Oil shock hits Brazilian real as household debt reaches record highs.

Oil set the tone for Brazilian markets this Monday in a way few had anticipated: with Brent crude topping $89 a barrel and gaining more than 5% over the session — a direct reflection of uncertainties surrounding the reopening of the Strait of Hormuz, through which roughly 20% of the world's oil flows — the real paid the price of global risk aversion. The dollar closed up 0.53% at R$5.111, while the Ibovespa retreated for the fifth consecutive session, ending at 172,179 points, with banks and retailers leading the losses despite substantial gains for Petrobras and Vale, of 3.33% and 1.28% respectively. The pressure was not confined to the currency: future interest rates rose across the curve, reacting both to the oil spike and to the prospect that U.S. inflation data due later in the week will constrain the Federal Reserve's room to ease monetary policy.

The external shock arrived at a moment of particular domestic fragility. For the first time since April, economists surveyed in the Focus report lowered their GDP projection, a move that crystallizes a growing concern: household consumption, which sustained economic activity longer than expected, is beginning to show unmistakable signs of exhaustion. Household indebtedness in Brazil has reached record levels, with 84.9% of families earning up to three minimum wages classified as indebted, according to a CNC survey. Loan demand rose 14.8% in June year-on-year, according to Serasa Experian — an increase that, rather than signaling confidence, reveals the growing recourse to expensive credit to cover current expenses. For families earning up to two minimum wages, the rise was 50.8%. Delinquency in private-sector payroll-deducted loans has climbed throughout 2026, while that of public servants has receded, exposing the fault line between the two Brazils of credit.

The central bank cut the Selic rate by 0.25 percentage points last week, bringing it to 14% per year, but the gesture offers limited relief to an economy whose retail sector has already reported weaker-than-expected results and whose 2027 projections in the Focus report have fallen from 1.65% to 1.52% in recent weeks. Economists warn of the risk of a "hangover" in 2027: the government's fiscal and parafiscal stimulus has kept growth above potential, but its effects tend to dissipate precisely when the debt cycle begins to reverse. Against that backdrop, public debt crossed a symbolic threshold by reaching 77.2% of GDP in April, surpassing the share of private debt at 75.7% — a "crowding out" phenomenon that raises the cost of productive credit and squeezes private investment, according to a Cefeb/Fipe study.

The political environment adds noise. With the electoral process underway, members of the Lula administration have intensified rhetoric blaming the central bank for the rise in public debt of more than ten percentage points over three and a half years, while Anbima plans to present its capital-markets development agenda to all presidential candidates. The Desenrola Adimplentes program, whose rules were adjusted last week to broaden bank participation, took effect this Monday amid doubts about its effectiveness in an environment of still-elevated interest rates.

On the geopolitical-trade front, the tariff dispute with the United States gained a new protagonist: China formally requested to join the consultations opened by Brazil at the WTO against Washington's surcharges of up to 37.5%. The U.S. accepted the request for consultations and signaled willingness to negotiate, while Beijing — which claims it too is affected by the American measures — is seeking to turn the bilateral dispute into a multilateral front. The episode matters not only on the diplomatic plane but because it lays bare the growing convergence of trade interests between Brazil and China at a time when the world is reorganizing around critical-minerals supply chains. The IDB has mapped between 15 and 20 Brazilian projects in critical minerals and rare earths with financing potential — out of a universe of 50 initiatives assessed — with the expectation of approving its first operation in the country in 2027. In that same territory, Australia's St. George and CBMM are in a court dispute over an area in Minas Gerais, illustrating the intensity of the race for Brazil's strategic assets.

El Niño is emerging as a cross-cutting variable of growing economic weight. With an 81% probability of a very strong event between November 2026 and January 2027, according to the U.S. Climate Prediction Center, its effects are already materializing in the free-market energy prices — where increased rainfall in the South has altered supply contracts in recent weeks — and are mobilizing the climate-control industry, which fears that extra demand for air conditioning will be curbed by household debt and high interest rates. In agribusiness, the threat to the most heavily traded commodities is starting to be priced into futures markets, with the risk of additional pressure on food inflation at a moment when July's IPCA, to be released this Tuesday, is already being closely monitored by the market.

On the corporate front, the second-quarter earnings season revealed a bifurcated landscape. Embraer, whose shares and ADRs trade on the NYSE under the ticker ERJ, reported 25% net income growth and raised its guidance for 2026, with shares closing up more than 2% — a striking contrast with the market's overall mood. BTG Pactual posted a record adjusted net income of R$5.142 billion, up 22.6% year-on-year, with total revenues of R$10.371 billion — a performance that reflects both the high-interest-rate environment and the bank's resilience in corporate lending. Bradesco reported net income of R$7.1 billion, its tenth consecutive quarter of growth, with an ROE of 16.2% and a credit portfolio growing 11.6% year-on-year — a result that eased investors' fears of a more pronounced deterioration in delinquency. Natura, on the other hand, saw its profit plunge 92% in the second quarter, to R$35 million, hit by operational problems in system stabilization, the closure of the Interlagos plant, and a temporary ICMS-ST tax mismatch in São Paulo. Net revenue fell 9.1%, with Avon brand sales dropping 22.5% in Brazil. JBS, listed on the NYSE under the ticker JBS, announced that Indonesia's sovereign wealth fund, Danantara, will invest $2.5 billion in a joint venture with the company's assets in Australia and New Zealand, valued at $7.5 billion — half of the company's total market value. The transaction pushed shares up 4.5% during the New York session.

In the week ahead, attention will center on the Copom minutes and the July IPCA, both with the potential to recalibrate bets on the Selic's next move in September. Developments around the Strait of Hormuz will continue to dictate the mood of risk assets, with direct implications for Brazil's currency and future interest rates. The advance of household indebtedness and the behavior of delinquency in private credit will be the most important gauges for assessing whether the slowdown in consumption deepens before rate cuts produce a real effect on the economy.

**JBS (NYSE: JBS)** — Indonesia's sovereign wealth fund, Danantara, announced a $2.5 billion investment in a joint venture with JBS's assets in Australia and New Zealand, valued at $7.5 billion — half of the company's market value. At the same time, JBS announced that Wesley Batista Filho, 34, will take over as global chief executive in January 2027, replacing Gilberto Tomazoni in a transition that consolidates family control of the world's largest animal-protein company.

**BTG Pactual (B3: BPAC11)** — The bank posted adjusted net income of R$5.142 billion in the second quarter, up 22.6% year-on-year, with total revenues of R$10.371 billion and an ROAE of 26.7%, driven by record corporate-lending revenue of R$2.5 billion.

**Embraer (NYSE: ERJ)** — The manufacturer reported 25% net income growth in the second quarter and raised its 2026 guidance, with management signaling that future gains will be driven by operational efficiency rather than additional sales volumes.