Finance & Market Bulletin - June/July 2022

04 Aug

04Aug

By Daniel Christian Henrique

B3 collapses in June and recovers in July

In June the threat of a global recession continued to hover around B3, retreating its index by 11% and generating a cumulative year-on-year low of 5.94%. The situation worsens in addition to the tensions of the internal market with the possible break in the spending ceiling and increased inflation with the vote of the Pec do Combustíveis. The fear of a global financial downturn also probed the U.S. S&P500 index, bittering its worst quarterly performance since 1970. Consequently, the tupiniquim index also tracked its fall and volatility. This was ibov's second biggest drop since the start of the pandemic in March 2020, when Ibov plummeted 29.9%. The volume of trades for the month decreases by 25.1%, compared to the same month of 2021 (EXAME, 2022a; ISTO É DINHEIRO, 2022a).

The July close, however, surprised and reversed the situation, closing up 4.69%. The PEC of fuels was approved, generating greater fears in the stock market, but the tax collection of July was good, cooling the spirits. The reaction of retail, technology and construction companies performed well in the month, as they were highly deacityd until June in the face of constant increases in basic interest rates (E-INVESTIDOR, 2022a).

Anyway, lower fuel prices

Gasoline and ethanol reduced at gas stations in the five regions of the country in July compared to June after a law limiting the ICMS rate on fuels, natural gas, electricity, communications and public transportation from 17% to 18%. The average price of gasoline fell 14.01% at the country's stations and stood at R$ 6.50 in July (INFOMONEY, 2022b).

Diesel oil, however, essential to move our country's truck fleet, felt little about the effect of limiting ICMS until the end of July. Only in this first week of August Petrobras announces a reduction in the price of diesel sold to distributors, reaching R$ 0.20 a liter, equivalent to a drop of 3.57% (CORREIO DE MINAS, 2022). For a nation that prioritized the road modal for transporting its cargo via trucks, this reduction is very little, especially in the pockets of truckers.

Keeping an eye on the record (1): net outflows from the savings account

There's no way. Savings and inflation don't go together. Added to high and constant increases in the Selic rate, it worsened. The low gains that the application in the savings account generates leads to a constant coming and going between your inputs and outputs as inflationary indices and Selic vary.

After the first half in June, the savings managed to beat its record withdrawals in the period, generating a net outflow of R$ 50.5 billion against its low yields of 6.17% per year (+TR). Inflation measured by the IPCA, on the other hand, accumulated a high of 11.89% in 12 months. These outings were the highest value recorded in its historical series since 1995 (CORREIO BRASILIZENSE, 2022; EXAME, 2022b).

But the start of the second half is not left behind. The month of July already raises the largest volume of withdrawals in its monthly historical series, totaling withdrawals of R$ 12.7 billion in the month - equivalent to five times more than the previous record of outflows in 1995, when it reached withdrawals of R$ 2.45 billion. Now, in the accumulated year, total outflows of R$ 63.15 billion (INFOMONEY, 2022a) were counted.

Keeping an eye on the record (2): deflation in July!

In June inflation was still high, closing the month with an increase of 0.67%, mainly pulled by food (especially eating outside the home) and health plans, interrupting the low click that came from the last months. At the close of the first half of 2022, it reached 5.49%.

July, however, presented the big surprise! The IPCA-15 preview indicated a small inflation of 0.15%, but the final result of the IPCA counted deflation, with a drop of -0.68% in the index. This drop was strongly driven by the decrease of R$ 0.20 in the average price of fuels made by Petrobras to distributors and by the reduction of ICMS. As a consequence, several segments were directly or indirectly affected: transport (-4.51%), housing (-1.05%) and electricity (-5.78%). This negative rate is the lowest record of the entire IPCA historical series since 1980. Anyway, a good record to celebrate! (CORREIO BRAZILIENSE, 2022b).

But additionally, to maintain its inflationary target for the year, bc maintains its standard procedure: increasing the basic interest rate of the economy. At its meeting of the Monetary Policy Committee (COPOM) in June, the basic rate increased by 0.55 p.p., from 12.75% p.a. to 13.25% p.a. (E-INVESTIDOR, 2022b). Starting In August, at its new meeting, there has already been a new increase by unanimous decision to the value of 13.75%, mainly justified by inflationary rates still considered high (despite the reductions) and the dangerous and volatile external environment (BCB, 2022). It is the increase in interest rates to try to contain inflation and the continued high inflation leading to further interest rate increases!

Costs of basic baskets increase

With high food in the IPCA, consequently the basic basket increases. Purchasing the food set from the food basket cost more expensive in nine capitals in the month of June. The highest highs were in the following cities: Fortaleza (4.54%), Natal (4.33%) and João Pessoa (3.36%). In terms of amounts in Reais, the highest costs were recorded in São Paulo (R$ 777.01), Florianópolis (R$ 760.41), Porto Alegre (R$ 754.19) and Rio de Janeiro (R$ 733.14) (DIEESE, 2022a).

