Brazil markets end volatile session in the red after ex-president’s arrest
BRASILIA: Brazilian financial markets fell in highly volatile trading as investors feared former President Michel Temer’s arrest on graft charges could slow proposed pension reform seen as critical to injecting life into a tepid economic recovery.
Temer, who left office on Jan 1, is accused of leading a ‘criminal organization’ that took in 1.8 billion reais (US$472 million) in a bribery and kickback scheme related to the construction of a nuclear power complex.
At one point on Thursday, the Bovespa stock market lost as much as 3.7 per cent for the week, which would mark its worst week since August.
Brazil’s 10-year bond yield was up more than 20 basis points at 8.93 per cent and the currency, the real, down over 1 per cent at one point.
But markets clawed back some of these losses as the sharp moves prompted traders to book profits, reduce positions and assess what is next for the pension reform process.
“Investors were already primed to sell Brazil and the uncertainty fueled by (Temer’s) arrest accelerated the move,” said one trader at a Sao Paulo brokerage.
“But that gradually eased and when all is said and done, will the fiscal adjustment (from reforms) be enough? I think today’s caution was exaggerated,” he added.
The Bovespa ended 1.34 per cent lower at 96,729.08 points, Brazil’s 10-year bond yield closed up four basis points 8.76 per cent and the currency ended little changed at 3.79 per dollar.
Temer’s shock arrest came a day after the government unveiled a drastically watered down austerity plan for military pensions and pay, and a poll showed President Jair Bolsonaro’s popularity has plummeted.