Reports

The June Economic Report presents an analysis of the evolution of U.S. import tariffs, the country’s fiscal outlook, and signs of moderation in the Brazilian economy amid a backdrop of domestic political noise.

Global:

The softening of tariff policies—following progress in negotiations with China—led to a downward revision in the estimated effective tariff rate, now around 12%. Although less aggressive than initially projected, this level still presents significant challenges for global trade.

At the same time, the Reconciliation Package passed by the House of Representatives includes increased defense spending and tax cuts. While the measure may help offset some of the negative impacts on growth, it exacerbates fiscal risks—particularly against the backdrop of an already high deficit. A noteworthy development is the potential introduction of a new tax on foreign investors, informally referred to as the “revenge tax.”

The perception of moderation from the White House benefited risk assets. The S&P 500 posted gains in May, driven largely by the performance of the “Magnificent Seven,” while the U.S. dollar depreciated against emerging market currencies.

Brazil:

Brazil’s GDP grew by 1.4% in the first quarter of 2025 compared to the previous quarter, primarily driven by the agriculture sector. Other sectors are expanding at a more moderate pace, closer to their potential. Inflation is beginning to show signs of deceleration, although it remains well above the 3% target.

Despite ongoing political tensions—such as discussions surrounding changes to the IOF (Tax on Financial Transactions)—Brazilian assets continued to perform well. The small-cap index rose by 5.9% in May, reflecting the resilience of sectors linked to domestic consumption. The Brazilian real has appreciated 7.9% year-to-date, contributing to the disinflationary process.

The May Economic Report highlights the uncertainties surrounding U.S. trade tariffs and their impact on GDP data, signs of global deceleration, the resilience of financial markets, and the nearing end of the monetary tightening cycle in Brazil.

On the global stage, U.S. GDP for the first quarter of 2025 contracted by 0.3% on an annualized basis, with a significant impact from net exports—distorted by import frontloading ahead of the imposition of new tariffs. Despite the downside surprise, domestic demand remains resilient. In China, PMIs have returned to contractionary territory, prompting the government to begin implementing stimulus measures, with expectations of more substantial fiscal policy actions throughout the year.

Global markets initially reacted with pronounced risk aversion following the tariff announcement. However, the postponement of the measures helped restore asset prices, which in many regions returned to previous levels. Nevertheless, the recovery was insufficient to restore investor confidence in U.S. markets, which remains fragile.

In Brazil, formal employment data for March came in below expectations but remained in line with seasonal patterns, particularly given the strong performance in February. Domestic economic activity continues to decelerate gradually, and the Central Bank’s Monetary Policy Committee (Copom) raised the Selic rate to 14.75% per annum. The meeting’s statement signaled that the tightening cycle is essentially at its end, with only a residual risk of one final small adjustment.

The April Economic Report highlights the impact of the new U.S. trade tariffs, their effects on global markets, and the mixed signals within the Brazilian domestic scenario.

On the global front, the announcement of the so-called “reciprocal tariffs” in the United States—followed by their postponement—has heightened uncertainty around macroeconomic variables. Nevertheless, recent movements in implied inflation suggest that the market is pricing in a transitory inflationary shock.

Still within this context, markets experienced a notable increase in asset price volatility. The immediate reaction to the tariff announcement was a sharp decline in global equity markets. However, part of this movement was reversed after the decision to postpone the “reciprocal” portion of the tariffs—except for China, which already faces a rate exceeding 100%. The decision reignited discussions about a possible “Trump Put,” whether in relation to equities or U.S. Treasury yields.

In Brazil, economic activity shows signs of moderation, albeit in a non-linear fashion, as evidenced by the formal job creation data for February, which came in substantially above expectations. Furthermore, new government measures—such as the expansion of payroll-deductible credit to the private sector—could partially offset the expected deceleration in activity. Even so, interest rate curves continued to decline and are already pricing in a terminal Selic rate (at the end of the tightening cycle) close to 15% per annum.

The March Economic Report highlights the increase in uncertainty in the U.S., changes in European fiscal policy, and signs of a slowdown in the Brazilian economy.

