September 23, 2021

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Is there a risk of recession in the United States? Look at the impact on Brazilian assets

You United States By the end of 2021 we may experience a “sudden recession” Bank of America (BOFA) In a recently released report to investors. The analysis is reinforced by the poor results of some economic indicators, performance below expectations and the risks of the global impact of the delta variant of the corona virus on economies.

BofA’s report adds other signs of concern: falling prices Ingredients (Copper-19% and oil-16%) due to low demand, especially from China; Inflationary pressure on treasuries Rising interest rates; And the fall in the shares of companies in the consumer sector. This Tuesday (31), the Convention Board announced that the U.S. Consumer Confidence Index fell to 113.8 in July from 125.1 in July, the lowest in six months.

In an article published in Project Syndicate, economist Nouriel Roubini, a professor at the Stern School of Business at New York University, is still hopeless. “Slight stagnation is already underway in the country,” he said. “The Swelling It is on the rise in the United States and many advanced economies, and despite the huge cash, debt and financial stimulus, growth is slowing sharply, ”says the professor.

Roubini is called Dr. Doom (Doctor Disaster) for his negative reviews. However, in 2005, he warned that house prices were sweeping a wave of speculation across the country. In 2008, the housing bubble burst in the United States. That is, your predictions were correct.

According to the economist, the stimulus of monetary policies to increase demand has led to further warming of inflation, which has been exacerbated by the impact of the delta variability in reducing production and restricting labor supply. As a result, “negative medium-term supply shocks will reduce potential growth and increase production costs”, leading to the recovery of the 1970s ‘stagnation’.

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For some researchers, the predictions are not yet fully understood. “The status of the BofA may be a bit urgent due to the latest data,” said Levio Ribeiro, a senior researcher in the field of applied economics at FGV IBRE. Analysts Philip Arois, a global investment expert at Spiti, and Rodrigo Lima, an investment analyst at Stake, say the stabilization of the recession in the country is imminent, but they do not rule out the possibility.

According to Lima, the risks of a recession are supported by warnings from analysts who have observed the behavior of interest rate curves in the United States, whose slope has been increasing recently due to signals from the central bank. Reducing the repurchase of assets may start earlier than expected, attracting cash flow from the world economy. “The rise in US interest rates is putting pressure on the prices of all risky assets worldwide,” he says.

However, fears of a reversal of the stimulus were silenced in a speech by President Jerome Powell on Friday (27). FedDuring the Jackson Hole Symposium, this meant postponing the stimulus reduction schedule and reducing the chance of raising interest rates. Following Powell’s speech, New York stocks closed higher for the fourth day in a row, breaking a record high. The Dow Jones industrial average was up 0.69% at 35,456 points and the S&P 500 was up 0.880761% at 4,509 points. The Nasdaq Technology Index is up 1.23% at 15,130 points.

Powell did not specify when the central bank plans to reduce the stimulus, but said the move could happen later this year. According to analysts, it is necessary to keep an eye on the work report for the month of August, which will be released on Friday (3), to predict the next steps of the US Federal Reserve. “If the US really achieves the employment target, the central bank can expect a stimulus withdrawal schedule and start raising interest rates,” says Arris.

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U.S. economists Joseph Song of Bank of America (BOFA) and DT Securities strategist Jim O’Sullivan predict the August job report may be disappointing. They say the delta variation has made hiring harder. They forecast a pay rise of 400,000 to 600,000 in August, but the numbers forecast and current consensus are below 750,000 and 943,000 by the end of July.

ATP’s National Employment Report, co-produced with Moody’s Analytics, released this Wednesday (January 1), fell short of expectations. In August, 374,000 jobs were created in the private sector, but analysts forecast 613,000 jobs. The ATP survey is considered a preview of the US Employment Report, also known as the “payroll”, which generates employment in the public sector.

According to Lima, labor market numbers should also dictate the course of the US economy. “If there is no recovery, we will go into stagnation as inflation is already showing strong signs of rising in the United States, while some important economic data, such as retail sales, are falling short of expectations,” he says.

How it affects Brazilian assets

According to Lima, an expert on stocks, because it is the world’s largest economy and largest stock market, the US recession will ultimately have repercussions on all economies on the planet, with institutional investors mainly penalizing high-risk markets, as they usually do in emerging markets like Brazil, on a traditional flight to quality.

“In this scenario, domestic cycles such as retail, durable goods and construction should be badly affected. Mining and oil companies may also be affected as there is not much demand for these products during the recession,” he says.

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From Arois, Spit, it may affect the variable return portfolio of investors. “The United States needs to have more representation within an investment portfolio, so we’re talking about a recession that will hit the heart of the portfolio,” he says.