Brazil's stock market calms down after Thursday's circuit breaker

Brazil’s stock market calms down after Thursday’s circuit breaker

Markets believe that Michel Temer could resist the crisis
Brazil Business
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Contrary to popular belief, the release of the audio conversation between President Michel Temer and businessman Joesley Batista has calmed down Brazil’s stock market. In fact, the Ibovespa index was up by 3.09 percent in premarket Friday.

On Thursday, however, the São Paulo Stock Exchange had its worst performance since the 2008 international economic crisis. Operations were temporarily halted after the Ibovespa index crashed 10 percent in just a few hours. The benchmark index was down 9.3 percent in the afternoon.

Brazil’s main U.S.-traded ETF, IShares MSCI Brazil Capped (EWZ), was up by 4.64 percent in premarket Friday. On Thursday, it had crashed 17 percent. Petrobras stock has also recovered some of its value in the New York Stock Market, up by 5.26 percent.

Brazil’s ADRs (American Depositary Receipts) have posted good numbers. Petrobras ADR is up by 7 percent, while Vale gained 3 percent of its value.

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The U.S. Dollar against the Brazilian Real. Source: Bloomberg

Why the recovery?

While it remains uncertain if Michel Temer will save his government from the political crisis, markets are less fearful of an impeachment. Investors have interpreted that the audio recordings between Temer and Joesley Batista, owner of meatpacking company JBS, were far less compromising than expected.

At first, it was thought that Temer would appear to give clear instructions to the businessman on how to pay hush money to former House Speaker Eduardo Cunha, who is in jail for corruption. However, the poor audio quality has made the accusations “inconclusive,” according to some investors.

“Investors are starting to think that Temer could resist, and later continue to implement his austerity agenda,” said the head economist of an investment agency.

In fact, the president’s Thursday address to the nation was also considered positive. In a short speech, Temer said he would not resign. “I demand a quick and thorough investigation. The country cannot remain in this uncertainty.”

Still, in the tapes Joesley Batista talks about tampering with Operation Car Wash. The businessman claims that he has a mole within the task force feeding him information. Since Temer did not alert authorities, he committed a crime.

In response, the president’s press secretary released a statement saying that Temer “didn’t believe Batista,” and thought that it was nothing more than pure bravado. Sure.

Uncertainty

Brazil has just become a riskier place for investments. To recover investors’ confidence, the country needs a quick solution to the political crisis. Whether Temer loses his office or stays put, the conclusion of the affair must come quickly. A paralyzed government would be the worst-case scenario for the Brazilian economy.

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