Look, I don’t know how closely you’ve followed Brazilian politics over the past three (or so) years, but there for a while it was a complete shitshow.
And by “shitshow” I mean it looked like the country was going to fall completely apart amid a collapsing economy, impeachment proceedings against then-President Dilma Rousseff, and corruption charges tied to the “carwash probe” leveled against damn near everyone. And all that just as the country prepared to host the Olympics no less.
I’m not even going to try and regale you with the whole backstory here, but just know that three of the central figures were Dilma Rousseff, Michel Temer, and Rousseff arch nemesis Eduardo Cunha.
Well now, it looks like Temer’s going to be removed one way or another for trying to bribe Cunha and it’s a veritable disaster for Brazilian assets.
Here’s the real which tripped the circuit breakers:
And here’s stocks which were also halted after the cash open:
Before the circuit breaker triggered, state controlled companies Cemig, Banco do Brasil and Petrobras fell 42%, 25% and 19%, respectively while banks Itau and Bradesco fell 18% and 19%, respectively, and JBS fell 15%.
Citi’s take via Bloomberg:
- “The key reason for Brazilian assets to have traded so well since the start of the year, despite numerous allegations against much of the political class, is that President Temer has not shown to be directly implicated”
- “The potential next steps would be impeachment, resignation, or a ruling by the electoral court (TSE) to oust Temer on the grounds of illicit campaign financing in the 2014 election”
- “The last two options appear to be more likely than impeachment”
- “At the very least, political coordination between the administration and Congress will likely become much more challenging, essentially putting the reform on hold”
- “We expected Copom to cut 125bp on May 31 on the basis of favorable progress on social security reform”
- “Heightened uncertainty should lead to a more cautious Copom”
And a full summary of what’s taken place over the last 12 hours or so, again via Bloomberg:
O Globo report late Wednesday that JBS owners recorded Temer approving a payment to former house speaker Eduardo Cunha sent Brazil back to full crisis mode. Local media discussed potential impact of accusations as Temer called an emergency meeting in Brasilia and protests erupted in several capitals. Members of opposition and allies have called for Temer to resign and discussions have begun on local media about possible scenarios for succession. Markets sank.
- Temer, who denied wrongdoing via his press office, isn’t considering stepping down, local media says
- Presidential press office says Temer met w/ Joesley Batista but that there was no wrongdoing; JBS and parent company J&F declined to comment
- Opposition lawmaker Molon filed impeachment request late Wednesday; other opposition representatives have said govt is over and defended Temer’s resignation
- Allies said to admit TSE court trial, which was believed to be leaning in favor of Temer, may now reverse course: Estado
- Globo also reported allies want Temer to step down
- If Temer steps down, lower house speaker Rodrigo Maia would take over temporarily and call indirect elections, according to Constitution
- PSDB admits that Temer’s permanence is Unsustainable: Estado
- Temer Unlikely to Finish His Term If Allegations True: Eurasia
- If accusations are upheld, Eurasia says they will be justifiable grounds for impeachment and it will be unlikely that Temer will end his term, which could lead to a serious political crisis
- Arko: Government Temer is in a situation of Very high risk
- Brazil Eco. Team Said to Be Worried Crisis Could Impact Reforms
- Demonstrators go to Sao Paulo’s Paulista Avenue, presidential palace, banged pots and pans in protests, local media showed
- Police operation Thursday morning said targeting Senator Aecio Neves, local media reports; Estado says Prosecutor General requested Neves’ arrest; STF Justice Fachin sent request for analysts of full Supreme Court, newspaper says
- Brazil Top Court Said to Suspend Aecio Neves as Senator: Estado
- Neves was allegedly taped requesting 2m reais from Joesley Batista, Globo reported yday; he denied wrongdoing, said his relation w/ businessman was strictly personal
- Senate approves base text of states’ debt renegotiation
And in case you think this doesn’t have knock-on effects, here’s how EEM opened: