Lula’s market lure fades after Brazil’s ‘Liz Truss moment’

BRASILIA, Nov 11 (Reuters) – Investor pessimism that Brazil’s President-elect Luiz Inacio Lula da Silva will rule with fiscal discipline is growing as the country’s central bank chief compared the market selloff to a “lease truss moment for Brazil.”

Brazil’s real currency, and the Bovespa stock index (.BVSP), both lost nearly 4% on Thursday, as Lula’s brief honeymoon with investors soured his public commitment to prioritize social spending over fiscal purity and delays in naming his economic team.

The real clawed back losses on Friday, with the dollar closing the session down 1.24 after a volatile day of trading. The stock was up more than 2%.

Despite those gains, jitters remain, with investors calling on Lula to restore firm rules for public spending after outgoing President Jair Bolsonaro’s massive spending spree during the pandemic and election campaign.

Also Read :  5 reasons 2023 will be a tough year for global markets

Speaking at an event in Sao Paulo, central bank chief Roberto Campos Neto said it was the latest example of markets demanding fiscal discipline against a challenging global backdrop of high inflation, low growth and little risk appetite.

“I don’t know if this was a Liz Truss moment for Brazil, but it was a clear demonstration of the market’s sensitivity to the financial issue,” Campos Neto said, referring to the former British prime minister, who resigned after punishing the market. His push for unfunded tax cuts.

Citigroup Inc ( CN ) said in a report that investors may have been mistaken in thinking Lula would pursue an orthodox financial agenda, with the bank deciding to cut its risk exposure to Brazil in the face of this reassessment.

Also Read :  Car Loan Balances Vary Significantly Across the Country

“The market seemed to have convinced itself that Lula would be fiscally orthodox. Recent news casts doubt on this hypothesis,” Dirk Willer, head of emerging market strategy at Citi Research, wrote Thursday night.

Milton Maluhi Filho, chief executive of Brazil’s biggest lender Itau Unibanco ( ITUB4.SA ), said on Friday there was a need to strike a balance between social spending and managing public finances.

“We think fiscal responsibility and social responsibility should go hand in hand,” he said on a conference call.

Investors and Lula’s allies have also expressed concern over the delay in naming his finance minister. Lula has said he will announce the name of his cabinet only after he returns from the COP27 climate summit in Egypt.

Also Read :  Dutch court sentences three to life in prison for 2014 downing of MH17 over Ukraine

Senator Simon Tebet of the centrist Brazilian Democratic Movement Party (MDB) said the finance minister should be his first cabinet pick to clarify what his economic policies are going to be.

“The finance minister is needed to explain the president’s political views,” she told reporters.

On Thursday, Lula sought to ease investors’ concerns. “The market is nervous about something. I’ve never seen a market as sensitive as ours,” said the president-elect, who takes office on Jan. 1.

($1 = 5.3449 reais)

Reporting by Lisandra Paraguasu and Marcela Ayres in Brasilia, Luana Maria Benedito in Sao Paulo, Writing by Gabriel Stargardter, Editing by Angus McSwan, Andrea Ritchie and Cynthia Osterman

Our Standards: Thomson Reuters Trust Principles.

Source

Leave a Reply

Your email address will not be published.

Related Articles

Back to top button