Halister News

(Bloomberg) -- Market bets that President Rousseff’s exit will open room for a more pro-economic reform govt have risen after former President Lula was detained by police for questioning in the widening so-called Carwash corruption scandal, according to analyst interviews and notes.

• While some analysts see a difficult path for any new government to implement reforms, others say hopes that the Workers Party, known as PT, may leave the power is driving optimism
• NOTE: Globonews says Lula’s testimony has concluded, and Lula said to refrain from answering questions; Lula set to speak to reporters at 2pm local time
• NOTE: BRL’s rally got boost after Isto É magazine reported yesterday Senator Delcidio Amaral gave testimony to prosecutors that may implicate Rousseff and Lula
• NOTE: Rousseff says all her govt actions follow Brazil’s constitution

REAL

• BRL +1.7% at 3.7358/USD, retracing after central bank failed to sell all swaps offered at auction; real earlier tested 200- DMA near 3.67, and is up around 7.6% for the week, which is best among 24 major currencies in EMFX; DI rates fall as a stronger BRL may help ease inflation; stocks surge

POLITICAL FALLOUT

• Leader of DEM, an opposition party, says it will try to install impeachment committee this month; calls allegations Rousseff interfered with Carwash investigation ’’startling’’
• Ruling PT party leader calls for support of Lula, saying ’’that show’’ is a threat to democratic order and ’’now, it’s street and war to prevent coup’’
• Many govt and PT supporters have used the word ’’coup’’ to refer to opposition attempts to impeach Rousseff and to investigations targeting Lula
  • G1 website reports Lula supporters and opponents protested at Sao Paulo airport, where the former president spoke to police

ANALYST COMMENTS

• MCM in report: hypothesis that VP Michel Temer could become Brazil’s President “has become quite plausible, enough so that it will lead to the development of prospective scenarios for various macroeconomic variables and for the conditions of governability under the command of the PMDB party
  • Possibility of Temer also being hit by some allegations can’t be ruled-out out
  • Process to impeach Rousseff won’t be resolved in less than 3-4 months

• Jive’s Leonardo Monoli: ‘‘Brazil is celebrating, looks like a finale of World Cup,” analyst says of market reaction to reports
  • Rousseff govt ’’is over’’; even if she continues, govt won’t have any support and positive agenda will start being discussed

• Modal’s Alvaro Bandeira: investors reversed bets on the worsening of the economy
  • “The market clearly wants a better government, one that’s credible and stable, and able to change economic policies that have led the country into this recession”

• Arkos Advice’s Lucas de Aragao: PT party can’t be ruled out yet for 2018 election as Lula still holds 20% support in polls
  • Rousseff impeachment may become basic scenario if March 13 anti-government protests in Brazil are strong
  • Police operation involving Lula distances PT from govt

• Garde’s Daniel Weeks: targeting Lula moves scandal closer to the heart of the government and the ruling PT Workers Party, increases further odds of Rousseff exit, as Lula is a key supporter of the president
  • Diminishes chances that PT will remain in power after 2018
  • “Foreign investors less exposed to Brazil may return since they see clearer prospects for a new government”
  • Uncertainties remain over timing and composition of any new government

• Eleven Financial’s Volpi Netto: “the market is reacting like Brazil woke up today as a whole new country, but a corruption investigation is hard, long and full of surprises”
  • “There’s room for profit taking on stocks as short-term investors play to make money, not to discuss politics”