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Brazil Market Falls 60% from Peak Performance in May

Brazil's Bovespa For the first time in three years, this Monday, October 27, Brazil's stock exchange, the Bovespa, closed below 30,000 points. This after a day that saw shares tumbling another 6.5% following four consecutive days of decline. In the last five days of operation alone, the Ibovespa, Bovespa's main index, lost over 25%.

The final number was 29.435 points. 3.08 billion reais (US$ 1.37 billion) were traded during Monday's session, a sign of market weakness and another showing of foreign investors flight. The Bovespa was trading double this amount in the first half of the year.

On the other hand, the dollar, which was moving up fast in recent weeks lost 3.14% of its value, closing at 2.255 reais per dollar. Thanks in part to an intervention in the greenback market by Brazil's Central Bank. The BC sold US$ 1,25 billion in US currency plus US$ 815 million in traditional swap exchange contracts. 

Brazilian investors were again scared by signs of recession in Europe and the US. Blue chips Petrobras, the state-controlled oil multinational, and mining company Vale suffered the impact of the commodities market drop overseas. Due to oil prices reduction in the world market Petrobras sank over 11%. Vale had losses totaling 8%.

Since the beginning of the year the Bovespa's accumulated losses total 54%. When you compare to the Ibovespa's peak, on May 20, when shares shot up to 73,516 points, the tumble is 59.96.

It was reported Monday that Bradesco and Itaú banks had profits of 1.9 billion reais (US$ 843 million) and 1.8 billion reais (US$ 799 million), respectively, in the third quarter. According to Economática, a consultancy firm, these numbers represent the third and fourth best quarterly profits in the history of Brazilian banks.

News of good performance by the largest Brazilian banks was not enough to wipe out the feeling of doom.  While Itaú shares were stable, those from Bradesco fell steeply.

The Central Bank, this Monday, also changed the rule of compulsory cash reserves in order to inject up to 6 billion reais (US$ 2.66 billion) in the Brazilian economy. The goal is to encourage banks to offer more credit to customers and other financial institutions.

Since the government announced, last week, a temporary measure allowing state banks Banco do Brasil and Caixa Econômica Federal to take over financial institutions in trouble the market was afraid that the authorities knew something bad that nobody else knew. Experts now seem more inclined to believe that the Lula administration act was only a preventive measure.

Gathered in Brazilian capital Brasí­lia, Economy ministers and Central Banks presidents from 12 South American countries agreed to take joint action to fight the international crisis.

For Celso Amorim, the Brazilian minister of Foreign Relations, the best way to deal with the meltdown is "to strengthen the integration patrimony" instead of adopting measures that bar the entry of foreign products. "The answer to the crisis is not protectionism, most especially within the Mercosur. The most suitable measures would be, more integration, more intra-regional trade, less subsidy and less distortion," he emphasized.

The South American representatives decided to intensify the exchange of information and to promote quicker communication between top executives to oversee the unfolding of the crisis. Each one of those involved agreed to define priority points that might be useful as basis for possible action.


  • Show Comments (5)

  • Falupa

    Oil Prices
    The only good news in all of this is the dropping oil prices. That’s the only thing keeping this economy afloat.

    Our biggest global challenge now is figuring out when markets will correct themselves. Brazil is not the only one that is suffering from what is going on with the financial markets.

  • ch.c.

    It remains where it has been for the past months. No reduction. May go up.
    You see I am only half idiot !

    here is your danger, written today (1 day after my above comments) :

    Brazil’s central bank may halt six months of interest-rate increases as drying credit slows the economy, trumping concern that inflation will quicken after a two-month, 25 percent slide in the local currency.
    Brazilian prices, as measured by the IGP-10 index of wholesale, consumer and construction costs, rose 0.78 percent in the month ended Oct. 10 after declining 0.42 percent the previous month.
    Merrill Lynch, in an Oct. 27 report, said the Brazilian real’s “sharp depreciation imposes a serious threat to the inflation outlook.” If the current 12-month depreciation were to stay unchanged, it may boost inflation by as much as 2.5 percentage points within a year, according to Merrill estimates. Brazil trails only Argentina as the most sensitive to currency swings among Latin America’s six largest economies, Merrill said.

    Time will tell. Too early to have a strong position. On the other hand I have seen far more liquidity going to emerging nations government bonds in US$
    Brazil Global 7 years bonds rates declined by 2 % in two days, meaning a bond price appreciation of about 10-12 PERCENTS !
    BIG !
    But also meaning earlier bonds price declines were even bigger !

    I bought 50 K for my own account ! If up another several percents I will sell HALF and then wait and see !!!!!

    😀 😉

  • João da Silva

    [quote]but I would not be surprised that it is AT BEST only a few percent less than at the peak of the oil prices ! [/quote]

    It remains where it has been for the past months. No reduction. May go up.;-)

  • ch.c.

    Falupa !!!! THE ONLY GOOD NEWS in all of this is the dropping oil prices ????? strange answer !

    But why not the same could be said for for grains, cotton, orange juice, coffee, meats, iron ore, steel and all the other non precious metals.
    Why only oil ? Only because Brazil is not yet an oil exporter ?????
    Hmmmmmm ! smiles

    On oil, let me tell you something you may not be aware is that from 2005 to early 2008, Petrobras has not increased its oil price as per the free market, due to the price cap IMPOSED BY YOUR Government ! And even after the price increase in early 2008 ALLOWED by your Government the oil price was still NOT at the free market price…but at the equivalent of US$ 80.- still WELL below the free market price of over US$ 100.-
    Meaning you had an advantage against the free market prices !
    But advantages always turn the other way around sooner or later !
    Yessssssss…..I have no idea how these days are the Brazilian fuel prices at the pump stations, but I would not be surprised that it is AT BEST only a few percent less than at the peak of the oil prices !

    On top of that your currency declined against the US$ since then, therefore dont be surprised that IN bRAZIL, at the pump station fuel prices will go UP NOT DOWN in the medium term ! And this despite the oil price decline in US$ !!!!!!! And regardless of future oil prices …….unless there is another collapse from here !

    just think about it !!!!!

  • ch.c.

    The only one who predicted it was Ricardo THE junkie…based upon his “proven” writings !
    He even put in writing that no one was better than him !

    May be Robin the Crook disagrees !
    Because “modestly” Robin the Crook said “no one could have done a better job than me….except God”

    About Ricardo clever ideas and analysis as to why China should have invested US$200 B. in Brazil….at the TOP, I can only agree
    with him it is “even” better…NOW !!!!
    Even my 7 years old niece would agree and understand !

    Then why not China invest in Brazil by taking over Petrobras and Cia Vale ??????

    Ohhhhhhhh….this was not in Ricardo THE junkie scenario ?
    I bet it is not even the view of Robin the Crook and his gang ! Right ?

    And where else should China invest that money in Brazil, when on the other side Brazil restricts so much China exports to…BRAZIL ????
    Ohhhhhhh you dont want CHEAPER Chinese cars, Chinese tractors, Chinese steels (made of Brazilian iron ore – smiles), Chinese underwears, socks,pants, shirts, T-shirts, Chinese toys, etc etc..THAN THE ONES BRAZIL MAKES ?

    But only the cash to do what you want….without reciprocity as usual ?????????

    Only an idiot could have such an analysis !!!!!!!!!!

    And you really expect that China will even accept a trade deficit with Brazil, after they eventually would invest US$ 20 B. in Brazil let alone US$ 200 B. ????????

    Only a double idiot could have such an analysis !!!!!!!

    😮 😮 😛

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