A new Genial/Quaest poll indicates a rebound in President Luiz Inácio Lula da Silva's approval ratings, reaching 46% in August, up from 43% in July and 40% in May. This rise in approval, coupled with a decrease in disapproval to 51%, suggests a relative stabilization in Brazil's political climate. However, the overall disapproval rate remains above 50%, indicating continued public concern regarding the government's performance.

These improvements are attributed partly to declining perceived inflation rates for food items and the government's response to tariffs imposed by U.S. President Donald Trump. Since the announcement of higher tariffs on Brazilian exports to the U.S., the government has managed to halt the rise in disapproval, which stood at 57% in May before Trump's measure, and increased to 53% in July.

Market Signals

Sector Impacts and Opportunities: The agricultural sector, a strong performer contributing to GDP growth, has voiced concerns about government support measures in the face of U.S. tariffs. Any policy shifts affecting exports or domestic demand could impact this key sector. Chinese automakers are increasing their presence and production in Brazil, intensifying competition. Government initiatives to support reindustrialization and energy transition in mobility could benefit this sector, but careful monitoring of specific incentives and regulatory frameworks is essential. Brazil is moving towards regulating digital platforms, with proposed measures potentially favoring local incumbents over foreign companies.
Price Movements and Volatility: High interest rates in Brazil and a weakening global dollar have strengthened the Brazilian real, reaching a 14-month high against the U.S. dollar. This could make Brazilian exports more expensive but imports cheaper, impacting trade balances.
Competitor Positioning Changes: The entry of Chinese automakers is increasing competition in the automotive sector.

Stakeholder Impact

Winners: The Brazilian government, due to increased approval ratings providing political stability. Companies benefiting from direct government support, such as tax deferrals. Companies focusing on the domestic market. Losers: Exporters to the U.S., particularly in sectors like perishable goods and automotive, face reduced competitiveness and potential revenue loss. Smaller producers, who may not receive adequate support. U.S. technology companies, which could face an unfavorable regulatory environment.

Action Timeline

Immediate: Assess the effectiveness of the 30 billion Brazilian reais ($5.6 billion) government support package for companies affected by U.S. tariffs. Explore new export markets for companies reliant on the U.S. market.
Short-term: Develop strategies to strengthen supply chains to adapt to tariffs. Understand the nuances of domestic market absorption and export diversification strategies.
Long-term: Monitor policy and regulatory changes in sectors like technology. Observe the impact of trade tensions with the U.S. on economic relations.

Risk Assessment

Regulatory Risks: Brazil's proposed digital sector regulations could be disadvantageous for U.S. tech companies.
Market Volatility Risks: Brazilian equities remain sensitive to political developments and global economic shifts.
Geopolitical Tensions: Ongoing trade disputes with the U.S. over tariffs represent a significant geopolitical risk.

Key Indicators

What this signals for the market/industry: The improvement in approval ratings signals increasing political stability, but continued monitoring of economic indicators and government policies is necessary.
Leading Indicators and Data Points: Future polls, inflation data, unemployment rates, consumer confidence, and government policy implementation.

Regional Perspective

The rebound in President Lula's government approval ratings reflects a notable improvement in Brazil, particularly in electoral strongholds like Bahia and Pernambuco, where approval rates have significantly increased. This trend indicates a positive response to economic policies, including the handling of U.S. tariffs.

Immediate Implications

What happens next: The government will continue to monitor future polls and key economic indicators to assess the impact of its policies.
Time-sensitive opportunities or risks: Companies affected by U.S. tariffs have an opportunity to benefit from government support packages, but swift action is needed.

What to Watch

Leading indicators to monitor: Future polls, inflation data, international trade decisions.
Expected next developments: Further details on government support packages and their actual impact.
Key decision points ahead: The government's future economic policy decisions, especially in the lead-up to upcoming elections.

Analysis

The improvement in Lula's government approval ratings signals a positive trend, driven by declining perceived inflation and proactive government measures against U.S. tariffs. However, high disapproval rates remain a challenge, requiring the government to continue focusing on improving economic performance and effective communication with the public. The ability to address the concerns of affected sectors, particularly smaller producers, is crucial to sustaining this momentum.