In the global scenario, the imposition of new tariffs in the U.S. has raised the risks of a slowdown in consumption and investment. In Europe, Germany announced its intention to approve a robust fiscal package focused on defense and infrastructure, which could radically change the region’s medium-term outlook.

In the markets, the sharp rise in long-term government bond yields in Germany stands out. On the other hand, concerns about economic activity in the U.S. have led the market to price in additional cuts to the Fed Funds rate by year-end.

In Brazil, GDP for the fourth quarter of 2024 grew by 0.2%, below projections, reinforcing the scenario of a gradual slowdown in activity throughout 2025. The market is already pricing in the end of the Selic rate hiking cycle, with expectations of stabilization by mid-year.

In the local market, the stock exchange gave back part of the gains recorded in the previous month, despite slightly positive foreign investor flows. The Brazilian real followed a similar path, giving back a small portion of the appreciation observed in January, despite a marginal strengthening of peer currencies.

The U.S. economy remains resilient, with several indicators surpassing expectations despite a restrictive monetary policy environment. The prospect of higher interest rates for a longer period has widened the divergence between the U.S. monetary cycle and that of other developed economies, such as the Eurozone and the United Kingdom, which are moving toward more significant interest rate cuts. Furthermore, the escalation of the trade war may amplify the challenges for monetary policy, affecting the path of global inflation.

Global equity markets delivered mixed performances, with a sharp decline in semiconductor and chip companies following the announcement of the DeepSeek-R1 model – an open-source and free AI system with capabilities comparable to leading solutions in the segment. On the other hand, in Brazil, the Ibovespa index rose by 4.9% in January, reversing a large part of December’s losses, amid a broader recovery in local risk assets at the beginning of the year (following a period of significant stress in December).

In Brazil, early signs of a potential slowdown in growth appear to be emerging, especially in the labor market, with the first increase in the unemployment rate in over a year (according to our seasonal adjustment), along with a further deceleration in the creation of formal jobs. Meanwhile, the Central Bank raised the Selic rate to 13.25% per year, maintaining the signal of another hike, while acknowledging that economic activity may be slowing – although there is no concrete evidence of an abrupt deceleration.

After three consecutive months of depreciation, the Brazilian real posted a strong appreciation in January, outperforming other emerging market currencies. This movement also appears to reflect an improvement in the overall perception of domestic assets, despite the announcements of new import tariffs in the U.S.

The first Economic Report of 2025 highlights the resilience of the U.S. economy, the outlook for upcoming monetary policy decisions in the United States, and the challenges faced by the domestic market in Brazil, with special attention to the depreciation of the Brazilian Real in December.

In the U.S., the latest labor market data significantly exceeded projections, confirming that the economy remains robust despite the monetary tightening of the past two years. Additionally, some metrics point to an increase in inflation expectations, reflecting economic surprises in the fourth quarter and the potential implications of new policies related to tariffs and immigration.

In Brazil, inflation ended 2024 above the upper limit of the target range, with the Central Bank warning that price levels are expected to remain elevated at least until the third quarter of 2025. Although economic growth outperformed expectations last year, a slowdown is anticipated in response to contractionary monetary policy.

In the markets, the S&P 500 delivered another year of strong gains, rising more than 20%, driven by the “Magnificent 7.” In contrast, the Ibovespa declined by 10.4% in 2024, reflecting the weakness across other asset classes in the local market. One of the few highlights was the private credit market, which outperformed the CDI throughout the year despite losing momentum in December.

The December Economic Report highlights the resilience of the global economy, the pressure on the dollar following the U.S. elections, and the fiscal challenges faced by Brazil.

In the global scenario, U.S. employment data presents mixed signals but remains consistent with a resilient economy. Particularly noteworthy is the stability in unemployment insurance claims, which suggests that the risks of an abrupt slowdown (hard landing) remain low. In the Eurozone, the situation is different, with accumulating evidence of economic slowdown increasing the likelihood of a faster monetary easing cycle by the European Central Bank.

Brazil’s GDP showed robust growth in the third quarter, with a particular emphasis on domestic absorption (excluding the effects of the contraction in net exports and inventory variations). However, the observed expansion far exceeds potential GDP estimates, raising risks of inflationary pressures and a future slowdown. Additionally, rising uncertainty in the local market, driven primarily by the unsustainability of public accounts, has intensified pressure on the Central Bank. In this context, the monetary tightening may push the Selic rate above 15% in 2025.

