El Niño threatens Brazil's fragile commodity export boom as climate risk converges with depleted global stocks.

The 16.2% single-session surge in New York arabica coffee prices — the largest daily move in 26 years — captures with brutal precision the kind of risk Brazil faces in the second half of 2026: a potentially devastating El Niño converging with already-depleted global commodity stockpiles, at a moment when the country is piling up export records that may prove more fragile than they appear. Agribusiness closed the first half with US$86.5 billion in exports, 6% above 2025 and the best result on record for the period, according to industry data. Beef exports reached US$9.85 billion, also a record. But that robustness may be illusory: according to Itaú BBA, there is a 63% probability that El Niño will reach very strong intensity between November and January, which would place the phenomenon among the most intense since 1950. The coffee harvest is already feeling the impact of June rains, with only 30% completed in Minas Gerais against a historical average of 40%, and Morgan Stanley has warned that the Central Bank will have progressively less room to ignore the inflationary effects of the climate event. For an economy whose presidential approval rating today proved the most sensitive to inflation and unemployment in three decades, according to analysis published by Folha de S.Paulo, this convergence of risks carries implications that reach well beyond commodity markets.

The real closed Monday 0.69% stronger at R$5.132 to the dollar, a move that brought some relief to future rates after weeks of stress. June's IGP-DI fell 0.79%, driven primarily by a 3.19% decline in raw materials, partly reflecting the normalization of oil prices, which closed near US$72 a barrel after months of elevation caused by the Strait of Hormuz blockade. More significant, however, was the news that economists surveyed by the Central Bank cut their 2026 inflation projection for the first time since the start of the war in Iran in February — a signal that the external shock cycle may be, at least temporarily, losing steam. The inflation relief coincides with early signs of cooling in the labor market: Caged registered only 72,960 formal jobs created in May, the lowest number for the month since the pandemic, and average hiring wages fell 0.75% from April. Analysts at Valor Econômico have begun debating whether this deceleration opens room for a fresh Selic cut, though the volume of government fiscal stimulus — which, according to a Folha survey, already exceeds R$180 billion in 2026, an election year — is likely to complicate the picture for the Copom.

On the external front, Brazil is living through one of the most complex trade disputes in its recent history with Washington, with two fronts open simultaneously. Itamaraty filed a formal response to the USTR rejecting as "arbitrary" the conclusions of the investigation proposing an additional 12.5% tariff based on alleged failures in combating forced labor, while separate public hearings debate the additional 25% tariff that the Trump administration threatens to impose on the whole of Brazilian exports. The list of American companies opposing the surcharge is revealing: Tesla, Coca-Cola, Nestlé, Siemens, eBay and Faber-Castell submitted comments to the USTR asking that the measure not be implemented, and Amcham Brasil described the initiative as "harmful to both economies." The Lula government opted to send only observers to the hearings, keeping the diplomatic effort in direct channels with the White House — a strategy that reflects a delicate political calculation, but which also exposes the vulnerability of a country that does not want to appear confrontational while negotiating. A Valor Econômico article recalls that the root of the tension may lie in Brazil's isolationist position at the WTO in March, when Brasília was the only country to resist the renewal of the moratorium on e-commerce taxation, putting itself on a collision course with the American big techs at a particularly inopportune moment.

On the domestic front, the institutional and corporate landscape presents tensions of its own. Cade, the country's chief competition arbiter, is operating for the first time in its history without an effective president or superintendent-general, a casualty of the political impasse between the Executive and the Senate led by Davi Alcolumbre. The regulatory paralysis arrives at a moment when out-of-court restructurings are exploding — the Raízen case, with R$65.1 billion in debts, is not an exception but a symptom of a credit environment in which the pressure of high interest rates continues to push companies into restructurings. The high-yield debenture market has grown 80% in two years, according to FTI Consulting. The financial sector itself is also under regulatory pressure: the Central Bank is studying restricting Pix access for institutions with cybersecurity vulnerabilities, following attacks that diverted hundreds of millions of reais, and has authorized 316 new positions in public examinations for the Receita Federal and the Central Bank — a move directly linked to the Banco Master scandal. Daniel Stieler's resignation from the chairmanship of Vale's board, under pressure from Previ, adds another layer of uncertainty to the governance of the largest mining company in the southern hemisphere.

For the week ahead, investors should watch the National Treasury auction of NTN-Bs and LFTs — a relevant test of market appetite for sovereign risk after weeks of volatility — and monitor any signals from the Fed, whose Vice Chair for Supervision, Michelle Bowman, spoke on Tuesday. The pricing scheduled for July 14 of Engie Brasil's primary share offering, which could reach R$10.5 billion, will be the biggest temperature gauge for the domestic capital market. And developments in the negotiations with Washington, where Senator Flávio Bolsonaro participated in the USTR hearings as a domestic voice of opposition, promise to keep geopolitical-trade risk at the center of attention in the coming weeks.

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**Vale (NYSE: VALE)** — Daniel André Stieler resigned from the chairmanship and his seat on the board of directors with immediate effect, following pressure from Previ, the Banco do Brasil employees' pension fund and one of the company's largest shareholders. His departure opens a governance vacuum at the world's largest iron ore exporter at a moment of uncertainty over Chinese demand and sensitive negotiations with the federal government.

**Azul (NYSE: AZUL)** — The NYSE approved the listing of the company's common shares in the form of American Depositary Shares, marking the airline's return to the American market after a financial restructuring process. The approval coincides with the arrival in Brazil of Gol's first Airbus A330-343 — its rival, currently in judicial reorganization — which will inaugurate a Rio de Janeiro–New