Good morning! Bad news in China, Germany causes push the Brazilian currency down. The challenges of Jair Bolsonaro’s party to grow, become relevant—but remain aligned to the president. Another defeat for Sergio Moro. Facebook could be fined for listening in to its users. Enjoy your read! (This newsletter is for platinum subscribers only. Become one now!)


1 dollar = 4 reais

The rollercoaster ride that has

dominated Brazilian markets continued strong on Wednesday. After closing up 1.36 percent on Tuesday, the São Paulo stock market index fell 2.94 percent yesterday. Meanwhile, the Brazilian currency lost almost 2 percent against the U.S. Dollar—which broke the psychological threshold of USD 1: BRL 4.&nbsp;</p> <div class="flourish-embed" data-src="visualisation/596816"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Why it matters.</strong> Market instability is not only a result of the U.S.-China trade war. As a matter of fact, global economic data has consistently worsened this year, in a sort of synchronized slump. Japan and three of Europe&#8217;s four largest economies (Germany, Italy, and the UK) are bound for a recession by year-end. And China, Brazil&#8217;s undisputed leading trading partner, is growing at its slowest pace of the past 27 years. These kinds of dreadful scenarios turn investors risk-averse—and peripheral (and more volatile) economies such as Brazil suffer the most.</p> <p><strong>Bad omen.</strong> The U.S. bond market indicates difficult times for Brazil&#8217;s number 2 trading partner. On Wednesday morning, the <a href="https://www.cnbc.com/2019/08/13/us-bonds-yield-curve-at-flattest-level-since-2007-amid-risk-off-sentiment.html?utm_source=newsletter&amp;utm_medium=email&amp;utm_campaign=newsletter_axiosmarkets&amp;stream=business">2-year/10-year yield curve inverted</a>, the recession indicator watched most closely by banks. This phenomenon hadn&#8217;t been seen since 2007. Economists and analysts say all great recessions of the U.S. economy were preceded by such inversions.</p> <p><strong>Compensating.</strong> For once, the local scene has been a source of good news—with the approval of the pension reform by the lower house, and this week&#8217;s approval of more business-friendly labor regulations. But that wasn&#8217;t enough to inspire investors.</p> <ul><li><strong><em>Go deeper:</em></strong><em> </em><a href="https://brazilian.report/money/2019/08/01/going-behind-numbers-brazil-unemployment/"><em>Going behind the numbers of Brazil’s unemployment</em></a></li><li><strong><em>And:</em></strong><em> <a href="https://brazilian.report/money/2019/07/01/brazil-longest-lasting-currency-real/">Brazil’s longest-lasting currency turns 25 years old</a></em>; </li></ul> <hr class="wp-block-separator"/> <h2>The dilemma of the president&#8217;s party</h2> <p>On Tuesday, Jair Bolsonaro&#8217;s Social Liberal Party (PSL) expelled Congressman Alexandre Frota for his constant criticism of the president. Initially considered by most as a joke candidate—largely due to his past in the porn industry—Mr. Frota became one of the highest-profile rookie lawmakers, building bridges between both sides of the aisle and becoming one of the main sponsors of the pension reform. The message was clear: PSL wants to be Mr. Bolsonaro&#8217;s party.</p> <p><strong>Why it matters.</strong> Until last year, when Jair Bolsonaro joined the party to run for president, the PSL was a ragtag group of previously irrelevant politicians. In 2018, it got inflated thanks to the Jair Bolsonaro bandwagon, which brought all sorts of candidates to its ranks. So much heterogeneity and inexperience makes the PSL a party with little organization and direction. Its main challenge is how to grow and become more organic while remaining loyal to Mr. Bolsonaro.</p> <p><strong>Red flag.</strong> A survey carried out by <em>Folha de S.Paulo</em> shows that among PSL&#8217;s 271,000 members, there are 10,600 people who were previously members of left-wing parties. Almost 3,000 of them were in the Workers&#8217; Party—the political force most detested by the president.</p> <p><strong>Plans for 2020. </strong>Next year, PSL plans to launch candidates for the municipal elections in all capitals and cities with 100,000 residents. That could explain why President Jair Bolsonaro continues his radical rants—by sparking controversy, he consolidates his support group, despite alienating more moderate sectors of society.</p> <ul><li><strong><em>Go deeper:</em></strong><em> </em><a href="https://brazilian.report/power/2019/08/13/alexandre-frota-brazilian-porn-jair-bolsonaro-party/"><em>Alexandre Frota: The ex-porn star set to split Jair Bolsonaro’s party</em></a></li></ul> <hr class="wp-block-separator"/> <h2>Moro loses. Again.</h2> <p>Yesterday, the House approved a law to curb abuses by law enforcement—a move aimed at clipping the wings of prosecutors, judges, and investigators. The following acts are now defined as crimes: illegally obtaining evidence, releasing footage not related to evidence, prisons not provided for by law, the use of compulsory processing without prior subpoena, or handcuffing suspects when they do not resist arrest.