Brazilian markets sink after WHO says coronavirus is a pandemic

BRASILIA, March 11 (Reuters) – Brazilian markets plunged on Wednesday, with shares falling 8.5% and the real slipping to its all-time low against the dollar, after the World Health Organization declared the outbreak of coronavirus as a global pandemic.

* Reflecting investors’ scale of risk aversion, longer-term market-based interest rates increased, implying that the Central Bank will eventually be forced to raise the benchmark rate to protect the currency and maintain capital inflows from abroad.

* Stock market trading was suspended for 30 minutes in the afternoon after a 10% drop in the Bovespa benchmark triggered a “circuit breaker”.

* Liquidation intensified after operations resumed, leading the Bovespa to lose up to 12% on the day at 81,000 points. The index closed with an 8.5% drop, accumulating losses so far this year of 27%.

* In dollar terms, the Bovespa is down 36% this year, by far the worst performer among the world’s largest stock markets.

* Meanwhile, interest rate futures as of January 2027 climbed 70 basis points. Even shorter-term contracts like January 2021, which expire when the Selic benchmark rate is likely to be lower than Wednesday’s, rose about 30 basis points.

* In addition, the Brazilian real fell as much as 2% in the session to 4.7579 units per dollar, very close to the recent historical low of 4.7975 reais per dollar. The one-month implied volatility in the dollar / real parity increased to 19.7%, the highest since October 2018.

* In local news, the Brazilian government lowered its projection for economic growth for 2020 to 2.1%. Barclays, UBS and Bank of America Merrill Lynch cut their forecasts below the official estimated figure.

(Report by Carolina Mandl and Jamie McGeever, Edited in Spanish by Manuel Farías)