1Q26 began with disinflation and a strong real and ended with the first Selic cut overshadowed by an oil shock. In M&A, fewer deals and much more capital per transaction.
The quarter in four dates
In March, the market shortened the cutting cycle it expected before it had even begun. For those negotiating companies, a high cost of capital is no longer transitory; it has become an assumption.Magma’s view
Global Scenario: the oil shock interrupts the easing cycle
Emerging-market assets rallied in January and February. The US/Israel–Iran war, which began on February 28, pushed Brent above US$ 100 and froze the Fed.
Federal Reserve, rates and inflation
- The FOMC held the Fed Funds rate at 3.50%–3.75% in January and on March 18, by 11 to 1, after three consecutive cuts in 2025.
- The dot plot kept one cut in 2026 and another in 2027; projected core PCE rose from 2.5% to 2.7%.
- Part of the market began to see a greater chance of a hike than a cut in 2026. The change of leadership at the Fed and pressure from the White House add to the noise.
Geopolitics and commodities
- Attacks on Gulf energy infrastructure and threats to the Strait of Hormuz pushed Brent above US$ 109 on March 18.
- For oil importers, every 10% rise worsens the current account by 40 to 60 bps of GDP.
- Brazil, a net exporter, gains in terms of trade; emerging-market debt saw occasional outflows in March.
Corporate drivers: AI and energy
- 2026 capex guidance released in February totaled about US$ 650–700 bn: Amazon (~US$ 200 bn), Alphabet (US$ 175–185 bn), Meta (US$ 115–135 bn) and Microsoft.
- Data centers make energy, transmission and cooling the bottleneck of the cycle, a thesis that intersects with the energy security brought to the fore by the war.
- The cycle is increasingly debt-financed, squeezing big tech’s free cash flow.
The supply shock reversed the narrative of falling global rates. For Brazil, the effect is mixed: more inflation, but also more export revenue and a resilient real.
Domestic Scenario: activity, politics and fiscal policy
Four weeks of war added 40 bps to expected 2026 inflation and shortened the Selic cutting cycle before it had even begun.
How the war reshaped projections in March
Focus Report median and Itaú scenario, before and after the oil shock
Growth and inflation
- Strong activity early in the year: industrial production +3% and retail +2% in January and February, according to J.P. Morgan.
- Consensus for 2026 GDP between 1.5% and 2.0%: Focus 1.85%, FGV Ibre 1.7%, Itaú 1.9%.
- The IPCA rose 0.33% in January and 0.70% in February. Expected regulated prices went from 4.02% to 4.27%.
- The income tax exemption up to BRL 5,000 and private payroll-deductible loans support consumption, against high real rates.
Political and regulatory landscape
- The Lula vs. Flávio Bolsonaro race polarizes the election year; in 1Q, the risk premium was contained by the congressional recess and the focus on rate cuts.
- Congress has a short calendar: public security and income measures dominate the agenda, and structural reforms are pushed back to 2027.
- Global investors saw Brazil as an oil exporter with high real rates, a constructive view conditioned on inflation, debt and the election.
Fiscal policy, Selic and exchange rate
- Copom held the Selic at 15% in January and cut it to 14.75% on March 18, less than the 0.50 pp expected before the war. The Central Bank’s projection for the relevant horizon (3Q27) stood at 3.3%.
- Focus sees a primary deficit of 0.5% and a nominal deficit of 8.5% of GDP in 2026. Itaú estimates that stabilizing the debt near 80% of GDP would require a primary surplus of close to 3%.
- The real fluctuated between BRL 5.16 and BRL 5.26 in March; Focus kept BRL 5.40 for December, building in the election premium.
The Selic has started to fall, but the end point has moved up. With real rates near 10%, buyers discount cash flows at high rates, and sellers who expected easing-cycle multiples need to recalibrate.
M&A activity: fewer transactions, much more capital
Brazil closed 1Q26 with 256 deals, 43% fewer than a year earlier, but with aggregate value of US$ 17.7 billion, up 114%.
Deal count falls, value doubles
Volume vs. quality
- Capital is available, but it is concentrated in assets with scale, governance and a clear consolidation thesis.
- Megadeals in telecom, digital transformation and AI explain the jump in value measured by KPMG; according to TTR, the quarter’s largest deal was in private healthcare.
- In the region, buyers from North America (75 deals) and Europe (73) led inbound acquisitions.
Valuation gap and risk protection
- With the terminal Selic revised upward, the buyer’s discount rate rises, while sellers still anchor prices on 2024–2025 multiples.
- Tools to close the gap: earn-outs tied to EBITDA, deferred installments and vendor financing.
- Protection tools: escrow, holdback, R&W insurance and MAC clauses linked to commodities and the electoral calendar.
Sectors in focus
| Sector | Signal of the quarter |
|---|---|
| Real estate | Leader in number of transactions in 1Q26 (TTR Data) |
| Technology, Software and AI | Second in deal count; AI and automation drive the jump in value (KPMG) |
| Telecom and Digital Infrastructure | Megadeals in telecom and data center expansion by Microsoft, AWS and TikTok |
| Private Healthcare | Largest transaction of the quarter in the region, according to TTR |
| Energy and Energy Transition | Energy security returns to the center of the thesis after the war in the Gulf |
| Agribusiness and Food | More expensive diesel and fertilizers squeeze margins and favor consolidation |
Investor appetite
- Private equity: only 17 transactions, but more than US$ 3.1 bn deployed. Selectivity and a focus on larger assets.
