Hello. This week’s issues: the most important facts of the week. Brazil a “problematic” country for journalists. How markets performed this week. Brazilian escalating fintech war.

This week in review

Fuel crisis. After President Bolsonaro blocked a

bump in diesel prices—leading to a BRL 32bn loss in Petrobras market value—the company announced it is raising its fares by BRL 0.10/liter. The government also asserted the firm&#8217;s political independence. In reaction, leaders of truckers&#8217; unions started to call for a new strike for April 29. Last year, the sector stopped work for 10 days, causing fuel and food shortages across the country. </span></p> <p><span style="font-weight: 400;">Oil. The Brazilian government will request a BRL 106bn signing bonus in an October 28 auction of surplus oil from the deepwater pre-salt layer, according to Economy Minister Paulo Guedes. The auction comes after the settlement of a years-long battle between Petrobras and the federal government, for the rights to explore the reserves.</span></p> <p><span style="font-weight: 400;">Telecom. China&#8217;s Huawei is making a second attempt to cracking theBrazilian smartphone market, with three new flagship models. Back in 2014, the giant launched its first model in Brazil, but failed to catch on. Latin America&#8217;s largest market (and 4th-largest worldwide) remains a challenge for Huawei, which is otherwise present in 13 of the region&#8217;s countries—with a double-digit market share in nearly all of them.</span></p> <p><span style="font-weight: 400;">Pensions. The House&#8217;s Constitution and Justice Committee has yet to vote on the pension reform bill. The government has failed to whip the necessary votes to move the bill along its congressional path, causing the Brazilian Real to lose value. Meanwhile, congressmen are looking to amend the bill before the real debates happen.</span></p> <p><span style="font-weight: 400;">Censorship. The Supreme Court has decided to censor a report linking Chief Justice Dias Toffoli to Odebrecht, a company found guilty in multiple corruption cases investigated by Operation Car Wash. The move backfired on multiple levels. It made a fairly niche publication reach a much broader audience, and drew criticism from near every relevant political actor. A group of senators began lobbying for an investigation of the judicial system. On Thursday evening, the court lifted the gag order.</span></p> <p><span style="font-weight: 400;">Violence. According to official data from Brazil&#8217;s 27 states, the number of homicides in Brazil has dropped 25% in the first two months of 2019, confirming a trend that comes from 2018. The Northeast, Brazil&#8217;s most violent region, has consistently improved its numbers. Ceará, a state in the middle of international drug shipping routes to Europe, has reduced its murder rate by 58%—even after almost 300 attacks by criminal groups in January and February.</span></p> <p><span style="font-weight: 400;">Air travel. Azul Airlines CEO John Rodgerson has accused competitors Gol and Latam to tampering with the bidding process for Avianca Brasil assets. The airline is close to bankruptcy. After Azul had reached a non-binding BRL 105m for part of Avianca&#8217;s airport slots and planes, Gol and Latam each presented a USD 70m offer, leaving Azul out of the race. Together, Gol and Latam own 90% of slots in the São Paulo-Congonhas airport, Brazil&#8217;s second-busiest.</span></p> <p><span style="font-weight: 400;">National Force. The Ministry of Justice has sent National Force troops to guard Brasília for 33 days, as three major political demonstrations are scheduled in the capital: 7,000 will march on April 24-26, labor unions are expected to organize events against the pension reform, and May 1, Labor Day, is a traditional date for protests, too.</span></p> <hr /> <h2>Brazil a &#8220;problematic&#8221; country for journalists</h2> <p><span style="font-weight: 400;">Brazil has been ranked 105th out of 180 countries for press freedom, according to an annual index published by international media watchdog Reporters Without Borders. The ranking, released on Thursday, mentions that the work of journalists is under constant attack, and that many investigative pieces &#8220;have been subjected to abusive judicial proceedings.&#8221; It is somewhat ironic that the report comes as Brazil deals with a major case of press censorship from the Supreme Court.