Brazilian Real Plunges As Jailed Lula’s Presidential Poll Lead Increases

The political confusion and chaos around the globe grows with each passing day, and one day after Australia suffered a leadership crisis which could result in the premature exit of prime minister Turnbull, attention turns again to Brazil, where former president Luiz Inacio Lula da Silva – who remains in prison on a corruption conviction, and is potentially barred from standing in October’s presidential election – is enjoying a growing advantage against his opponents in the polls ahead of October’s presidential election.

According to the latest poll by Datafolha released on on Wednesday, the former president’s share of the vote has risen to 39% from 30% last month, as the local working class demand a return to a past when life seemed better (a frequent lament these days).

Former Brazilian President Luiz Inacio Lula da Silva is carried by supporters in front of the metallurgic trade union in Sao Bernardo do Campo, Brazil April 7, 2018

Lula’s lead means he now has more than double the number of his nearest challenger, far-right candidate Jair Bolsonaro, who is up to 19% from 17% last month with none of the other 11 registered candidates polling in the double figures in the sample of almost 8,433 people asked who they intended to vote for in the October 7 election.

Environmentalist Marina Silva took 8%. Business favorite center-right candidate Geraldo Alckmin remained stuck in single digits with 9%, up from 7% in June. The latest figures are in line with other polling organizations that gave Lula a 37% share earlier this week.

If Lula’s name is excluded, Bolsonaro leads with 22% and Marina Silva jumps to 16%.

The 72-year-old leader of the Workers’ Party (PT) is aiming for a third term in the top job having led Brazil from 2003 to 2010. However, as discussed previously, Lula could be barred from running as he serves a 12-year sentence for corruption.

And while Brazil’s Attorney General Raquel Dodge asked the country’s top court for electoral matters to invalidate Lula’s candidacy, the United Nations Human Rights Committee ruled that he cannot be disqualified “until his appeals before the courts have been completed in fair judicial proceedings.” Brazil is obliged to abide by the committee’s findings.

According to Reuters, the PT’s strategy is to keep Lula’s candidacy alive for as long as possible, then work to transfer his support to his running mate, former Sao Paulo mayor Fernando Haddad, who polled just 4% in the Datafolha survey.

The poll found that 31% of respondents said they would definitely vote for Lula’s handpicked successor if Lula is barred from running, while another 18% said that “perhaps” they would vote for a Lula-backed candidate.

In Brazil’s presidential election system, the top two candidates from the first round head to a second round run-off, with Datafolha putting Lula ahead of Bolsonaro by 52% to 32% in that vote.

Needless to say, a Lula victory and the return of a socialist regime would be the worst outcome from a capital markets standpoint, with investors fearing the return of a state-led economy and with no attempt to continue the economic reforms that deeply unpopular President Michel Temer has partially pushed through Congress.

The result is the continued weakening of the Brazilian real, which today has tumbled another 1.5% to 4.1040 against the dollar, taking out recent lows, and sliding to the lowest level in 3 years.

As Bloomberg’s Sebastian Boyd writes today, Alckmin is still the market favorite and his poll numbers are still stuck in single figures.

One headline that does stand out though is that, according to O Estado, Fernando Haddad, the likely Workers’ Party candidate has been doing the rounds of Brazilian banks. The newspaper reported he has already met with JPMorgan, BTG Pactual and Morgan Stanley.

As Boyd adds, “perhaps the collapse in the currency is an indication of how well those meetings went.”

And while the BRL has some more to go before it hits its next major level of 4.15-4.17 which was hit during the crisis and Chinese currency devaluation of 2015  – and is back to levels it hit when Lula was first elected in 2002 – we remind readers that 4.00 for the USDBRL is the line in the sand for Bank of America which historically tends to trigger an “emerging market crisis” virtually every time.

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Author: Tyler Durden