The session this Monday (12) is positive for most of the risk assets. On the external scene, the market awaits the release of the consumer price index (CPI) of the United States, which comes out on Tuesday (13).

This is the last indicator that will be released before the next meeting of the Federal Reserve (Fed, the American central bank) next week. For August, the market consensus, according to Refinitiv, points to a slight deflation of 0.1% in the CPI.

Attention is also drawn to the news that Ukraine is advancing on Russian troops. In an interview with CNN on Sunday (11), Ukrainian President Volodymyr Zelensky said that the country will not stand still and will advance “gradually, slowly.” Last weekend, Russia announced that it was withdrawing Russian troops from two areas in the Kharkiv region of northeastern Ukraine following a Ukrainian counteroffensive.
The local agenda, in turn, had the release of the Focus Report, from the Central Bank. This week, economists consulted by the monetary authority once again reduced inflation expectations for 2022 and 2023 and raised the projection for growth in the Gross Domestic Product (GDP) for this year and next.

Now, the estimate for the National Wide Consumer Price Index (IPCA) is 6.40% this year, below the 6.61% seen last week. For 2023, the projection has dropped from 5.27% to 5.17%. On Friday (9), the official inflation rate was released, showing a price decrease of 0.36% in August, compared to the previous month.

In Tesouro Direto (Treasury Direct), the interest offered by government bonds operate mostly stable this morning. The highest return among fixed-rate papers was delivered by the Treasury Prefixed 2025, trading at 11.69% at 9:20 am, the same rate recorded on Friday (9). The last time the paper had offered interest below 11.70% per year was in April this year.
Among inflation linked papers, in the first update of the day, the highest real remuneration was offered by Tesouro IPCA+2055, at 5.81% per year, the same percentage seen in the previous session (9th).

Only Tesouro IPCA+ 2035 and 2045 showed higher returns, with real rates going from 5.73% per year to 5.76% per year, also at 9:20 am.

Check out the prices and rates of all government bonds available for purchase at Tesouro Direto on Monday morning (12):

In the commodities market, oil futures were up about 2 percent around 10 a.m. ET after falling earlier on the outlook for unstable global fuel demand driven by Covid-19 restrictions in China.

Meanwhile in Brazil, the highlight of the local agenda is the new projections of the Focus, from the Central Bank. Although economists consulted by the monetary authority have reduced their estimates for inflation this year and in 2023, there was an upward adjustment in expectations for the indicator in 2024.

For the second week in a row, the IPCA projection for 2024 increased: from 3.43% last week to 3.47% this week.
The projection for GDP growth rose from 2.26% to 2.39% this year and from 0.47% to 0.50% in 2023.

The estimate for the dollar has also been stable for seven weeks, with a forecasted rate of R$ 5.20.

The projections for the Selic rate, in turn, remained at 13.75% per year for the twelfth week in a row. For 2023, the expectation was maintained at 11.25%.
Impact of deflation on government bonds
The second consecutive month of negative IPCA (National Wide Consumer Price Index) – or with deflation – brought concern to investors who hold securities linked to the indicator.

Although deflation can indeed negatively affect the performance of these assets at certain times, specialists recommend caution to investors who have thought about selling their securities because of the fear of losses.

In August, the effects on the return of some fixed income securities linked to inflation were limited. IPCA-adjusted government bonds with maturities over five years, for example, advanced 2.49% last month, despite the 0.36% deflation registered during the month.
Rafaela Vitória, chief economist at Banco Inter, explains that inflation bonds have two components that affect their price: the fixed-rate remuneration and the IPCA variation. Learn more in this report from InfoMoney.

In the political scene, the Minister of the Superior Electoral Court (TSE) Benedito Gonçalves determined in an injunction that the campaign of President and candidate for re-election Jair Bolsonaro (PL) stop using in the electoral propaganda images of the civic-military event that celebrated the Bicentennial of Brazil’s Independence.

In addition to giving the reelection candidate 24 hours to cease the use of photos, videos or graphic materials in his campaign, the decision signed on Saturday also determines the Empresa Brasil de Comunicação (EBC) to suspend the broadcast of video coverage of the event on TV Brasil’s YouTube channel until it is edited to remove portions in which there is undue disclosure of the president. In both situations, a daily fine of R$10,000 is foreseen in case of non-compliance.