- Venture capital: 41 rounds and just US$ 285 million, a sign of caution and smaller tickets.
- Strategic buyers: the main source of liquidity for the middle market, funding deals from their balance sheets and capturing synergies.
1Q26 rewarded assets that were ready: audited data, governance and a defensible thesis. For the middle market, the pre-election window calls for early preparation and creative price structures.
Comparative matrix of consensus projections
Those who revised their scenarios after February 28 converged on IPCA between 4.3% and 4.7% and a terminal Selic between 12.25% and 13%. Pre-war projections still saw inflation below 4%.
| Economic indicator (2026) | Itaú Unibanco | Bradesco / BTG | XP / J.P. Morgan | Focus (Mar 30) |
|---|---|---|---|---|
| GDP growth | 1.9% | — / 1.7% | 2.0%¹ / 1.5% | 1.85% |
| Inflation (IPCA) | 4.5% | 3.8%¹ / 4.7% | 3.8%¹ / — | 4.31% |
| Selic rate (end-2026) | 13.00% | 12.00%¹ / 13.00% | 12.50%¹ / 12.25% | 12.50% |
| Exchange rate (USD/BRL, end-2026) | BRL 5.40 | — / BRL 5.20 | BRL 5.60¹ / — | BRL 5.40 |
| Primary balance (% of GDP) | −0.8% | — / −0.4% to −0.5%¹ | — | −0.50% |
| Debt (% of GDP) | ~80%² | — / ~83.6%³ | — | — |
- Projection published in January or February, before the oil shock.
- Level at which Itaú estimates the debt could be stabilized, with a primary surplus close to 3% of GDP.
- Gross debt, according to BTG’s 2026 view published in January. Most firms publish gross debt (DBGG), not net debt.
- Itaú: March scenario review. BTG: April macro report, end-of-1Q base. J.P. Morgan: early-April update. “—” indicates data not publicly released during the window.
Where the views diverge
- Selic: J.P. Morgan is the most optimistic (12.25%), betting on credibility to reach 10% in 2027; Itaú and BTG see 13%.
- GDP: a 0.5 pp range between J.P. Morgan (1.5%) and XP (2.0%), with the statistical carryover from a strong 1Q at the center of the debate.
- Exchange rate: BTG sees a stronger real (BRL 5.20) given favorable terms of trade; Itaú and Focus build in an election premium (BRL 5.40).
Allocation recommendations by asset class
The consolidated view of research teams at the end of 1Q26 favored carry with inflation protection. XP suggested about 55% in fixed income, 40% in equities and 5% in alternatives.
| Asset class | Position | Rationale |
|---|---|---|
| Inflation-linked (intermediate maturities) | Overweight | High real rates and a hedge against the fuel shock; avoid excessive duration in an election year |
| Floating-rate (CDI) | Neutral | High carry with the Selic above 14%; loses appeal as the cycle advances |
| Fixed-rate bonds | Selective | A shorter cutting cycle reduces the expected gain from the curve flattening |
| Defensive stocks and exporters | Overweight | Brazil as an oil exporter; energy, banks and utilities with dividends |
| International exposure | Hold | Diversification against fiscal and electoral risk; AI and infrastructure thesis in the US |
| Credit and infrastructure REITs | Prefer | Receivables indexed to the IPCA, infrastructure and agro-industrial chains (BTG’s April portfolio) |
| Brick-and-mortar REITs | Caution | A high discount rate for longer weighs on property values |
| Commodities (energy) | Tactical hedge | Geopolitical protection, with a risk of rapid reversal in the event of a ceasefire |
The duration of the conflict in the Gulf. A ceasefire would bring down oil and reopen room for larger Selic cuts.
Spillover of the fuel shock into food and services, pushing the terminal Selic above 13%.
This section summarizes public recommendations from the institutions analyzed and does not constitute an individual investment recommendation.
Sources
Economic, political and corporate-transaction research reports and publications released between January and early April 2026.
- Itaú UnibancoItaú Macro Research, February and March Brazil Macro Scenario and Brazil Macro · Copom of March 18
- BradescoMacroeconomic Research, January 2026 scenario
- BTG PactualBTG Macro & Strategy, January outlook and April macro report; April REIT Portfolio
- XP InvestimentosXP Macro, February monthly report, and Allocation Strategy
- J.P. MorganLatin America Economic Research and Global & Emerging Markets Research
- FGV IBREMacro Bulletin, March 2026
- Central Bank of BrazilFocus Report and Copom statements of January and March
- Federal ReserveFOMC statement and Summary of Economic Projections of March 18
- Aon, TTR Data and DatasiteLatin America M&A report, 1Q26
- KPMGQuarterly Mergers and Acquisitions Survey, 1Q26
This report is for information purposes only and reflects projections and consensus views published in the 1st quarter of 2026, without incorporating subsequent actual data. It does not constitute an offer, investment recommendation or financial, legal or tax advice. Opinions identified as “Magma’s view” represent the view of Magma Transações Societárias as of the reference date.