Brazilian Assets Slide After Protests Against Temer’s Presidency

(Bloomberg) -- Brazil’s currency and stocks slid on concern that political disputes could delay efforts to bolster the economy and shore up the budget after protests against President Michel Temer and reports that his allies are seeking delays on some unpopular measures.

The real dropped 0.8 percent to 3.2834 per dollar Monday in Sao Paulo, posting the biggest drop among emerging-market currencies tracked by Bloomberg. The Ibovespa declined 0.1 percent to 59,566.34, as meatpacker JBS SA led losses after police searched a company’s building amid a fraud probe into Brazilian pension funds, spurring concern that its chief executive officer may have to step aside. Financial markets in the U.S. are shut for a holiday, which tends to decrease liquidity worldwide.

Protesters in Sao Paulo and Rio de Janeiro on Sunday called Temer’s presidency a coup and demanded new elections after he was sworn in last week following the impeachment of Dilma Rousseff. Finance Minister Henrique Meirelles, speaking on the sidelines of the G-20 summit in China, said the protests aren’t a threat to the government’s economic plans. Temer continues to face pressure from allies, with former presidential candidate Aecio Neves telling O Globo newspaper that the president needs to better coordinate his position and that of his party.

"This continued political noise seems to be weighing a bit on Brazilian assets, yet it is way too soon to tell that the necessary economic reforms won’t be approved," said Mauricio Oreng, a senior strategist at Rabobank in Sao Paulo who forecasts the currency will weaken to 3.5 per dollar by year-end. "Risk-on is stemming from below-expected U.S. job data, and as oil advances push commodity currencies, such as the real, up."

Brazilian assets have led global gains this year on speculation that a new government would pull Latin America’s biggest economy from its worst recession in a century. Temer, who officially took over Aug. 31, has vowed to jump start the economy, trim a budget deficit and make Brazil more attractive for investment. His allies are now pushing for delays to new laws on pensions and state spending, according to O Estado de S. Paulo.

JBS fell 10 percent, the worst performer on the Ibovespa. Parent J&F Investimentos and its pulp unit Eldorado Brasil Celulose SA had their offices raided by the police, according to a statement from J&F.

“With not much economic or corporate news, investors are paying close attention to the police investigation announced today, which has a lot of companies involved,” Hersz Ferman, an analyst at the brokerage Elite Corretora, said by phone. “JBS is affected by the search on its parent’s office.”

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, climbed 0.02 percentage point to 12.54 percent.

--With assistance from Ney Hayashi To contact the reporters on this story: Paula Sambo in Sao Paulo at psambo@bloomberg.net, Vinícius Andrade in São Paulo at vandrade3@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Sebastian Boyd