&nbsp;</p> <p><strong>Why it matters.</strong> The move is a reaction of the political class to Operation Car Wash—which has used many of the aforementioned tactics to instigate defendants into turning against each other. The bill was presented a couple of years ago, but prosecutors rallied against it and public support for the operation made Congress backpedal. Now, Car Wash members are on their heels, following a series of leaks showing they overstepped their boundaries on numerous occasions. It is a particularly tough blow for Justice Minister Sergio Moro, who was against the bill—but who has lost prestige since taking office.</p> <p><strong>Social media.</strong> Jair Bolsonaro&#8217;s supporters are launching a social media campaign today asking that he veto the bill.</p> <script src="https://www.buzzsprout.com/299876/1269271-64-you-can-t-spell-car-wash-without-leaks.js?player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>Facebook targeted by Justice Ministry</h2> <p>On Tuesday, <em><a href="https://www.bloomberg.com/news/articles/2019-08-13/facebook-paid-hundreds-of-contractors-to-transcribe-users-audio">Bloomberg</a> </em>reported that Facebook &#8220;has been paying hundreds of outside contractors to transcribe clips of audio from users of its services.&#8221; One day later, the tech giant was summoned by the National Consumer Defense Service to explain, within ten days, if and how Brazilian users are affected by the practice. If the company doesn&#8217;t respond—or if it confirms that user privacy was violated—Facebook should receive a fine.</p> <p><strong>Why it matters.</strong> This is just the latest clash between Facebook and Brazilian authorities. Back in March, the Justice Ministry opened an investigation into the alleged sale of user data, which could result in fines of BRL 19m. The company&#8217;s unwillingness to cooperate with law enforcement (when it refuses to break into users&#8217; messages to help drug trafficking investigations) has led to the temporary shutdown of WhatsApp in Brazil multiple times—as well as the brief incarceration of Facebook&#8217;s Latin America VP in 2016.</p> <script src="https://www.buzzsprout.com/299876/1452826-70-in-brazil-new-terms-and-conditions-will-apply.js?player=small" type="text/javascript" charset="utf-8"></script> <ul><li><em><strong>More</strong></em>: <em><a href="https://www.bbc.com/news/business-49090753">Could Facebook’s new currency be stopped in its tracks?</a></em></li></ul> <hr class="wp-block-separator"/> <h2>What else you should know today</h2> <p><strong>Humor. </strong>Launched five months ago, a book called <em>&#8220;Why Bolsonaro deserves respect, trust, and dignity&#8221;</em> has become a sort of social media sensation. The reason? The book—which costs BRL 39.64 on Amazon—is filled with 188 blank pages. After the book went viral—and caught many fans of president off-guard—Amazon included a note on its description, saying the book has only two written pages.</p> <p><strong>Argentina 1.</strong> Alberto Fernández, the leftist leading candidate in Argentina&#8217;s presidential race, did something his Brazilian counterparts have not been able to: he criticized Venezuelan dictator Nicolás Maduro. He is trying to deflect attacks from right-wing incumbent Mauricio Macri, who attempts to tie the Kirchnerist candidate to Mr. Maduro. Last year, the same strategy was employed against then-Workers&#8217; Party candidate Fernando Haddad—who, however, chose not to directly criticize the Venezuelan leader.</p> <p><strong>Argentina 2.</strong> President Macri unveiled emergency economic measures after his latest political setback. However, that couldn&#8217;t stop the Argentinian currency from falling to a record low ARS 60: USD 1. (<strong>More: </strong><a href="https://brazilian.report/power/2019/06/07/common-currency-brazil-argentina/">Common currency between Brazil and Argentina a non-starter</a>)</p> <p><strong>Eduardo Bolsonaro.</strong> Per news website<em> Brazil Journal</em>, the idea to name Congressman Eduardo Bolsonaro—the president&#8217;s third-eldest son—to the position of ambassador to the U.S. came from Donald Trump, during President Bolsonaro&#8217;s visit to the White House. After mentioning the Brazilian ambassador would be changed, the U.S. president allegedly said: &#8220;Why don&#8217;t you pick [your son]?&#8221;</p> <p><strong>Refugees.</strong> Right-wing Senator Chico Rodrigues will propose the creation of a refugee camp to house the Venezuelan migrants living in his state of Roraima, Brazil&#8217;s northernmost. He proposes that the camp be located outside of state capital Boa Vista, to replace the shelters currently located within the city&#8217;s limits. &#8220;You don&#8217;t see refugee camps in Paris,&#8221; said the senator.

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BY Gustavo Ribeiro

Gustavo is the founder of The Brazilian Report, and is an award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.