Brazil Markets Sink, Triggering Circuit Breaker on Fresh Crisis

Brazilian markets plunged as a fresh political crisis ensnared President Michel Temer and threatened to derail a reform agenda that had helped restore confidence in the South American nation.

Futures of the benchmark Ibovespa gauge plunged 10 percent, and futures of the real hit circuit-breaker limits after sinking 6 percent. Bond risk measured by five-year credit default swaps soared more than 60 basis points, the most since January.

The declines drove up the yield on the country’s 1 billion euros ($1.1 billion) of bonds due 2021 by the most since they began trading three years ago. Shares of state-controlled oil producer Petroleo Brasileiro SA traded in Frankfurt sank the most since 2008, while Asian exchange-traded funds with Brazil exposure slumped overnight. The extra yield investors demand to hold the nation’s debt instead of U.S. Treasuries jumped the most since September 2015.

One of the country’s largest newspapers reported on Wednesday evening that a secret recording exists of Temer approving a payment to Eduardo Cunha, the mastermind behind last year’s impeachment of former President Dilma Rousseff. The tape was submitted to the Supreme Court by two senior executives from meat-packing giant JBS SA as part of a plea bargain deal, according to O Globo newspaper, in which information is offered in exchange for reduced sentences. The paper provided neither a transcript nor a recording.

The presidential press office denied the allegations.

The Peso Gets Real In Asian Trading

Brazilian assets have rallied for the past year as Temer implemented reforms designed to pull the country out of recession and close a budget deficit.

Investors in Asia hours sold off Brazilian equity holdings through their ETFs. Japan’s Next Funds Ibovespa Linked ETF retreated as much as 9.6 percent for its worst loss since November, while the DB X-Trackers MSCI Brazil Index ETF fell the most since December.

The scandal adds to a turbulent 24 hours in global markets, with volatility returning on reports Trump had asked then-FBI Director James Comey to drop an investigation into former national security adviser Michael Flynn in February, before firing him last week.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell