Wigmore Member Firm, Turim, share their Economic Report for May 2024.

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.