Now that the market's fascinated dream with the regime of Brazil's new president Michel Temer is quickly turning into a nightmare, following two immediate resignations of his closest ministers over the ongoing Carwash corruption scandal, including ironically that of the country's anti-corruption minister, Fabiano Silveira, attention is gradually returning to what is truly the cause of Brazil's woes: an unprecedented economic depression, although only for the people - certainly not for the political elite.
And unfortunately, Brazil's depression - which is what we first defined it here all the way back in December 2014 - is getting worse with every passing month. The latest economic news metely confirm this. Here is Goldman's take on today's disastrous unemployment numbers
The labor market continues to deteriorate: The unemployment rate continues to climb and is now at 11.2% with the ranks of the unemployed reached 11.4 million (up from 8.0 mn a year ago).
Employment declined 1.7% yoy in the 3-month period ending in April, while the active labor force grew 1.8%. Average real wages declined 3.3% yoy. We expect labor market conditions to deteriorate further given the expectation that the economy will remain weak for the remainder of 2016.
The national unemployment rate printed at a higher than expected 11.2% in the 3-month period ending in April, up from 10.9% in March, 8.0% a year ago, and 7.1% two years ago. In seasonally adjusted terms the unemployment rate climbed to 10.8% in April from 10.4% in March and 7.6% a year ago.
Formal salaried employment in the private sector shrank 4.3% yoy, and employment in the informal sector dropped 0.6% yoy. On the other hand, self-employment grew 4.9% (a reflection of increasingly limited salaried employment opportunities). By sector of economic activity, industrial employment shrank by a large 11.8% yoy.
Average real wages declined 3.3% yoy in April, with average real wages of the self-employed and those working in the informal sector down 5.1% yoy and 1.4% yoy, respectively.
Here is a better representation of Brazil's unemployment problem:
Goldman's conclusion: "We expect the labor market to deteriorate further. Exigent credit conditions, weak consumer and business confidence, and restrictive overall financial conditions are expected to lead to rising unemployment in 2016 and negative real wage growth."
But while until recently the market could care less about Brazil's economy, enthralled instead by the "bullish" political fight at the top which replaced one corrupt leader with another just as corrupt leader, this time investors - out of near-term catalysts - are once again paying attention. And the result, as Bloomberg writes, "this month marked a reversal of fortune for Brazilian stocks."
The Ibovespa is the world’s worst performer in May as investors seek signs that acting President Michel Temer will be able to rescue the economy even as members of his administration get caught up in the same type of political turmoil that encircled Dilma Rousseff before she was removed from office to face impeachment proceedings. Brazil’s stock gauge was the third-best performer in the first four months of the year on optimism the new government would shore up the budget and restore growth.
"The market faced a reality check this month," said Adeodato Volpi Netto, the head of capital markets at Eleven Financial Research in Sao Paulo. "The process of fixing the economy will be a bumpy road. I just hope that investors don’t go away."
The Ibovespa has dropped 8.7 percent this month, its worst performance in more than a year and a half and the biggest decline among more than 90 gauges tracked worldwide by Bloomberg. It gained 0.4 percent to 49,140.63 at 11:23 a.m. in Sao Paulo on Tuesday after falling as much as 0.6 percent earlier in the day.
Which remind us of what we wrote back on May 12, namely that the time has come to exit Brazilian risk assets:
... if markets believe that the Brazilian political situation will stabilize following the Rousseff "coup" as she calls it, we would be sellers for one simple reason. As AP puts it, the man who may become Brazil's next president is almost as unpopular as the leader facing impeachment now, and stained by scandals of his own.
In retrospect, we make have ticked the high Brazilian print for 2016.
And as investors are left with nothing but Brazil's economic depression to look forward to, punctuated perhaps with the occasional bout of social violence and a disastrous bout of Summer Olympics to boot, the decline in Brazil assets is set to accelerate, unless somehow the narrative changes and now the return of Dilma Rousseff, suddenly looking all too possible, is spun as bullish.