Brazilian market reacts negatively to Lula’s first measures

The Brazilian Stock Market lost 40.702 million dollars while the real depreciated this Monday, January 2, in what was the first verdict of the market to the new government of Luiz Inácio Lula da Silva.

The Bovespa stock index of the Sao Paulo Stock Exchange, which brings together the 91 most listed companies in the Brazilian market, fell 3.19% to 106,376 units, in what was its worst intraday loss since October 2022.

Shares of Petrobras, Brazil’s state oil company, plunged 6.45% to 22.92 reais each. In market value, it lost 5.823 million dollars in the session.

The reaction in the oil company’s actions responds to the extension of a reduction in federal fuel taxes decided by Lula, as well as the possibility that the company’s pricing policy may be modified, Gilberto explained to the AFP news agency. Braga, a financial analyst in Rio de Janeiro.

“There is a reading of the market that there will be an increasing interference in the guidelines of state companies, a setback with respect to a more liberal leadership,” said Braga.

Senator Jean Paul Prates, indicated by Lula to preside over Petrobras, assured on Friday that the oil company’s price policy – ​​which sets the prices of fuels based on parity with the international price of a barrel – will change.

Prates did not give details about what alternative formula the new government is using, thus contributing, according to Gilberto Braga, to a scenario of uncertainty.

In addition, in one of his first government decisions published this Monday, Lula revoked the privatization processes of eight state companies, including Petrobras and Correos, initiated during the administration of Jair Bolsonaro.

The Brazilian real depreciated 1.07% against the dollar, with the USD/BRL exchange rate closing at 5.3638 reais per dollar. In the session, it reached a minimum of 5.3671 units around 8 in the morning (central Mexico time).

Other factors that generated nervousness in the Brazilian market were the fact that Lula reinforced the economic guidelines announced during the campaign, such as the elimination of the constitutional spending ceiling, the increase in public investment and the fundamental role of public companies in promoting of economic development, according to XP Investimentos.

The stock market has lost 7% since the elections

When Lula da Silva’s victory in Brazil’s closest presidential election in recent years was announced, the Sao Paulo Stock Exchange’s Bovespa index greeted his third term with optimism.

The optimism dissipated over time, to the point that the Bovespa index has fallen 7.13% since the elections of October 30, 2022. The Brazilian real has depreciated 1.30% in the same period.

Carlos González, director of analysis at Monex Casa de Bolsa, assured that in the transition period there was uncertainty due to the announced monetary policies, which generated caution among investors.

González said that the deterioration in the outlook for the Chinese economy has also damaged investor confidence in the Brazilian market, due to the exposure that the Brazilian economy is to that of the Asian nation.

Despite the losses in the last months of the year due to the result of the election and the deterioration of the Chinese economy, the Brazilian market managed to close 2022 with a gain of 4.69%, while the real was the most appreciated currency against the dollar during the year with an advance of 5.10%. (With information from Agencies)