March 12, 2020 / 8:49 PM / 21 days ago

Brazil stocks post steepest fall since 1998, real hits historic low 5.00 per dollar

BRASILIA (Reuters) - Brazilian stocks recorded their biggest one-day fall since 1998 and the currency touched a historic low as fears over economic damage from the global coronavirus pandemic triggered widespread selling.

Markets rallied off their lows in afternoon trading after the U.S. Federal Reserve intervened with a dramatic injection of up to $1.5 trillion to stabilize the financial system, which has been rocked by the global coronavirus pandemic.

But that was after the real fell below 5.00 per dollar for the first time ever BRBY, prompting more dollar-selling intervention from the central bank, and after stock trading had been halted twice as the Bovespa index plunged almost 20%.

The real closed down around 1% at 4.7857 per dollar, having traded as low as 5.0287 per dollar. Despite its impressive recovery in late trading, it is still one of the world’s worst-performing currencies against the dollar, down 16% this year.

The benchmark Bovespa stock index closed 15.15% lower at 72,269 points .BVSP, its biggest fall since September, 1998. Trading was halted twice on Thursday as automatic circuit breakers were triggered as the index fell 10%, and then 15%.

At these levels, the Bovespa is firmly on track for its biggest quarterly fall since the Real Plan to kill off hyper-inflation in Brazil was introduced in 1994.

(Graphic: Brazilian stocks - here)

The volatility spread to fixed income and rates markets. Longer-dated rates futures jumped as much as 100 basis points to the highest in almost a year as traders bet the central bank will eventually be forced to jack up interest rates to protect the currency and maintain capital inflows from abroad.

“Things can get worse before they get better,” said Rico Investimentos, a brokerage in Sao Paulo.

Currency market volatility soared, with one-month dollar/real implied volatility reaching 23.8% and 3-month implied volatility scaling 20%, both the highest since October 2018 BRL1MO= BRL3MO=.

(Graphic: Brazilian FX volatility - here)

In an effort to calm the market, the central bank put at least $3.5 billion of dollar reserves up for auction, selling $1.78 billion. The central bank also coordinated with the Treasury to hold a series of bond auctions and buybacks in the coming week.

Traders also noted that a deterioration in the domestic political scenario, marked by a shock congressional vote on government spending late on Wednesday, also soured investor sentiment on Brazil. [nL8N2B563J]

“Such a serious setback for the reform agenda along with a more-than-challenging global backdrop will keep Brazilian local assets under pressure in the weeks to come,” Morgan Stanley wrote in a note to clients on Thursday.

Reporting by Jamie McGeever; editing by John Stonestreet, David Gregorio and Dan Grebler

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