(Bloomberg) -- Brazilian President Michel Temer is widely expected to avoid a corruption trial by winning a congressional vote Wednesday. But the final tally could signal whether he still has enough support to push through economic measures that have been championed by investors.
Lawmakers in the lower house of congress started debate on whether Temer must stand trial shortly after 9 a.m. local time, and voting could last until sometime Thursday. Polls in local newspapers show the opposition likely to fall short of the two-thirds majority needed to proceed with the inquiry, which would compel the president to step aside in case the Supreme Court accepts the case.
A big show of support for Temer would boost speculation that he can push through measures to shore up the country's finances by paring pension benefits, a measure that would bring Brazil closer to regaining its investment-grade credit rating. A narrow victory could signal reduced chances of success, while an upset defeat could throw markets into disarray.
Here is what investors had to say about how traders are following Temer's case
- Edwin Gutierrez, the London-based head of emerging-market sovereign debt at Aberdeen Asset Management Plc, which has $385.2 billion under management and is overweight local fixed-rate notes and debt from Petroleo Brasileiro SA:
- “The margin of victory is definitely important for sentiment”
- If Temer fights off the vote with a high number, "traders will start to get excited again about the potential for pension reform”
- CM Capital Markets's chief economist Camila Abdelmalack, based in Sao Paulo:
- If Temer is successful in avoiding trial, it is certain that the government will prioritize the pension reform straight after; if the vote tally is particularly favorable, that should boost confidence the reforms will be approved
- Gustavo Rangel, ING's chief economist for Latin America based in New York:
- Investors may be getting ahead of themselves by trying to divine the outcome of pension reform based on this unrelated vote
- That said, “markets are indeed looking at it as a signal of the government's strength” and getting it over with should remove some of the cloud hanging over the administration's agenda
- Mauricio Oreng, strategist at Rabobank in Brazil:
- "Current prices already reflect a optimistic scenario for the reforms. But if the scoreboard come much higher than expected -- lets say, 310 -- then there could be some room for BRL gains"
- Morgan Stanley strategists led by Gordian Kemen write in report:
- A Temer win will set the tone for future reforms
- Fewer than 250 votes in his favor would likely trigger a negative BRL and rates reaction
To contact the reporters on this story: Paula Sambo in Sao Paulo at psambo@bloomberg.net, Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net.
To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Rita Nazareth at rnazareth@bloomberg.net, Brendan Walsh, Julia Leite
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