Bovespa Index Sharply Declines Amid U.S. and China Trade Tension

RIO DE JANEIRO, BRAZIL – B3, the main index of the São Paulo Stock Exchange, closed trading with a strong drop on Monday, August 5th, amid the increase in commercial tensions between China and the United States.

At 5:19 PM, the Ibovespa had dropped 2.51 percent to 100,097 points.

The Brazilian stock market follows the same direction as most world markets. In China, the Yuan broke the seven-per-dollar mark for the first time in a decade, an indication that the country is willing to tolerate more exchange rate weakening, which could further fuel a trade conflict with the United States.

The sharp drop of 1.4 percent in the Chinese currency came days after U.S. President Donald Trump surprised the financial markets by pledging to set ten percent duties on the remaining US$300 billion of Chinese imports as of September 1st, abruptly breaching a brief cease-fire in the trade war between the world’s two largest economies.

“The upsurge in trade talk tensions between China and the United States keeps increasing risk aversion in global markets,” the Coinvalores team said in a note to clients sent early on Monday, according to Reuters.

In addition to Trump’s weekend offensives, the significant devaluation of the Yuan on Monday tends to stir up the news further, he added.

China let the Yuan break the seven-per-dollar level after Trump pledged to set tariffs on the remaining US$300 billion of previously untaxed Chinese imports as of September 1st.

On Twitter, Trump described the move as “currency manipulation” and added: “Are you listening Federal Reserve? This is a major violation that will weaken China considerably over time!”.

In the local scenario, attention is focused on the resumption of activities in Congress, specifically the review of the Social Welfare reform in the second round of voting in the Chamber of Deputies, after the end of the parliamentary recess this week.