Turim’s 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.