April 24, 2020 / 4:28 PM / a month ago

UPDATE 2-Brazilian markets sink as Moro resignation ignites political crisis

(Adds detail, quote, updates prices)

By Jamie McGeever

BRASILIA, April 24 (Reuters) - Brazil’s currency, stocks and bonds sank on Friday, lashed by a deepening political crisis as the resignation of the country’s popular justice minister prompted investors already nervous about the teetering economy to sell heavily across the board.

The central bank intervened aggressively in the currency market as the real fell as much as 4% to a new record low against the dollar, and stocks fell 5.5%, having lost as much as 9.5% earlier in the day.

The trigger was the resignation of Sergio Moro, one of President Jair Bolsonaro’s two “super ministers” along with Economy Minister Paulo Guedes, who accused Bolsonaro of political interference in the police.

The developments further complicate the backdrop for Brazilian markets, which was already looking bleak due to the coronavirus-fueled economic crisis that many analysts say could lead to the biggest fall in GDP this year in decades.

“The conflict with Moro undercuts his electoral base, and Brazil can’t afford to be leaderless, not in the biggest economic collapse in generations,” said Paul McNamara, investment director at asset management firm GAM in London.

“This is very messy. I wouldn’t be investing in Brazil right now, not with interest rates so low,” he said.

Traders said attention is now shifting to Guedes, who has become an increasingly peripheral figure in the government’s economic response to the coronavirus crisis. If he follows Moro out the door, market volatility would intensify even further.

“Today the Brazilian crisis became typical, domestic political crisis,” said a senior trader at a bank in Sao Paulo.

The benchmark Bovespa stock market closed 5.5% lower at 75,330 points, and is now down 35% this year.

The real ended around 2.5% lower on the day at 5.6680 per dollar, having earlier weakened to almost 5.75 per dollar.

The central bank intervened four times in the spot currency market on Friday, selling $2.175 billion, and sold a net $1 billion in FX swaps, marking one of its most active days for currency intervention this year.

In interest rate markets, the spread between January 2021 and January 2029 futures, an indication of market risk, widened sharply to more than 560 basis points, the widest in a month and up significantly from around 430 basis points a week ago.

The latest wave of market turmoil came on the same day the central bank announced a record portfolio outflow from Brazilian stocks and bonds last month of $22.2 billion.

Reporting by Jamie McGeever Editing by Chizu Nomiyama and Jonathan Oatis

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