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18 May 2017 by lberuti

Just when we thought political risk was off the agenda with the French presidential election behind us, Mrs Merkel coming on top in recent regional polls and the result of the UK general election a foregone conclusion, it is back with a vengeance. “Impeachment” was very much the word of the day. In the US, it all started with reports that Mr Trump had potentially interfered with an FBI investigation based on a memo written by the recently sacked FBI director James Corney back in February. It comes when the Trump administration has already to deal with the issue of revealing potentially sensitive information to the Russian ambassador, and also the alledged interference by Russia in the US election campaign. The debate in the press and in markets is whether there is an obstruction of justice and investors’ reaction was to take chips off the table, sending CDXIG to 67bps intraday – it closed tonight at 65bps -, almost 7bps off its recent tights at the beginning of the week. Brazil was also plunged back into a political crisis. One of the largest Brazilian newspapers reported yesterday that President Tremer could be embroiled in a cover-up scheme involving Eduardo Cunha, the former speaker of the lower house now in jail and one of the mastermind behind the impeachment of Dilma Roussef, and could have requested payments to obtain the silence of the ex-deputy. Investors fear that this new crisis could impact the government’s reform agenda which propped up equity gains, and they sent the Bovespa Index into free fall. While Brazilian stocks opened down more than 10%, Brazil’s 5-year risk premium soared 69bps to 270bps.