drops of 1.05% and 0.99% respectively amid a correction and expectation for data released yesterday. Following the correction and the uncertainty with indicators, the stock market then gained steam during the afternoon.

The U.S. “payroll” reported the creation of 559,000 jobs in May, while economists were expecting 650,000 jobs. This result contrasted with the ADP Report released on Thursday. The indicator had reported the creation of 978,000 jobs in the American private sector last month, well above the 650,000 that economists were projecting according to data compiled by Refinitiv.

A negative employment figure, while placing some degree of concern on the horizon over the financial health of the world’s largest economy, also leads to interpretations that the Federal Reserve, the U.S. central bank, will maintain its ultra-stimulative monetary policy for longer. This translates into more liquidity and money in investors’ pockets to invest in equities, which boosts risky assets worldwide.

U.S. President Joe Biden celebrated the payroll results and said it was “good news for the economy and the people of the country.” The Democrat described himself as “extremely optimistic” about the future of the American economy.

In Brazil, the day before, President Jair Bolsonaro discussed the water crisis in a live stream, which he described as the biggest in the country’s history. “There is no record of when we have gone so long without rain in Brazil.”

Also on the radar, The Economist magazine featured Brazil on its cover for the 4th time in its history and emphasized the Bolsonaro government’s role in the current crisis. “His cronies have replaced career officials. His decrees have forced brakes and counterweights everywhere,” the publication said.

On Friday, the Ibovespa recorded a positive variation of 0.40%, at 130,125 points, with a trading volume of R$32.960 (US$6.528) billion. It was the 7th consecutive high for the index, which had not occurred since the period between May 29 and June 8, 2020.

Meanwhile, the commercial dollar fell 0.95% to R$5.035 to buy and R$5.036 to sell. It was its lowest closing level since June 10, 2020, when it closed at R$4.936. In the week, the U.S. currency depreciated by 3.38% against the Brazilian Real.

The future dollar with maturity in July posted a negative variation of 0.64% at R$5.055 in the after-market.

In the futures interest market, the DI for January 2022 fell 4 basis points to 5.06%, the DI for January 2023 fell 5 basis points to 6.64%, the DI for January 2025 decreased 9 basis points to 7.72% and the DI for January 2027 registered a negative variation of 9 basis points to 8.26%.

Covid in Brazil

On Thursday, June 3, the 7-day rolling average of Covid deaths in Brazil stood at 1,882, down 5% from 14 days earlier. A total of 2,082 deaths were recorded in a single day. The information is from the media outlet consortium that collects Covid data from state health secretariats in Brazil, which released the 24-hour pandemic progress report at 8 PM.

The 7-day rolling average of new cases totaled 65,713, 1% more than 14 days earlier. In just one day 83,415 cases were recorded.

The number of people administered the first dose of the Covid vaccine in Brazil reached 47,718,573, the equivalent to 22.53% of the population. The second dose was administered to 22,739,521 people, representing 10.74% of the population.

On Thursday, Army Commander General Paulo Sérgio Nogueira de Oliveira considered that the attendance of ex-minister of Health, active General Eduardo Pazuello, in a political rally in Rio de Janeiro in late May did not constitute the practice of disciplinary transgression. Thus, he decided to dismiss administrative proceedings against his colleague.

Together with President Jair Bolsonaro, Pazuello took part in an event with supporters and delivered a speech on the microphone. Both Pazuello and Bolsonaro were not wearing protective masks and there was a crowd of supporters.

The Army’s disciplinary regulation considers it a transgression for active military officers to express opinions about political party issues, subject to penalties ranging from a warning to imprisonment in the barracks and reprimands.

The Army’s decision was based on pressure from Bolsonaro. The president would have directly pressured Army Commander Paulo Sergio Nogueira, stating that he wanted to see his ally exempted from any sanctions. Pazuello’s allegation, which was accepted by the army command, was that it had not been a party political act.

The Army High Command wanted to punish Pazuello, but agreed with Nogueira’s decision for fear of a new military crisis two months after the change in the Armed Forces leadership.

Legislators, magistrates and even military officers consider the measure to be a risk to military discipline, as there is concern that the case may encourage insubordination within the Armed Forces and the State Police, which have registered cases of support for the president during last Saturday’s events.

Active-duty generals evaluated that the decision was not well received, and undermined the institution. However, they say that punishing Pazuello would be like a reprimand to the president.

In a note, the institution stated: “Regarding the participation of Division General Eduardo Pazuello in an event held in the city of Rio de Janeiro, on May 23, 2021, the Army Social Communication Center reports that the Army Commander analyzed and accepted the arguments presented in writing and sustained orally by the referred general officer. Thus, the practice of disciplinary transgression by General Pazuello was not characterized. As a
result, the administrative proceeding that had been initiated has been closed.”

On Tuesday, Bolsonaro had appointed Pazuello as the Secretary of Strategic Studies of SAE (Secretariat of Strategic Affairs) of the Presidency of the Republic, months after replacing him as Health Minister.

Brazil on the cover of the Economist

The Economist British magazine has released the cover of its new issue, highlighting Brazil. On the cover is the headline “Brazil’s dire decade” over an image of Christ the Redeemer with a mask connected to an oxygen tube. It is the fourth time that Brazil is featured on a cover of the magazine in 12 years.

The article emphasizes the role of Jair Bolsonaro’s government on the current crisis, and states that the country needs to get rid of the president in the next elections, in 2022. The magazine highlights economic stagnation, political polarization, and environmental problems. “His cronies have replaced career officials. His decrees have forced brakes and
counterweights everywhere,” the magazine states.

The Economist assesses that another four years under Bolsonaro could devastate the Amazon, leading part of the forest to turn into a dry savanna. The magazine acknowledges that Brazil had been experiencing political and economic problems for a decade. But it states that, with Bolsonaro as doctor, it is now “in a coma.”

The report highlights the deaths of 87,000 Brazilians by Covid in April, record unemployment at 14.4%, vaccine shortages, and the military’s influence over the government.

“The generals who joined his government hoped to advance the Army’s agenda. Instead, they damage their reputation. They were complicit in Bolsonaro’s mismanagement of the pandemic, which led to tens of thousands of unnecessary deaths. They failed to get him to sign contracts for vaccine procurement or prevent him from greeting supporters when he was infected with Covid-19 last year,” reads the report.

Corporate radar

According to data from Distrito company, Brazilian startups received US$3.2 billion in investments in the first months of 2021, equivalent to 90% of contributions in 2020. Fintechs took the largest share, followed by real estate companies.

Data from the Transactional Track Record that encompasses large operations, not only involving startups, show that venture capital funds invested R$15.2 billion in technology companies in Brazil between January and May. Among 115 transactions is a US$400 million contribution received by Nubank in January, and another, of US$525 million, received by Loft between March and April.

JBS (JBSS3) said Thursday that all of its global facilities are fully operational after a “criminal cyber attack” on May 30 caused many of its operations in the United States and Australia to be suspended. On Wednesday, the company had announced that it intended to resume operations on Thursday.

A notorious Russian-linked hacker group is behind the attack, which disrupted the company’s meat production in North America and Australia, according to a source close to the matter. White House Press Secretary Jen Psaki said Wednesday that the case should be discussed at a summit with Russian President Vladimir Putin in mid-June.

Source: Infomoney