Emerging Markets, Currencies, Commodities, Energy, Metals, Stocks

Brazil Prepares For Mass Demonstrations On Sunday As Allegations Of Corruption Swamp Rousseff Government

Brazil President Dilma Rousseff is poised to face another key test as allegations of corruption and incompetence swamp her government, and plummeting commodity prices sap the country’s economy,” Seeking Alpha reports.

Dilma Rousseff comenta_os_protestos_de_15_de_março_de_2015 Brazil Wikipedia

According to Bloomberg:

As allegations of corruption and incompetence swamp Brazil’s government, and plummeting commodity prices sap its economy, hundreds of thousands of angry citizens are expected to descend on central squares across the country on Sunday, posing a key test for President Dilma Rousseff.

This will be the year’s third mass protest against Rousseff, who is facing growing calls for her impeachment. A strong showing could help support her ouster and deepen a sell-off on financial markets.

EM Bits said the following:

We already know that President Dilma is very unpopular, quantitatively speaking. The latest polls by Datafolha showed that the disapproval rating of her government reached 71%. The June survey had this number at 65%, showing how quickly her image has deteriorated (…)

So the question is whether Brazilians are still angered enough to show up in mass numbers. A very large participation rate for the protests may embolden the opposition, giving them the sensation that they have a popular mandate to push for an impeachment process (…)

A strong showing, during this year’s third mass protest calling for Dilma Rousseff impeachment, could help support an ouster and deepen a selloff in the financial markets. Brazil’s benchmark Ibovespa stock index has plunged 17.2% since she was re-elected last October, Seeking Alpha reported.

Referring to the market side, EM Bits said the following:

… we took the increased rollover rate of the FX swaps by the BCB as an important development. Official headwinds blowing back against further BRL weakness, along with the roughly 13.5% negative carry on USD/BRL, will go a long way to stabilizing the currency – or at least prevent it from underperforming against its EM peers. Moreover, the positive surprise of Moody’s not assigning a negative outlook for Brazil has also eliminated another source of uncertainty by pushing further back the date of the country’s possible loss of investment grade status.

Moody’s rating agency, on August 11th, downgraded Brazil’s government bond rating to Baa3 from Baa2 (only one notch above a non-investment / speculative grade).

Moody’s explained the drivers of the rating change were as follows:

1. Weaker-than expected economic performance, the related upward trend in government expenditures and lack of political consensus on fiscal reforms will prevent the authorities from achieving primary surpluses high enough to arrest and reverse the rising debt trend this year and next, and challenge their ability to do so thereafter.

2. As a result, government debt burden and debt affordability will continue to deteriorate materially in 2015 and 2016 relative to the rating agency’s prior expectations, to levels materially worse than Brazil’s Baa-rated peers. Moody’s expects the rising debt burden to stabilize only towards the end of this administration.


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