In the markets, resilient economic activity and favorable prospects for the private sector, intensified by the election results, have contributed to the positive performance of the U.S. stock market, despite a new round of rising interest rates throughout November.

The dollar continued its upward trajectory, driven by expectations of economic policies from the Republican government starting next year. In Brazil, the announcement of a spending cut package, combined with an expansion of income tax exemptions, generated uncertainties about public accounts. This scenario contributed to the sharp depreciation of the real, which reached historic levels above R$6.00/USD.

The U.S. economy is also showing signs of deceleration, affected by seasonal factors such as natural disasters and labor strikes, which contributed to lower-than-expected net job creation.

In the markets, global inflation remains resilient, with the U.S. PCE deflator accelerating slightly, though without major surprises. U.S. equities posted positive performance, supported by post-election sentiment, while emerging markets, including Brazil, faced increased challenges. U.S. interest rate volatility and the rise in the VIX index reflect a heightened sense of uncertainty.

In Brazil, the government is working on a spending cut package of approximately R$30 billion to meet its fiscal targets, though structural reforms are still urgently needed. Consumer inflation accelerated in October, particularly in inertia-driven components, reinforcing concerns about overheating in the economy and its potential impact on prices.

The Brazilian real remains under pressure, especially compared to other emerging market currencies, due to local fiscal uncertainty and a volatile global backdrop. The prospect of higher tariffs and looser regulation in the U.S., should Trump’s victory be confirmed, also poses additional risks for currencies such as the real, which is exposed to commodities and emerging markets.

This complex environment underscores the importance of closely monitoring both political and economic trends, as government decisions in the U.S. and fiscal adjustments in Brazil can directly impact markets and the global economy.

The October Economic Report highlights the beginning of a new interest rate cut cycle in the U.S., the Chinese government’s response to slowing domestic demand, and revisions to the inflation forecasts by Brazil’s Central Bank.

Globally, the Federal Reserve initiated a rate cut cycle, with a 50 basis point reduction at the latest FOMC meeting, bringing the federal funds rate to a range between 4.75% and 5.00%. Central bank president Jerome Powell indicated there is no rush for further cuts, suggesting the pace of future cuts would be 25 basis points per meeting, depending on economic data.

In contrast, China announced its largest stimulus package since the pandemic in response to declining domestic demand. Measures include interest rate cuts, reductions in reserve requirements, and targeted actions for the real estate and stock markets. Chinese President Xi Jinping also addressed an extraordinary Politburo meeting, indicating further stimulus, including fiscal measures, is on the horizon. The market responded positively, with stocks and commodities, such as iron ore, gaining value.

In Brazil, the Central Bank raised the Selic rate by 25 basis points to 10.75% per year in response to persistent inflation and strong economic growth. Despite a slight deceleration observed in the IPCA-15, influenced by volatile items like airfare and vehicle insurance, inflationary pressures in the country remain challenging.
In the markets, we observe an increase in the interest rate differential between Brazil and the U.S., with the U.S. entering a monetary easing cycle while Brazil is tightening. In the U.S. stock market, a potential mean reversion among indices may occur if the soft-landing scenario materializes, while the local Brazilian stock market faces challenges, historically underperforming during interest rate hike cycles. Nevertheless, we believe it is important to maintain allocations in equities, which still offer attractive multiples in a resilient economy, with potential positive drivers from emerging market flows.

The September Economic Report highlights the global scenario of economic slowdown and monetary adjustments in developed economies, especially in the U.S.

The improvement in inflation data and the slowdown in the labor market observed over the past few months allowed Federal Reserve Chairman Jerome Powell to signal the start of an interest rate-cutting cycle in September, during his speech at the Jackson Hole Symposium. The decision comes about six months after the first central bank of a developed economy (Switzerland) made its first rate cut of the year. Additionally, the U.S. elections and their possible implications on global trade remain under scrutiny.

