Economy

NY and São Paulo stock exchanges trigger circuit break, and dollar soars against Latin American countries currencies

It is the impact of a sharp drop in the price of oil, combined with the apprehension with the increase in coronavirus cases outside China

brazilian currency
Photo: Vinicius Bacarín/Shutterstock
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This Monday started tense for the financial market. The circuit breaker, a mechanism that temporarily interrupts trading on a stock exchange, was triggered twice at dawn on the New York stock exchanges in the United States, during the negotiation of futures contracts. Later, shortly after the opening of the trading session, the resource was used again. The three main stock indices of the American market fell by about 7%.

In Brazil, the Ibovespa was also interrupted with only half an hour after the start of the trading session, and a 10.02% decrease–something that had not happened since 2017, on ‘Joesley Day’, the day after the release of the audio between the former President Michel Temer and the entrepreneur owner of JBS.

At the end of this morning, on the New York Stock Exchange (Nyse), the Dow Jones was down 7.29% at 23,979.90 points, the S&P fell 7% at 2,764.21 points, and the electronic index Nasdaq fell 6.86% to 7,987.44 points. According to the newspaper Valor Econômico, the last time these indexes closed down over 7% was during the 2008 financial crisis.

The panic in the markets is due not only to the coronavirus, but to the drop in oil prices after a meeting of the Organization of the Petroleum Exporting Countries (OPEC) ended without an agreement with Saudi Arabia, which had foreseen cuts in its production. After the meeting, the country decided to start a price war with Russia.

According to Valor, a more pronounced or persistent drop in petroleum prices can cause problems for companies in the energy sector in the United States, which can trigger a credit crisis since these companies are highly leveraged (that is, with a high level of indebtedness).

In the day-to-day economy, impacts are also being reported. While Latam airline announced that it will not charge fines for rescheduling tickets due to the coronavirus epidemic, Mastercard closed its São Paulo office for 14 days and asked the employees to work from home, after one of them was diagnosed with the new virus.

Dollar

Just before noon, the commercial dollar rate was at BRL 4.75. This occurred even after the intervention of the Central Bank, which sold $5 billion in foreign exchange swaps. The Brazilian currency has suffered more than others in recent weeks.

The dollar also surpassed 3,800 Colombian pesos (COP) at the end of this morning. The day promises an escalation of the American currency against the currencies of Latin American countries.