Índice
Behaviour of stock, money and foreign
exchange markets during the crisis
In the next sections, graphs are presented which summarize the behaviour
of the three main markets (interest rates, foreign exchange and stocks)
in the months immediately preceding the crisis and during it.
The money market
Graph 2 below shows the interest rates hike on October 30th, in an
attempt to halt the fast drain on foreign currency reserves (more than
US$ 8 billion in the last week of October). It can also be seen the volatility
increase in the interest futures market after the rise.
The foreign exchange market
Many analysts contend that Brazil suffered a full-blown speculative
attack in the last week of October. The evidence shows that enormous pressure
was felt through the futures market, as can be seen in the widening of
the basis, in Graph 3 below. It is also shown the relative difference between
the US dollar futures basis and its cost-of-carry (defined as the difference
between Brazil’s interbank interest rate and the 6-month LIBOR). The doubling
of interest rates on October 30th and the announcement of emergency fiscal
measures on November 10th worked to ease the pressures.
The stock market
Graph 4 depicts the effect of the crisis on the efficiency of the Brazilian
stock and index futures markets. It shows both the Ibovespa and the relative
difference between the Ibovespa futures basis and its cost-of-carry. It
is clear that after October 23rd arbitrage conditions worsen with an unusual
narrowing of the basis.
Índice
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