In Brazil, the GDP for the second quarter grew by 1.4%, surpassing expectations. However, inflation remains persistent, leading the Central Bank to revise its monetary policy. The strong economy and the interruption of the disinflation process in the Brazilian economy prompted the Central Bank to begin a new interest rate hike cycle starting in September. As a result, Brazil stands out as one of the few economies in the world with the prospect of increasing interest rates over the next 12 months.

In the markets, the U.S. stock market continued to show strong results, reflecting the expectation of rate cuts amid a controlled economic slowdown. In Brazil, the Ibovespa posted a solid rise, driven by improved company results (aligned with the evidence of a strong economy), while the credit market continues to attract significant inflows in a high-interest-rate environment. On the other hand, the Dollar remains strong against the Real, in a challenging environment for currencies used in interest carry strategies.

The August Economic Report highlights changes in global economic expectations, financial market reactions, and Brazil’s challenges.

Global inflation continues to moderate, particularly in the U.S., where the June PCE deflator confirmed a significant slowdown in the second quarter of 2024. The Bank of England (BoE) cut its interest rate for the first time since 2020, while the Federal Reserve (FED) held rates steady but signaled the possibility of future cuts. The U.S. labor market showed signs of slowing, raising concerns about a potential recession.

Global markets reflected the increasing risk of recession, especially in the U.S., with a rapid decline in interest rates and increased volatility in stock markets, as evidenced by the VIX index. The Bank of Japan (BoJ) continued to normalize its monetary policy by raising the base rate, negatively impacting the markets.

Brazil faces fiscal challenges, with the local market skeptical about the government’s ability to meet its primary result targets. Despite revenue growth, expenses continue to rise above expectations. The Monetary Policy Committee of the Central Bank (COPOM) kept interest rates steady but indicated that further hikes might be necessary due to worsening economic conditions.

The Brazilian foreign exchange market remains under pressure, with the real continuing its depreciation trajectory, resulting in underperformance compared to other similar currencies.

The July Economic Report highlights changes in inflation and interest rate expectations in the United States, the interruption of the interest rate cut cycle in Brazil, and the performance of global and local financial markets.

The first debate among the United States presidential candidates increased uncertainty regarding Joe Biden’s health, raising the chances of Trump being elected in November and bringing speculation about a possible replacement of Biden as the Democratic candidate. Inflation in the United States showed a strong deceleration in May, with favorable data even in the more inertial components. Despite this, the Federal Reserve’s Federal Open Market Committee (FOMC) revised upwards its inflation and interest rate projections, including the estimate of the long-term interest rate, considered a proxy for the neutral rate.

The U.S. interest rate markets closed more intensely after the release of benign readings in the consumer inflation data for May. At the same time, the American stock market recorded another month of gains concentrated in a few companies.

In Brazil, the Central Bank’s Monetary Policy Committee (COPOM) decided to interrupt its cycle of interest rate cuts, signaling high rates for a longer period. This decision came amid the unanchoring of inflation expectations and intense currency depreciation. The Brazilian government promised to conduct a “fine-tooth comb” on expenses, but the sustainability of the fiscal framework remains at risk.

The Real depreciated significantly, diverging from other comparable currencies, although part of the movement was reversed after improved communication from the government. Meanwhile, the domestic stock market continued to underperform compared to global markets, reflecting the deterioration of sentiment regarding the local economic situation.

The June Economic Report highlights the beginning of interest rate cuts in some of the major developed economies, the gradual moderation of the U.S. labor market, the growth of the Chinese economy, the robust Brazilian GDP in the first quarter, and their impacts on the markets.

On the global stage, after a prolonged period of disinflation, some of the major developed economies are finally starting their respective cycles of interest rate cuts. The central banks of Switzerland, Sweden, Canada, and the Eurozone were the first to reduce their rates, with expectations that the UK and the United States will follow this trend by the end of the year. The labor market is also showing signs of normalization, with the unemployment rate and the number of job openings per unemployed person approaching pre-pandemic levels. Meanwhile, the Chinese economy is growing due to economic stimuli, despite facing challenges in domestic demand and the real estate sector.