July partly reverses the situation: the basket decreased its value in 10 of the 17 capitals analyzed, with Natal (-3.96%), João Pessoa (-2.40%), Fortaleza (-2.37%) and São Paulo (-2.13%). On the other hand, the highs were led by Vitória (1.14%), Salvador (0.98%), Brasília (0.80%), Recife (0.70%), Campo Grande (0.62%), Belo Horizonte (0.51%) and Belém (0.14%) (DIEESE, 2022b).

Keeping an eye on the record (3): beef in the lowest consumption in history

Good record was just that of deflation even. In the last two months we had another poor record in monitoring the increase of the basic basket: the reduction of beef consumption - beating the lowest value of its historical series (started in 1996), reaching 24.8 kg per person. Compared to the prepandemic period, consumption per inhabitant was 30.6 kg. The main responsible, among several arguments, is the high prices from the pandemic and loss of purchasing power of the population, driven even more by the high values of inflationary indices. Despite estimates of export increases of 15% this year, beef production is the lowest in the last 20 years due to the drop in domestic demand, mainly (CONAB, 2022; CANAL RURAL, 2022).

Confidence rises for trade, services and industry in June, stabilizing in July

June consolidated confidence in the three key segments of the economy. The ICOM (Trade Confidence Index) rose 4.6 points in the month, reaching 97.9 points, its highest score since August 2021. In July, however, there is a slight decrease, ending the month with 95.1 point (FGV-IBRE, 2022a; AGÊNCIA BRASIL, 2022b).

The ICS (Index of Confidence in Services), in turn, counts its fourth and fifth consecutive months of high. Its value reached 98.7 points in June, up 0.4 points. And ended July with 100.9 points, equivalent to a high of 2.2 points (FGV-IBRE, 2022b; ISTO É DINHEIRO, 2022c).

Finally, the ICI (Industry Confidence Index) also followed the moment of optimism rising 1.5 point in June, being the third high in a row for the period, reaching 101.2 points. The increase was a reflection of increased confidence in 13 of the 19 industry segments. However, July reverts to a low of 1.7 points, ending the month with 99.5 points. This fall could be attributed to the new rise in the basic interest rate and the increase in political instability in the country due to the electoral moment (FGV-IBRE, 2022c; ISTO É DINHEIRO, 2022b)

In the accounting of ICEI (Industrial Entrepreneur Confidence Index), confidence increased in 20 sectors of industry (in all regions of the country and business sizes) falling in another eight only. The biggest highlights of high were for rubber products, cleaning, perfumery and personal hygiene, and textile products. In July, the index did not change, stabilizing at 57.8 points (PORTAL DA INDUSTRIA, 2022a, 2022b).

But... industrial production falls...

According to IBGE news agency (2022), industrial production decreased 0.4% in June compared to May, accumulating a drop of 2.2% in the first half of the year. Compared to the pre-pandemic period, the industry lacks a 1.5% increase. Therefore, it is verified that increased confidence does not imply increased production, not at least immediately.

But... unemployment has new low! But informality continues

Market research had already been notifying in previous months the improvements in unemployment rate reductions, mainly due to the service sector. In the second quarter there was also an increase of 2.5 million people employed, retracting the unemployment rate to 9.3% in June (in December it was 11.1%). The number of people with a signed portfolio increased in the last quarter by 1.4 million. However, fgv-ibre researchers point out that this jump is still more linked to the recovery of formal jobs lost during the peak of the pandemic, as the structural problems of informality in Brazil continue (FGV-IBRE, 2022d).

Keeping an eye on the record (4): household indebtedness at its peak

The months of March and April recorded falls of two records followed in debt of Brazilian families, whether debts in arrears or not. When it seemed that the gap had arrived, the month of July emerges the percentage of 78%, the highest record of the historical series started in 2010. It may get worse: these increases are in line with the rise in hunger and poverty in the country, fueled by inflation, the global crisis, pandemic and the absence of aggressive public policies to reduce social inequality (FGV-IBRE, 2022e).

References:

AGÊNCIA IBGE DE NOTÍCIAS. Produção industrial varia -0,4% em junho (2022)

AGÊNCIA BRASIL. Mercado financeiro reduz projeção da inflação de 7,30% para 7,15% (2022a).

AGÊNCIA BRASIL. FGV: confiança do comércio sobe 4,6 pontos em junho (2022b).

BCB. Copom eleva a taxa Selic para 13,75% a.a. (2022).

CANAL RURAL. Carne bovina: consumo no Brasil deve cair ao menor nível em 26 anos (2022).

CONAB. OFERTA E DEMANDA DE CARNES (2022).

CORREIO BRAZILIENSE. Com inflação alta, poupança tem recorde de saques no semestre (2022).

CORREIO BRAZILIENSE. IPCA registra deflação de 0,68% em julho com queda nos combustíveis (2022b).

CORREIO DE MINAS. Urgente: Petrobras volta atrás e confirma redução no preço do DIESEL (2022).

DIEESE. Custo da cesta aumentou em nove capitais (2022a). DIEESE. Preços dos produtosIn natura reduzem custo da cesta (2022b).

EXAME. Ibovespa cai 11% em junho e tem pior mês desde o início da pandemia (2022a).