Yesterday, after a very bad day in the Brazilian financial market, Bovespa (B3) starts today with a strong position adjustment movement; Goldman Sachs sees Brazil as a more "defensive" market

International financial markets yesterday showed strong turmoil in the face of the biggest fears of a global recession, after weak economic data in Germany and China mainly. This also happened in Brazil.

The Ibovespa, the main index of the Brazilian stock exchange, was affected: it fell by 2.94% to 100,258.01 points. The high of the US currency is the largest since March 27, reaching R$ 4.

Among the main casualties, Petrobras (BOV: PETR4) and Vale (BOV: VALE3) retreated above 2%. Kroton (BOV: KROT3) led declines by over 7% after the company's quarterly results were below expectations, according to Reuters.

Brazil should already be at the rate of stronger economic growth in order to face this scenario of a possible global recession. In fact, Brazilian families are not consuming because unemployment has risen. In addition, debt levels in Brazil are very high.

Despite these and several other negative indications about the Brazilian economy, Goldman Sachs said in a report that the bank is "more optimistic about the Brazilian stock market, followed by local exchange and interest rates and a little less positive about sovereign credit". 

After assessing the performance of Brazilian assets in recent weeks, which were particularly bad for emerging markets, Goldman Sachs assessed that Brazil is becoming a more “defensive” market. 

According to the bank, the contagion of the crisis in Argentina occurs more to a lesser degree, as a result of which Goldman Sachs believes that Brazil, which has resisted a scenario of slower global growth and problems in Argentina, should present assets with better performance than the other than your peers.

Petrobras (PETR4; PETR3) studies creating two new companies for its thermoelectric plants and transportation to make IPOs on Bovespa (B3); for Goldman Sachs, Petrobras presented "positive news about pre-salt cost efficiency"

According to Jornal do Comércio, Petrobras intends to create two new companies to enable the sale of part of its transportation and energy assets. The information was given by directors of the state and the president Roberto Castello Branco in a meeting with market analysts. 

The strategy is that these companies group several assets to be offered in the stock market through an IPO similar to that made with BR Distribuidora (BRDT3), which generated almost R $ 9.6 billion.

Goldman Sachs analysts published a report following a meeting with Petrobras President and Chief Financial Officer Andrea Almeida highlighting “positive news about pre-salt cost efficiency”. For them, the Brazilian state managed to achieve, in the most recently developed platforms, an extraction cost as low as $ 4 per barrel, or 33% below the pre-salt average in the second quarter of 2019.

Tokio Marine, JP Morgan, Goldman Sachs, and Citibank believe that the Pension Reform will bring improvements to the Brazilian economic scenario

According to the newspaper O Estado de São Paulo, financial institutions believe that, after the approval of the Pension Reform, Brazil should start a cycle of economic growth, with new cuts in interest rates.

This, for example, is the thinking of the president of the Japanese insurer Tokio Marine in Brazil, José Adalberto Ferrara. He told the state that the reform, passed in the first round of the Chamber of Deputies, could mark a new cycle of economic growth in Brazil on a sustainable basis.

According to the newspaper O Estado de São Paulo, financial institutions believe that, after the approval of the Pension Reform, Brazil should start a cycle of economic growth, with new cuts in interest rates.

This, for example, is the thinking of the president of the Japanese insurer Tokio Marine in Brazil, José Adalberto Ferrara. He told the state that the reform, passed in the first round of the Chamber of Deputies, could mark a new cycle of economic growth in Brazil on a sustainable basis.

The newspaper also indicates that Goldman Sachs believes that the Reforma could generate a saving of R $ 900 billion in Brazilian public accounts. JP Morgan is betting that the Brazilian Central Bank should cut basic interest rates (Selic), currently at 6.5%, at 0.5% in the next two Copom meetings. This would bring the Brazilian economy's basic interest rate to 5.5% in September. Citibank believes that there will be a reduction of 0.25 percentage points in Selic this month.

However, in the real world, Brazil's investment rate is the lowest in more than 50 years. A survey conducted by economist Manoel Pires, coordinator of the Fiscal Policy Observatory of the Brazilian Institute of Economics of the Getulio Vargas Foundation (Ibre/FGV), shows that the public investment rate fell from 4.06% in 2013 to 1.85% in 2017 (the lowest level ever recorded in the country), to 2.43% in 2018. The rate of private investment has fallen in the last 5 years, falling from 16.85% in 2013 to 13.39% in 2018.

Growth forecast for the Brazilian GDP is reduced for the 15th time in a row and now stands at 1%

The financial market's estimate for economic growth in this year reached 1%, after 15 consecutive reductions. This is what the Focus bulletin shows, which is a result of the Brazilian Central Bank's research to financial institutions, released every Monday.

In early 2019 financial institutions, according to this same bulletin Focus, forecasted a 2.6% growth in the Brazilian economy this year. However, this bet on the world of finance was mistakenly based on a very positive judgment of Jair Bolsonaro's ability to lead the country's economy. With the passage of the months, this bet turned out to show that the analyzes were, for the most part, politically charged and not based on more rational forecasts of the Brazilian economic indicators.

For many analysts, Brazil is flirting with a new recession. Domestic demand continues to decline considerably and has lasted for two consecutive quarters. This has already been pointed out by Goldman Sachs.

To make matters worse, according to journalist Denise C. de Toledo, the "Preliminary Employment Indicator (IAEmp) recorded the 4th monthly drop followed in May, according to the FGV. The index fell 6.7 points in May to 85.8 points, the lowest level since June 2016 (82.2 points). Reflection of the expectation of weak expansion of the economy".

Goldman Sachs warns about Brazil's industrial scenario

After the Brazilian Institute of Geography and Statistics (IBGE) pointed to a drop of 1.3% in March 2019 in Brazilian industrial production, Goldman Sachs warned that the economic crisis that currently affects Argentina may impact negatively the Brazilian industrial production.

As reported in the Poder360 website, Argentina is Brazil's third largest trading partner. According to data from Brazil's Ministry of Industry, Foreign Trade and Services (MDIC), between January and March 2019, the value of exports to Argentina totaled US$ 2.34 billion.

Therefore, the Brazilian Industry must be impacted by the Argentine economic crisis. In addition to undermining Brazilian exports and industry, the Argentine situation serves as a warning for the country, said Alberto Ramos, the chief economist for Goldman Sachs in Latin America.

For Ramos, since the end of Dilma Rousseff's first term in Brazil, there has been a need to make a fiscal adjustment.