The Brazilian stock market tends to come back from the Carnival break with a sharp drop this Wednesday (26), when it reopens at 1 pm, after two days of high tension and sharp devaluations in international markets due to concerns about the advance of the coronavirus.
The disclosure, on the night of this Tuesday (25), of the first case of concrete suspicion of covid-19 in Brazil, of a man who came from Italy, should complicate the scenario.
Since Monday (24), while Brazilian trading remained at a standstill, the index fund (ETF) that replicates the Ibovespa in dollar (iShares MSCI Brazil) dropped 6.4% on the New York Stock Exchange.
Ibovespa Fall
“The tendency is for the Ibovespa to fall as well. However, the two indices are, in theory, together. Everything indicates that the falling tension of the Ibovespa will be very heavy”, says André Perfeito, chief economist at Necton.
Share receipts (ADRs) for Petrobras and Vale traded in New York are down 8.8% and 10%, respectively, since Monday. So Gerdau's ADRs accumulated a drop of 8.6%, and Bradesco's, 5%.
As the Ibovespa index in New York and the securities of Brazilian companies are traded in dollars, as they incorporate an eventual rise in the American currency. On Tuesday, however, the DXY index, which measures the dollar's international strength, dropped 0.4%. The coin closed Friday, Carnival eve, at R$ 4,394.
The devaluation of the dollar on Tuesday reflects the bet of investors in cuts in the American interest rate. The cuts would be a way to stimulate the economy, which is likely to be strained by the coronavirus.
This Tuesday, cases were identified in Switzerland, Austria, Croatia and Spain. The Swiss case is of a man who was recently in Milan. Also in the second, the main global stock markets had strong drops with the emergence of new outbreaks of the disease in countries outside China, especially in Italy. This Tuesday, markets continued to fall after the US Centers for Disease Control and Prevention.
The Dow Jones index fell 3% and was the lowest since October 2019, with the two worst sessions in a row since 2018. The S&P 500 and Nasdaq were at their lowest since December, down 3% and 2.7%, respectively.
Investor Risks
The 10-year US Treasury yield fell to the lowest on record at 1.354% per year. With risk aversion, investors sell riskier assets, such as stocks, and seek safer products, such as Treasury bonds. Unless the movement in herd makes the stock indices plummet and the fixed income papers become more expensive, which reduces your income.
The Stoxx 50, an index that brings together the shares of Europe's biggest companies, fell 2% on Tuesday after falling 4% on Monday, when the main European indices registered their biggest drop since 2016, and gold, a security asset, was at the highest price since 2013.
“For the first time in a while, we are finally waking up to the fact that this problem could continue for a period and have a significant impact on Chinese and global economic growth and potentially the US,” says Randy Frederick. Until then, investors had been reacting relatively cautiously about the potential damage of the coronavirus to the global economy.
The arrival of the disease in northern Italy, however, has reignited tensions with concerns. There are already 11 deaths in the country and 320 people infected. In addition, the main regions affected are the north and northeast of the country, areas that make up an important industrial hub in Europe, south of Switzerland, Austria and Germany.
Crude oil continues to decline, reflecting potential reduced demand for fuels as the global economy slows to contain further outbreaks.
Brent barrel retreated 2.3% to US$ 55, and WTI 3% to US$ 49.90.
