Political uncertainty is back in Brazil

Last week political uncertainty came back to Brazil, with the arrest of Workers' Party Senate leader Delcídio do Amaral in relation to the Carwash investigation. With its leader in Congress gone, the ruling party will have an even harder time pushing forward the legislative agenda and congressional paralysis seems the likely outcome in the weeks to come. Important fiscal consolidation bills were in the pipeline. 

In particular, the prospects of approving the funds repatriation bill seem on hold for now. The discussion of 2015 and 2016 budget bills were delayed, and not updating the primary balance target for 2015 could give ground to further impeachment calls if the government fails to comply with the current target.

Data this week should confirm the deepness of the economic recession, as Q3 GDP is released on Tuesday. A contraction of 3.9% y/y is anticipated, with consensus expecting -4.2%. October's industrial production will be released on Thursday (consensus -10.7% y/y). Finally, market will pay attention to November's COPOM meeting minutes as the decision to hold Selic was split, and will look to guidance regarding inflation expectations. 

"With no significant fiscal reform on sight and a continued deterioration in economic activity we remain bearish on BRL and keep recommending to long USDBRL", notes Barclays.