December 7, 2022

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Market turmoil warns of difficult months ahead, in the US and Brazil - 05/05/2022 - Vinicius Torres Freire

Market turmoil warns of difficult months ahead, in the US and Brazil – 05/05/2022 – Vinicius Torres Freire

We are likely to see worrying financial turmoil in the coming months. The US central bank and the world’s financiers seem to have no idea what will happen to inflation and interest rates. In Brazil that lives on low wages, one lives and discusses the coup and Critical elections of 2022which – which Interest rate talk in the United States It looks like a luxury.

not.

We just took a few sips of the problem, like this Thursday The dollar rose 2.4% and the stock market lost the rest of the year in advance, brought down by the American downfall. It’s easy to see the problem that the dollar is more expensive.

But there is more.

If the owners of money I have no idea where US interest rates are headed, the pace at which it will rise, the entry and exit of the financial market will be more frequent or even more intense (increased volatility). Among other problems, it is not a conducive environment to put money into risky business, as is the case in Brazil. But there is more.

In June, the amount of money the Federal Reserve, its central bank, lent to the government, mostly to finance real estate, began to decline. As it did between 2008 and 2014, the Fed has been buying government debt and real estate since 2020 (lowering the interest rate on these loans). It has “borrowed” nearly $9 trillion (about 37% of GDP, compared to 18% of GDP, before the pandemic, and 6% of GDP before the Great Crisis of 2008).

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The US central bank, in practice, government support and purchase propertiesIn addition to inflating the share price thanks to a lot of cheap money. The soup is finished.

It is not clear what the outcome will be, but this downsizing is unlikely to lead to a further increase in interest rates and lower demand for real estate and other assets. Stocks and lower bond prices reduce wealth, which is another reason the economy is slowing.

More interest in the US and more risks means, in theory, a higher dollar here. A cheaper dollar was the hope for faster inflation (but not a certainty). To make matters worse, commodity prices (oil and grains) have not provided any revival in the last 15 days, since the dollar reached its lowest levels for the year.

There are signs that Inflation continues to accelerateAnd

Like the Fipe CPI for April (prices in the city of São Paulo) or surveys like the S&P PMI (which attempts to predict the outcome of economic activity). Speaking of the PMI, the composite index for April (which aggregates all economic activity) showed significant growth. It is possible that more people have found some work, although the average salary is still miserable, due in large part to inflation.

Government measures help prevent the economy from shrinking again, but they have a temporary effect. The controlled stagnation environment is threatened by inflation above 10% annually through September, rising interest rates and global uncertainties (from the US to China, with growth stagnating due to the lockdown).

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The scale of the American turmoil has become a stronger ingredient in this soup of uncertainty. The wars of the “East” (Putin against Ukraine, China against Covid and its economic imbalances) help bring down the “West”.

Of course, all of this and the US financial transition will likely have more profound consequences for the global economy. This is just a short-term start for Brazil. The overview is not good. What can be done now? Any thing. We did not take the economic and political vaccine in time. We will face additional bouts of economic trouble. The question now is to prevent a pandemic in 2023.


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