Following the Federal Reserve’s Monetary Policy Committee (FOMC) minutes clarifying members’ willingness to raise interest rates, the U.S. yield curve began to steepen, although favorable economic data helped mitigate this movement. Interest rates closed May near their previous month’s levels, maintaining the likelihood that the first rate cut will occur in September. The American stock market, represented by the S&P 500, continued to perform positively, rising 4.6% in May and 26% over the last twelve months.

In Brazil, GDP for the first quarter rose 0.8% compared to the previous quarter, surpassing market consensus, reflecting the resilience of household consumption and the recovery in fixed capital investment. This performance reinforces growth expectations for 2024, currently projected slightly above 2%. Similarly, the labor market continues to surprise, with the unemployment rate trending downward and wage mass showing significant increases in April, potentially posing challenges for disinflation in the service segment and consequently for the Monetary Policy Committee of the Central Bank’s interest rate cut cycle.

The last COPOM decision was poorly received by the market, increasing uncertainty about the committee’s future stance and reflecting in higher premiums in the yield curve and implied inflation. The Real, in turn, recorded weaker performance against its comparable currencies, with local investors reducing their positions amid worsening domestic conditions.

The May Economic Report highlights robust inflation data and a moderation in the U.S. labor market, the postponement of interest rate cut expectations by the FOMC, the revision of fiscal targets in Brazil, and the impact of foreign flows on the Ibovespa.

In the global scenario, U.S. inflation data remained consistently strong in the first quarter of 2024, particularly the quarterly PCE, which surprised and led to a significant revision of January’s figures. The U.S. labor market is showing signs of a slowdown, with net job creation below expectations, moderation in wages, and a slight increase in the unemployment rate. The FOMC announced a deceleration in quantitative tightening in its latest communiqué, reducing the FED’s monthly balance sheet reduction pace starting in June.

In Brazil, sectoral surveys and labor market data remained strong in March, confirming a robust first quarter despite negative surprises in industry and retail. The government revised the primary surplus target for 2025 and 2026, reflecting the fragility of fiscal commitment, although Moody’s upgraded Brazil’s rating outlook to positive.

In the markets, as inflation proved stronger than expected in 2024, the anticipated start date for interest rate cuts in the United States was postponed. Currently, the market is divided between the possibilities of one or two 25 basis points (bps) cuts by the end of the year. Additionally, the U.S. corporate earnings season was positive, with profits exceeding expectations, boosting the performance of the S&P 500.

In Brazil, the Monetary Policy Committee of the Central Bank of Brazil (COPOM) opted for a smaller-than-prescribed cut in the Selic rate, with a split vote between members appointed by the previous government (who voted for a 25 bps cut) and new appointees (who advocated for maintaining the guidance of a 50 bps cut). The division caused discomfort in the market, which began to fear even more that the committee would become more lenient on inflation from next year when the new appointees become the majority. Finally, foreign investment in the Brazilian stock market was negative in the first four months of 2024, impacting the index’s performance. On the other hand, we are observing small signs of reversal in the preliminary data for May.

The March Economic Report highlights signs of accelerating global activity, consolidation of candidates in the US elections, positive performance of American stocks driven by earnings growth expectations, and economic challenges and opportunities in Brazil.

In the global scenario, we observe signs of economic activity acceleration, although interest rates remain high. This movement is occurring not only in the US but also in other parts of the world, including Asian countries such as South Korea, whose exports are considered a leading indicator for the global economic cycle.

Consumer inflation surprised the market with an acceleration starting from January, followed by some improvement in February. These data reinforce the recent dynamics of the interest rate market, which has been postponing implicit expectations of rate cuts in the US. Regarding the US presidential elections, the “Super Tuesday” confirmed the candidacies of Joe Biden and Donald Trump with a significant advantage.

Despite interest rate volatility, US stock indices maintain positive performance, driven by earnings growth expectations, especially in technology companies. The mobile correlation between stocks and US government bonds remains at a positive level.

In Brazil, the GDP of the fourth quarter of 2023 confirmed the stagnation of economic growth, although expectations for 2024 are on an upward trajectory. Strong labor market and wage pressures represent risks for inflation, but commodity prices have provided some relief. We observe a gradual movement of increasing local interest rates, reflecting global interest rates and service inflation.