Petrobras slumps on Brazilian market amidst concerns over new fiscal policies

(Bloomberg) — Brazilian assets tumbled on the first session of 2023 as traders digested plans by President Luiz Inacio Lula da Silva to use state-owned companies to drive economic growth.

Petrobras slumped as much as 6.9% in Sao Paulo, the main drag on the benchmark Ibovespa index, which fell 3.1% as of 11:47 a.m.

At his swearing-in on Sunday, Lula reinforced his commitment to fighting inequality and hunger, bashed the current fiscal rules as “stupidity” and said public banks and big oil companies like Petroleo Brasileiro SA will have “a key role” in the new economic cycle. 

In his first hours back on the job removed companies such as Petrobras from privatization plans, revoked a decree that reduced levies for large companies and extended a tax break on fuels.

While Lula has criticized the current fiscal rule for months, the comments Sunday are sparking fresh concerns among traders, who worry the left-wing administration will erode fiscal accounts and fuel inflation.

A central bank survey of economists collected before the inauguration and released Jan. 2 already showed a fresh round of upward revisions to inflation estimates.

Comments by other members of Lula’s cabinet are adding to concerns. On Jan. 2, Finance Minister Fernando Haddad reinforced a pledge to present a new fiscal plan to congress in the first half of the year but fell short of giving details. Jean Paul Prates, who was tapped to become Petrobras’s new chief executive officer, told newspaper O Globo the firm’s pricing policy will be changed.

“There was nothing reasonable in what Lula, Prates or Haddad have said,” according to Marcelo Ornelas, a portfolio manager at Kinitro Capital. “All the signals are bad.”