Financial market increases pessimism with Lula due to interventionism and public accounts

Financial market agents signal a kind of “bad mood” with the government of President Luiz Inácio Lula da Silva (PT), according to the new round of the Quaest survey released this Wednesday morning (20).

The institute went to the field to listen to the market’s perception of the direction of the PT’s economic policies, and heard that interventionism in public and private companies and the possibility of not closing the gap in public accounts generate pessimism among investors, even with a better evaluation of the work of Minister Fernando Haddad, of Finance (see below).

Quaest interviewed 101 people including managers, economists, traders (capital market operators) and analysts from the 84 largest investment houses in Rio de Janeiro and São Paulo, between March 14th and 19th (see in full).

The new round of research shows that 64% of financial market agents negatively evaluate President Lula’s government, an increase of 12 percentage points compared to the last survey in November 2023 and 20 points compared to July last year, when there was first a more pronounced increase in perception.

The positive evaluation, which was 0 in the first survey of the Lula 3 government, in March last year, reached a peak of 20% in July and gradually regressed until reaching 6% now.

See the historical series below:

The increase in Lula’s negative evaluation is, among other reasons, according to Quaest, due to government intervention in the economy, mainly in public and private companies. In the most recent episodes, Lula ordered the non-payment of extraordinary dividends to Petrobras shareholders and tried to place former minister Guido Mantega on Vale’s board.

Government interventionism is pointed out as Lula’s biggest risk in the market (50%), followed by exceeding the fiscal target (23%), that is, not achieving the promised balance in public accounts, and the president’s loss of popularity (19%). This last point, by the way, led the PT member to call the ministerial meeting last Monday (18), in which he demanded more actions, results and disclosures from his ministers.

The issue of the fiscal target was also investigated by Quaest, which pointed out that 99% of those interviewed – an almost unanimous opinion – believe that the government will not be able to close the gap in public accounts this year. For 33% of those interviewed, the target will be revised after the release of the Income and Expense Report in May, and only 10% do not believe in a change.

Among other numbers relating to the market’s reasons for pessimism with the Lula government, 97% of those interviewed believe that not paying Petrobras’ dividends was a wrong decision, 52% believe that the government will go back and pay by the end of the year, and 89% predict a reduction in foreign investments in Brazil due to interference in Vale’s management.

As a result, 45% of those interviewed see that Brazil’s image abroad has worsened since Lula took office. The negative rating was just 20% in July 2023, but it has gradually increased until this round of the survey.

The positive assessment of Brazil’s image abroad was 51% in the middle of last year and fell to 25% in the perception of those interviewed.

See below the historical series of the numbers mentioned above.

Pessimism with Lula, optimism with Haddad

On the other hand, financial market agents began to view the performance of Minister Fernando Haddad, of Finance, with more optimism than the president, even though he is part of the government. Felipe Nunes, director of Quaest, sees that the PT member has become “a stronger minister than at the beginning of his term in Finance”, increasing his approval over time.

Haddad’s positive assessment reached 50% of those interviewed, an increase of 7 percentage points compared to the survey released in November last year. It is a recovery from the fall it took two months earlier, when the September survey showed a 20-point drop in positive evaluation.

For 51% of financial market agents, at this moment, Haddad is stronger than at the beginning of his term, against 35% who consider him equal and 14% less strong.

See below the historical series of Haddad’s evaluation by financial market agents:

The financial market is also optimistic about controlling inflation, which is now a greater concern from the government (51%). There was progress throughout the history series, which reached a peak of 80% in distrust in May last year.

“Inflation that, for most market agents, should remain similar to that of 2023 (36%) or reduce even further (46%). Inflation is one of the main indicators of opinion sensitivity. The government can reap good results in terms of popularity with this”, highlighted Felipe Nunes in the analysis of the research.

This means that the expectation of a worsening of the economy is reduced by 23 points between the survey from November last year (55%) and this new round (32%). Optimism for an improvement remained stable at 21%, while the expectation that everything will continue as is increased from 34% to 47%.

The continuity of the current economic scenario will depend on how the government will be able to approve more projects of interest, such as “reimbursement of economic sectors, pension compensation for municipalities, […] of regulating tax reform provisions, understanding the reality of Congress”, said minister Alexandre Padilha last Monday (18) before the ministerial meeting.

“Regarding the ability to approve its agenda in Congress, market agents are neither optimistic nor pessimistic. The assessment that the government has a regular approval capacity, neither high nor low, has been consolidated”, analyzes Felipe Nunes.

59% of financial market agents consider the government’s ability to approve the agenda intended in Congress to be “regular”, compared to 23% who consider it “low” and 18% “high”.

See below the historical series of the numbers mentioned above: