We talked about it a few months ago and so the impeachment of President Dilma Roussef has begun to take shape. In a country where the samba agitates souls and "bodies" it is inevitable that an impeachment that puts the Workers' Party in power for 15 years and its historical leader who was the proponent of an emblematic political success for the Brazilian people in the pillory, can't go smooth as oil and become a tussle.
Thirty minutes of panic on the Brazilian markets last night with a sudden collapse then recovered and over 16 billion US dollars of value erosion in capitalization recovered for a stock market and a currency at the top of the performance charts since the beginning of the year. Real also lost and recovered 5% as if they were on a roller coaster. The Ibovespa closes with -1,4% returning to mid-April levels after reaching a year-to-date peak of 31% expressed in US dollars (reduced from -4% last week), and a rally in the real which has seen it appreciate by 13% to the top of the rankings in over 150 global uniforms.
The road is marked despite the hesitations of the President of the Parliament Maranhao who, after announcing the cancellation of the regular vote that took place on May 9 with 367 regular votes in favor of the motion, backtracks with apologies. And it could not have been different after the deputies had invoked the intervention of the Supreme Court and there was a risk of institutional chaos.
A chaos that in fact has already seen the blockage of the works at the Olympic Village and it is difficult to hypothesize the consequences of a blockage of the government machinery. Now it goes to the Senate and the vote starts tomorrow and investors are perhaps beginning to perceive that it will not be easy for Brazil to emerge from the recession with a new coalition government. Unemployment is at a 4-year high and with the budget deficit growing and inflation close to 10%, the task of the newcomers will be difficult.
Undoubtedly after a 42% plunge in Ibovespa last year expressed in US dollars, this investor confidence would bode well but could turn into a new capital flight if a glimmer of light on a new economic program does not emerge soon of Government. Right now the reforms are blocked, and the country is hostage to an economic and institutional structural weakness with a GDP expected at -3% in 2016!!
Since the hypothesis of the revocation of President Roussef's mandate has made its way, the market has also returned to betting on Brazil and thus the risk of default has seen the spread fall and deflate below the critical threshold of 500 bp to the current 350 bp. and this despite the looming negative outlook of rating house Moody's which is now sounding the alarm again because political risk has not yet been fully priced in and could lead to a deeper correction against the background of a still adverse and unclear scenario on commodities and some profit taking on gains made in emerging equity markets.
