donderdag 18 mei 2017

Brazil Stock Market Halted After Plunging 10%: What Happens Next

With Brazilian Bovespa futures already halted for trading earlier after crashing 10% at the open...


The circuit breakers has moved to the cash market, where moments ago the Bovespa was similarly halted after crashing 10% at the open. For those asking, here are the Brazilian circuit breaker mechanics: Cash:
- Rule 1: IBOV down 10% (60,786) triggers 30 minutes pause
- Rule 2: IBOV down 15% (57,409) triggers 1 hour pause
- Rule 3: IBOV down 20% (54,032) will be subject to Stock Exchange evaluation, likely it shuts down for the day
And this is how Brazil just erased all of the year's gains in an instant (and per the EWZ which is down -15%, more pain is coming once the circuit breaker unlocks)...


Just before the circuit breaker was triggered, state controlled companies Cemig, Banco do Brasil and Petrobras fell 42%, 25% and 19%, respectively according to BBG. Banks Itau and Bradesco fell 18% and 19%, respectively, and JBS fell 15% as the Brazilian Bdloobath continued... And even more dramatic chart is the 3x Levered Brazil ETF, BRZU, which was down 50% moments ago...


At the same time Brazil's default risk is soaring, as shown by the country's CDS...


# So what now? According to the Citi EM Strategy team there will be a quick enough resolution of this issue to take the other side of those large moves in the short term and would stay on the sidelines for now. We expect joint intervention by the National Treasury in the form of bond buybacks and BCB through FX swaps, similar to actions taken during the peak of the political crisis in September 2015. However, they will not be enough to stop the sell-off, in our view....