</span></p> <p><img class="mcnImage aligncenter" src="https://gallery.mailchimp.com/6ffdbe3b440df0fd3e02996af/images/8b114169-fe74-440e-8e5b-d554607d5751.jpg" alt="" width="600" align="center" /></p> <hr /> <h2>Markets</h2> <p><span style="font-weight: 400;">Companies will start reporting their Q1 results next week and investors are eager to see how they have performed amid a sluggish economy. XP Research analysts expect “a relatively weak season, mostly due to the slower-than-anticipated economic recovery.” They see Brazilian banks as the main positive highlights, following their momentum from previous good results; among them, XP picked Bradesco (BBDC4) as a favorite. Another good performance may come from car rental companies, to which they see “strong volume growth in general”. On the negative side, XP says Cielo may present smaller profits and revenue due to the effects of a fierce price strategy and investments in marketing and personnel to tackle cut-throat competition (more below). The company will report its earnings on Tuesday.</span></p> <p style="text-align: center;"><strong><em>Natália Scalzaretto, TBR markets reporter</em></strong></p> <hr /> <h2>Brazilian escalating fintech war</h2> <p><span style="font-weight: 400;">Brazil&#8217;s Itaú Unibanco blindsided competitors by announcing that Rede, its card <a href="https://brazilian.report/money/2019/08/15/why-is-brazilian-central-bank-selling-dollars-after-ten-years/">payment</a> company, would grant advance cash for small- and medium-sized merchants without charging interest rates. Rede will pay merchants who agree to receive their money through an Itaú account within just 2 days. In Brazil, they usually wait 25 days—and pay interest for earlier deposits.</span></p> <p><span style="font-weight: 400;">Rede&#8217;s move is unprecedented in the Brazilian fintech market and will certainly make an already competitive sector even more disputed. According to industry sources, newer players, such as Stone and PagSeguro, considered it as an act of war. Their stocks plunged on Thursday.</span></p> <p><span style="font-weight: 400;">Fintech Stone stock tumbled 24% to USD 26.51 on the stock market in massive volume. The IPO stock gapped below its 50-day line (its average closing price over the last 50 days), as shown by analysts MarketSmith—the finding is a key sell signal. Pagseguro Digital stock sank nearly 10% to USD 25.30 in heavy volume. The stock gapped down through both its 50- and 200-day lines.</span></p> <hr /> <p><a href="https://www.investing.com/equities/stoneco-ltd"><img class="mcnImage aligncenter" src="https://gallery.mailchimp.com/6ffdbe3b440df0fd3e02996af/images/c3c98b68-a006-4d46-952c-f308aa5bb4cf.png" alt="" width="564" align="center" /></a></p> <hr /> <p><span style="font-weight: 400;">Both Stone and PagSeguro accuse Rede&#8217;s zero rate strategy of being predatory competition, as the offered product has at least an opportunity cost of 0.5% per month (where Brazil&#8217;s benchmark interest rate stands). Moreover, by conditioning the new conditions to customers using an Itaú bank account, Rede would be making a &#8220;tied sale&#8221;—which is illegal under Brazilian law.</span></p> <p><span style="font-weight: 400;">Finally, competitors claim that the move disrespects an agreement that Itaú and Rede signed with Brazil&#8217;s antitrust watchdog, Cade. At the time, they agreed to pay BRL 21m to avoid an investigation into anti-competitive practices. The bank was accused of discriminating against merchants which used Rede&#8217;s competitors, unlawfully hurting other companies.</span></p> <p><span style="font-weight: 400;">In the coming months, it will be interesting to see if Itaú is really lowering its take rate or simply charging for the same thing in a different way. The bank could simply hide the lost revenue in Rede&#8217;s merchant discount rate. The MDR is the rate charged to a merchant for payment processing services on debit and credit card transactions. The merchant must set up this service and agree to the rate prior to accepting debit and credit cards as payment.</span></p> <h4>Fintech: Newbies in the stock market</h4> <p><span style="font-weight: 400;">Stone made its initial public offering (IPO) on the New York Stock Exchange in October 2018, being valued at almost USD 9bn—today, its market value is at USD 7.28bn. The company attracted investors such as Ant Financial (controlled by China&#8217;s Alibaba), and Warren Buffet&#8217;s Berkshire Hathaway. At the beginning of the month, Stone made a follow-on offer—19.5m ordinary class A shares, at USD 40.50.</span></p> <p><span style="font-weight: 400;">PagSeguro, a fintech owned by news website UOL, made its IPO one year ago. In January 2018, the company raised USD 2.3bn in what was by some distance the biggest IPO of a Brazilian fintech abroad. The previous record belonged to online retailer NetShoes (USD 140m). Earlier this year, PagSeguro got the green light to operate its own bank.

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