Presidential challenger Aecio Neves over the weekend received the endorsement of Marina Silva - the 3rd-place finisher in the first election round - and the latest poll shows Neves outgunning incumbent Dilma Rousseff by 52.4% to 36.7%.
The runoff election is set for October 26.
The Bovespa is soaring, up 4.4%, led by Petrobas (PBR +9%), Vale (VALE +5.2%), GOL Linhas Aereas (GOL +6.4%), Banco Bradesco (BBD +8.8%), and Itau Unibanco (ITUB +8.7%).
Petrobras (PBR +7.1%) and other Brazilian stocks continue to climb higher after Sunday's presidential election resulted in pro-business candidate Aeceo Neves showing surprising strength in making the runoff against incumbent Pres. Rousseff.
Separately, PBR says its latest well in the Brigadeiro discovery evaluation plan area has confirmed the presence of good quality oil in the ultradeep waters of the Espirito Santo Basin post-salt deposits.
PBR, with an 89.9% stake, is the operator of the consortium developing the project.
Raymond James analyst Pavel Molchanov says a Neves victory would be the best outcome by far for PBR concerning the potential for loosening domestic content rules and restrictions on foreign investment; but the analyst warns that even under a Neves administration, it would be unrealistic to expect an immediate dramatic fuel price hike since such a move would be very unpopular move and cause economic dislocation.
Among other Brazilian stocks: VALE +2.5%, ITUB +9.8%, BBD +12.7%.
The iShares MSCI Brazil Index ETF (NYSEARCA:EWZ) is ahead by 6.7% premarket after President Dilma Rousseff pulls in just 42% of the vote in Brazil's 3-way election, and her more-conservative challenger Aecio Neves gets 34%, well ahead of the 26% support he saw in the most recent pre-election poll.
Finishing in 3rd place is Marina Silva with 21% of the votes.
Brazilian stocks have been rallying all year on hope Rousseff was set to be tossed, but lately have given back some gains on worry she might in fact win another term.
Iron ore slumped to a new five-year low overnight as China's finance minster said not to expect anything major from Beijing to counter a recent string of weak economic data.
“The Chinese government is signaling it won’t be very aggressive in stimulating growth, and that’s scaring investors,” says a hedge funder in Rio, though it'll be upcoming elections as the main driver for the Bovespa.
The ASX (NYSEARCA:EWA) fell 1.3% in Sydney, and the aussie (NYSEARCA:FXA) is off 0.7% to $0.8865. Brazil's Bovespa is lower by 2.2%, led by Vale (VALE -4.2%).
Brazil's money laundering probe linked to state-run Petrobras (PBR -1.2%) is spreading to financial institutions as prosecutors investigate whether they met compliance requirements.
Court documents cite units of banks including Citigroup (NYSE:C), Banco Santander (NYSE:SAN) and HSBC, as well as Brazil-based Itau Unibanco (NYSE:ITUB) and Banco Bradesco (NYSE:BBD) as holding accounts or executing operations linked to the alleged laundering of 10B reais.
The refining division at Petrobras already is under investigation for runaway spending including alleged inflated contracts to suppliers, and is cited as one of the possible sources of cash being laundered in the case dubbed “Car Wash” by police.
The Bovespa has its tail in the air to the tune of 2.6% after another dip in support for President Dilma Rousseff to 34% from 37%.
Opposition candidates, however, also saw their support drop, bringing the number of voters without a preferred candidate to its highest pre-election percentage in 25 years. Still, the opposition combined is now polling higher than the president
With the Nasdaq and Russell 2000 each off 2% and the S&P 500 down 0.6%, what's working today? Emerging markets (EEM +0.7%), particularly Latin America (ILF +2.2%), particularly Brazil, where the weight of a year-long rate hike cycle looks to be coming to a close just as monetary tightening gets underway in the States.
Up 2.6% today, the iShares MSCI Brazil Index (EWZ) is ahead more than 20% since the start of February.
Absent reforms, another financial crisis is likely to leave taxpayers on the hook for hundreds of billions, warns the IMF, estimating the world's biggest banks receive up to $590B in implicit public subsidies because of their TBTF status.
Said subsidies include bankers who still have a "heads I win, tails you lose" attitude, and investors who lend at lower cost to banks than they might otherwise. The IMF calculated the size of the subsidies by comparing the CDS prices and credit ratings across larger and smaller banks. While the amount has fallen since the crisis, it still remains sizable. "All in all ... the expected probability that systemically important banks will be bailed out remains high in all regions."
Subsidies for the biggest players are "like insurance for which banks don't need to pay a premium," says senior IMF analyst Gaston Gelos.
Citigroup's (C +2.4%) Brazilian unit is among the bank's facing the most sizable losses should companies controlled by Elke Batista default, according to Moody's. The unit's loans to those firms total $91M, or 42% of the profit generated by that arm last year. Brazilian banks Itau Unibanco (ITUB +2.4%) and Banco Bradesco (BBD +1.8%) have mangeable exposure, says Moody's.
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