With Brazilian Bovespa futures already halted for trading earlier after crashing 10% at the open...



... the circuit breakers has moved to the cash market, where moments ago the Bovespa was similarly halted after crashing 10% at the open.

For those asking, here are the Brazilian circuit breaker mechanics:


  • Rule 1: IBOV down 10% (60,786) triggers 30 minutes pause
  • Rule 2: IBOV down 15% (57,409) triggers 1 hour pause
  • Rule 3: IBOV down 20% (54,032) will be subject to Stock Exchange evaluation, likely it shuts down for the day

And even more dramatic chart is the 3x Levered Brazil ETF which was down 50% moments ago:

So what now?

According to the Citi EM Strategy team there will be a quick enough resolution of this issue to take the other side of those large moves in the short term and would stay on the sidelines for now.

We expect joint intervention by the National Treasury in the form of bond buybacks and BCB through FX swaps, similar to actions taken during the peak of the political crisis in September 2015. However, they will not be enough to stop the sell-off, in our view.

And some additional thoughts from Citi FX:

EM FX is closely watching BRL, with the FX open ahead at 08:00 EDT / 13:00 BST. This is no surprise after we explained What happened to BRL here. Since that update, there’s more headlines coming out with talk of impeachment calls, and Senator Neves being suspended. However nothing confirmed yet. A full blown political crisis may just be unfolding.


There are concerns about the circuit breaker. Note that the Brazil circuit breaker allows only trading on the exchange at the limit price for the day (6% on the day). It can trade lower than that but not higher, for the rest of the day.


In the meantime, Brazilian assets continue to suffer. Check out the chart below from Bloomberg on Brazil’s EUR bonds. Meanwhile Brazil CDS is absolutely soaring even as we type, with the 10y spiking to 356, after staying around the 299 level earlier today.


And for the BRL market open, it’s hard to say. USDBRL closed at 3.1395 and we’re certainly in for a wild ride. Our trader notes that on the first future, 3.30/3.33 is being eyed. As a reminder of what our local trader said overnight: “I would expect a round of stops at the opening, can imagine little initial fading appetite from investors who still have ammo (mostly foreigners, I would guess) and a potential joint intervention by BCB and NT (in case price action is as bad as some people are saying).”