Brazil Central Bank Intervention Fails As Real Rout Accelerates

Call it the shortest central bank intervention failure in recent history.

Earlier today we reported that just as the tanking Brazilian Real tumbled below 3.80, the Brazilian Central Bank announced another $1.5BN in intervention via swaps about an hour before noon; At that point the USDBRL tested 3.80 into the surprise announcement and tumbled towards 3.76. The central bank first placed 800MM around 11:40EDT with USDBRL testing support, and then placed another 300mn of the 700mn balance and USDBRL, but by then the BRL had resumed sliding toward 3.7850.

The problem, as we noted earlier, is what would happen if despite the 1+ billion intervention, the selloff continued. We got the answer a little after 3pm, when the Brazilian intervention was fully absorbed by the market, and the USDBRL spiked as high as 3.8151, well above the BCB's intervention zone. And now that intervention has failed, the currency predictably closed at the lows, with 2 of Wall Street's largest desks predicting that with the central bank defense having failed, the most likely next stop for the USDBRL is 4.00

The concern, as regular readers will recall, is that if the selloff accelerates beyond 4.00, it could provide the green light for a broader EM crisis because as Bank of America wrote one month ago, "EM FX never lies and a plunge in Brazilian real toward 4 versus US dollar is likely to cause deleveraging and contagion across credit portfolios."

But even without a broader contagion, the question is what happens to Brazil next: the Real has tumbled to early 2016 levels, when Dilma Rouseff was still president, and has now lagged all EM currencies except the imploding Turkish Lira and Argentina Peso.

How long before Brazil become the next locus of EM capital outflows, sending the local market plunging, and spreading to the rest of the EM space?

Comments

DownWithYogaPants Cryptopithicus Homme Tue, 06/05/2018 - 16:23 Permalink

I spend quite a bit of time in Brazil. I have to explain to negros ( the portuguese term they use ) there that if you go to the USA don't expect blacks there to be anything like Brazil.  Much more dangerous in general than the mulattos of the south.  There is extensive intermixing. There is an extensive German / Italian component in the south.  Fact is that country has a lot of potential if it could ever shake off the CIA and the criminals they install in the government.  

In reply to by Cryptopithicus Homme

Escrava Isaura DownWithYogaPants Tue, 06/05/2018 - 16:57 Permalink

Fact is that country has a lot of potential if it could ever shake off the CIA and the criminals they install in the government. 

It’s not that simple. Brazil is just one of the dominoes. Every nation, economically speaking, will collapse.

Conservative nations like the US and Russia as well as progressive nations like Sweden, Norway and Denmark will all collapse.  

The only difference is that progressive nations won’t bring the world down with.

 

In reply to by DownWithYogaPants

Der Ritter Escrava Isaura Tue, 06/05/2018 - 17:28 Permalink

Brazil has no chance. Population is divided and polarized.

Also, new generations are extremely imbecilized and have no idea even where the country's capital is.

 

Such a pity. In terms of natural resources, the country would beat several ones if it was managed by a serious citizen. Just to mention the biggest Nb reserves of the world is a proof of this potential.

In reply to by Escrava Isaura

Quantify Escrava Isaura Tue, 06/05/2018 - 18:27 Permalink

Almost 60,000 people were murdered in Brazil in 2014, most with guns. While some Latin American countries have higher per capita murder rates, in absolute numbers, Brazil is the deadliest place in the world outside Syria.....LOL, yea it sounds peachy.

https://www.dailyrepublic.com/all-dr-news/wires/in-worlds-murder-capita…

https://www.npr.org/sections/parallels/2016/03/28/472157969/brazil-has-…

In reply to by Escrava Isaura

stefan-coast Tue, 06/05/2018 - 16:19 Permalink

brazil, guatamala, venezuela, italy, brexit, hawaii big island, etc.  And, low on veggies at grocery store, so I looked up what is going on...Heat in Mexico causing ag problems, the hurricane in georgia and florida etc.  Just hope they keep making beer...  :-)

Dewey Cheatum … Tue, 06/05/2018 - 16:21 Permalink

Let the un winding begin. Here's the problem with long term monetary interventionism, now that UST's yields are barely creeping up, all of the chicken shit currencies that have lived on that addiction will implode and die of that addiction.

This is a consequence of global monetary crimes for a decade, no matter which direction the fed try's to escape the corner, shit will blow up 

To Hell In A H… Tue, 06/05/2018 - 16:23 Permalink

Yet the USSA dollar just keeps jugging along despite carrying the most grotesque levels of government debt of any nation on the planet, over $130 trillion in unfunded liabilities and the largest levels of personal debt.

How does the dollar keep soaring like an eagle, immune to any type of market reaction, despite the FED Q.E printing over $20 trillion. This is pure absurdity. The dollar should be worth less than the used toilet paper. The markets are so rigged, its beyond a joke.

Phillyguy Tue, 06/05/2018 - 16:41 Permalink

Brazil has extreme poverty and is being run by a corrupt/authoritarian government, currently headed by Michel Temer who has lined his pockets with bribes and kickbacks from wealthy supporters. Plans are being developed to privatize Brazil's national oil company Petrobras, which will screw the average working person, but make lots of money for a small group of politically well-connected individuals.

Notes

1. ‘Lies against my honour’: Brazilian President Michel Temer dismisses accusations he laundered money through family properties The bribes were allegedly paid by port logistics company Rodrimar in exchange for having concessions extended in Sao Paulo’s Santos harbour Sat, 28 April, 2018; Link: www.scmp.com/news/world/americas/article/2143802/lies-against-my-honour…

2. Accused of corruption, popularity near zero – why is Temer still Brazil's president? By Dom Phillips 17 Oct 2017; Link: www.theguardian.com/world/2017/oct/17/accused-of-graft-popularity-near-zero-so-why-is-brazils-president-still-in-office

3. Brazil Corruption Report; Link: www.business-anti-corruption.com/country-profiles/brazil/

4. ‘Privatization’ Is No Longer a Dirty Word in Brazil, Even in an Election Year- Amid corruption and the nation’s worst recession, presidential candidates raise the prospect of selling off state-owned companies. By Raymond Colitt May 8, 2018; Link: https://www.bloomberg.com/news/articles/2018-05-08/-privatization-is-no…

 

surf@jm Tue, 06/05/2018 - 20:43 Permalink

I wonder if Mexico will build a wall when America becomes a shithole?.....

Wonder what their reaction will be when yankees start commiting ID theft, driving without licenses, driving wages down, collecting welfare benefits, and smuggling drugs into their country?.....

El Hosel Tue, 06/05/2018 - 21:48 Permalink

This US "Market" is so phony and stretched right now it's pathetic.

Pull it like you mean it already, geez. Nobody is buying this game anymore it is soooo over.