Brazilian Real Soars On Speculation Lula Will Be Barred From Running For President

After tumbling just shy of all time lows on Thursday, dropping as low as 4.21 against the dollar, the Brazilian real and local assets have surged on hopes jailed leftist presidential candidate Lula, who is the undisputed leader in the polls ahead of Brazil’s presidential election, will be barred by Brazil’s highest electoral court from attempting a comeback to the nation’s top job despite a lengthy prison sentence.

The court, known as the TSE, is set to rule on the legality of Lula’s presidential candidacy at a special session in Brasilia. They may also rule on whether or not he can partake in free television and radio campaigns. According to Bloomberg, deliberations started at 2.30 pm Brasilia time, and an announcement is imminent.

Lula, who had a 20 point lead ahead of his closest challenger far-right candidate Jair Bolsonaro, and is the most influential political figure in Brazil’s recent history, has been in jail since April after an appeals court confirmed a sentence for corruption and money laundering. The TSE will consider the country’s “clean slate” law, which determines that people with criminal convictions upheld on appeal cannot run for elected office.

So far, the court has received 17 legal challenges to Lula’s bid, as well as at least two requests for an injunction demanding that he be banned from campaigning. In the event of a negative ruling on Friday, Lula’s lawyers can appeal both at the TSE and at the Supreme Court.

The real jumped as traders speculated Friday’s ruling would keep Lula out of the TV and radio ads, lowering his ability to give a boost to whomever he endorses to replace him in the ticket, although as a Bloomberg commentator suggested, “even if Lula gets blocked from running, former Sao Paulo mayor Fernando Haddad of Lula’s Workers’ Party will likely run in his stead and polls show he could make it into a second round run-off.”

The BRL strengthened 2.1% as of 3:15 p.m. EDT erasing losses for the week. The Ibovespa stock index rose 0.4 percent, trimming a monthly slide.

While the former head of state remains hugely popular among the millions of Brazilians who saw their quality of life improve during his administration, Lula is also loathed by many for a sweeping corruption scandal and a devastating recession they say was triggered by the populist economic measures pursued by his Workers’ Party.

Beyond election concerns, the fiscal picture remains very weak, and won’t reach a surplus before 2022, Alberto Ramos at Goldman Sachs wrote. Public debt dynamics remain a source of concern with gross general government debt at 77% of GDP.

Meanwhile, as FX traders were delighted to frontrun today’s “favorable” decision, Bloomberg notes that ETF traders remain skeptical as the iShares’s EWZ fund was on track for the biggest monthly outflow ever.

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Author: Tyler Durden

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