How Brazil's Corruption Crises Are Roiling Markets

in up markets. We are dealing obviously with the fallout from a Brazilian political crisis, and to give us more color on what exactly happened there, Vivian Rodriguez is joining us. She's a Latin American economy and government editor for Bloomberg. Also here with us is Dave Wilson, Bloomberg Stocks editor, columnist and blogger m Live Go on the Bloomberg Vian, I'd like to start with you. Can you just give

us a sense of what actually happened? We do know that on Wednesday, a major uh newspaper in Brazil reported that the current president, Michelle Tamare, was embroiled in u or sort of endorsing some kind of Briberry scheme. Can you explain in the library. Sure, it is quite a shocking development that that really, you know, sent the country

back into a crisis that we've seen last year. Right. Basically, what we know is that there is a tape, I mean, a couple of very high profile executives, I mean recorded a conversation with Tamor in March in which basically Tamer you know, again, this is all allegedly the newspapers that transcripts are not out, but in this recording, Tamor just basically gave the okay or endorsed some briberries in a big covert up scheme involving the former leader of the

of the House, which was a mastermind behind the impeachment of his predecessor, decept. So it's pretty bad. Yeah, this is pretty bad. And the response in markets has been pretty fierce. Dave, Can you give us a sense of just you know what we are seeing? Oh? Absolutely, I mean you look down to Brazil. You see the vestment index down ten and a half percent. In early trading. A circuit breaker kicked in in the local market that basically put off buying and selling for half an hour.

There's possibility of other circuit breakers if you get a steeper decline, and it's showing up here in the US in terms of what's going on with for example, the Ice Shares MSCI Brazil Exchange Trading Fund, which is down sixteen percent at the moment, and then you look through the American depository receipts of Brazilian company to trade here and they're taking quite the hit as well. Uh. One example, the government controlled the energy company petrol Bra, which is

down about fourteen and a half percent at the moment. Yeah. Well, and remember that Petro braw is also involved with some allegations of a scandal and taking and having some kind of corruption probe is ongoing to this day. Vivian, can you give us a sense of what the fallout could be from the allegation from Michelle Tamayor and how this would bleed out into markets in a practical sense. Okay, So I mean bottom line, I mean the government. We don't know if we're going to have a government in

this shape and form a week from now. So in markets are really responding I mean to that reality, right, if Timer is found, really, if these tapes you know, are proving to be legitimate, and if the Supreme Court opens an investigation. I mean pressure will mount for him to potentially I mean at the bottom line of all this, he might even have to resign. We are too far. I mean, there's there's a lot of things can happen there, but it is a possibility. What is what is tragic here?

You mentioned Petro Bras, right, Yes, it was involved in all that corruption scandal. They started cleaning up the company. It posted a very good quarter recently, but now you just sent them all back down again. And it's worth reminding that some of these Brazilian companies are some of the especially in agrie business in emerging markets, are some of the largest companies in the world. So yes, he has the potential for a ripple effect in emerging market

dedicated funds. Yes, and Vivian to that point, I was looking at the biggest emerging markets bond et F today it's an eleven point three billion dollars I shared JPMorgan U S dollar emerging markets bond et F and it is down the most since December. And you know, I was just looking at the composition and Brazilian assets or the fifth account for the fifth most UH of any nation in this particular e t F. So you could

potentially see ripple effect. Are you seeing that, Dave elsewhere? Well, I mean to an extent, but when you turn to the stock market. We actually got a reminder on the Markets Live blog earlier from Cameron christ who's a macro strategist. Just when you go through the MSc I Emerging Markets Index, you see that nine of the ten biggest companies are

based in Asia. We're talking about the likes of you know, Ali Baba Group, for example, and they had earnees out that word so great, But then there a whole lot of others, you know, Samsung, Electrocs and so on, so to that ext and I mean sure there was going to be a knock on effect, it may not be quite what you might expect, given that, you know, while Brazilian companies are certainly substantial and market value, it's not like they dominate the index in the same sense that

you know, you think about you know, Apple or Facebook here in the US. Thank you so much for for that perspective. I'm sure we'll be talking again about this. This isn't going away anytime soon. Vivian Rodriguez, Latin American Economy and Government editor for Bloomberg as well as Dave Wilson, Bloomberg Stocks editor, columnist and Bloggert m Live go on at the Bloomberg Thank you so much. We want to take a moment to let you know about something new

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extension on the Chrome Store to try it out. Learn more at Bloomberg dot com slash lens. Max Abelson has been listening to the testimony. Max Abelson as a finance reporter for Bloomberg News and Business Week, and he joins me here in our Bloomberg eleven three oh studio. Is quite a wide ranging testimony, from everything from tax reform

to banking regulations. What stood out most to you? You know, as a reporter, we're trained not to ever express opinions, but I think it's probably fair to share this opinion that, you know, hearings in the Senate can sometimes be boring, But when we just saw something that was definitely not boring.

It was Stephen Mnuchin versus Elizabeth Warren one on one, and then you can tell they just really see the world differently, and they really want at it, and they want at it on a subject that is absolutely central to the shape of the American banking system, which is Glass Stiegel. Right. They basically we're arguing she was saying, how can you say that you support a modern Glass Steagle while not supporting a breakup of the major banks. Yeah.

I mean I have seen a bunch of Senate hearings in my time, and I think I've never heard a more memorable quote than what Stephen Nuchin told Elizabeth Elizabeth Warren, which is, we've been very consistent, we support century glass Stiegel, but not Glass Stegl. And that is going to be a really hard, hard needle for these for this administration to thread, because what they want to say is that

they are populous who support reining in dangerous banking. But on the other hand, the people who make up the administration, like Steven Manucin himself form a partner from Goldman Sex or Wall Street alumni who don't want to hurt the big banks. They want to they want to cut back back rules, not add to them. And obviously, when Elizabeth Warren says the century Glass egle, she's talking about something

very different. Well, you know, I thought that it was interesting and a lot of the questions there seemed to be a divide, and as sort of a quest to find out whether Treasury Secretary Manuchin has talked with anyone other than banking elite, right, I mean, because that was sort of one question that that someone just asked you, who are you surrounding yourself by When you talk to people on Wall Street, do they feel like they have a pretty direct line to Treasure Secretary Manuchion, Lisa, you

better believe it. And if it's not Stephen Manton himself, it's Craig Phillips, who comes from I believe it's Blackstone, it's um Justin musen It who comes from. I think it's Morgan Stanley. Wall Street is really really excited that instead of sort of fighting with their regulators and fighting with the officials in Treasury and the federal Reserve and the o c C and the f d i C and the sec. The people that Donald Trump is putting in those positions and the Stephen Manuchin is putting in

those positions come from Wall Street. And the crazy irony here is that the phrase century glass segel comes from Elizabeth Warren. She used that phrase in her in her bill with McCain, which and of course what does she want to do. She wants to break up the big banks, and that exact phrase was adopted by the Trump administration, and they mean something entirely different. But I just have to add in that, like a curveball. On top of that curveball, is that breaking up the banks is something

that Trump himself has talked about. It was part of the Republican platform, right, and I think that they brought that up trying to say, how can we correlate these two Max Abilson, thank you so much for the instant reaction to what we've been hearing with the testimony of Stephen Nuchin, head of the Treasure Department in front of the Senate Banking Committee. Thanks for listening to the Bloomberg

p m L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramowitz. Before the podcast, you can always catch us worldwide on Bloomberg Radio