Brazil's political crisis deepened sharply on Thursday with corruption allegations that threatened to topple the president, undermine reforms aimed at pulling the economy from recession and leave Latin America's largest nation rudderless.

Stocks plunged, both chambers of Congress cancelled sessions and President Michel Temer's office canceled his planned activities Thursday in the wake of a Globo newspaper report that he had been taped endorsing bribery of a former lawmaker.

Protests were planned in several cities and opposition politicians took to Twitter and local news channels to call for Temer to resign or be impeached, arguing his government no longer had legitimacy

"I can't see how Temer survives this," said David Fleischer, a political science professor at the University of Brasilia. "There are just too many people against him now."

Eoin Treacy's view

Brazil has been plagued by corruption on both sides of the political divide and the fact that Lula Da Silva has said he intends to re-enter the public arena will only add to uncertainty and lack of faith in public institutions. The unfortunate fact is that it is hard to believe anyone can survive long in Brazilian politics without being corrupt in one way or another. That was ignored during the boom years but with a recession biting that kind of behaviour is less acceptable. 

The potential ouster of Temer, possible indictment of Cunha and investigation of Neves leaves a considerable political vacuum which the socialists will undoubtedly attempt to fill. The Real, pulled back sharply today to confirm resistance in the BRL3 area. A sustained move below that level would be required to question a return to US Dollar dominance. 

The iBovespa Index dropped 10% to post a large weekly key reversal. A move of that magnitude stands out on the chart and the best case scenario is for ranging which would allow some convalescence. Downside follow through next week would confirm a break of the medium-term uptrend.