(Reuters) – Mexico’s peso was set for its worst day in 3-1/2 years on Monday and Colombia’s peso slumped to a record low as the currencies of major crude oil exporters were hammered after oil lost a third of its value.
Oil prices fell as much as 30% after Saudi Arabia slashed its official crude selling price and set plans for a dramatic increase in production following Russia’s refusal to help stabilize oil markets. The move shocked markets already reeling under pressure from the coronavirus outbreak. O/R
Brazil’s real BRL= and the Chilean peso CLP= both sank to all-time lows. Brazil’s central bank said it will continue intervening in the foreign exchange market using all tools at its disposal to whatever extent necessary to ensure the market functions smoothly.
Regional stocks plunged in line with a tumble on Wall Street, with Brazil’s Bovespa stock index .BVSP sinking 10%, triggering an automatic 15-minute halt.
Preference shares of state oil firm Petroleo Brasileiro PETR4.SA crashed 24% in what could be their worst day ever after the company cut diesel and gasoline prices following the slump in oil prices, a source said.
“The oil price collapse adds a new dimension for fear and uncertainty,” said David Bahnsen, chief investment officer at The Bahnsen Group. “Investors just have to brace for impact until more cards are on the table.”
The oil shock comes as the fast-spreading coronavirus has been roiling markets for weeks, with the number of infected cases exceeding 110,000 worldwide leading to the suspension of economic activity and adding to fears of a global recession.
Colombian oil major Ecopetrol ECO.CN dropped 20%, taking Colombia’s main index .COLCAP down 7.2% – on track for its worst day since 2009, when the global financial crisis wreaked havoc across markets.
The moves took MSCI’s index of emerging market stocks .MSCIEF down 5.7%, on track for its biggest percentage drop since 2011.
OIL EXPORTERS BEAR THE BRUNT
The Mexican peso MXN= slipped as much as 8% to touch its lowest since early 2017. Data showed Mexican consumer prices rose 3.70 percent in the year through February, further drifting above the central bank’s target rate.
“For the Mexican peso, it is also about completely unwinding the very heavy long positions that we’ve had built up over the last year,” said Christian Lawrence, senior market strategist at Latam FX at Rabobank.
While some analysts see Monday’s decline as steep enough for the Mexican central bank to hold rates steady next week, some say it may still cut, but by a more cautious 25 basis points, rather than 50 points expected as of last week.
“The Mexican central bank will probably announce some options stabilization as in the past, but I don’t think they will intervene in the spot market.”
A scurry to the safety of bonds and the Japanese yen JPY= quashed the dollar. Markets have fully priced in a 75-basis-point cut from the U.S. Federal Reserve later this month, hot on the heels of a 50-point cut emergency cut last week. FRX/
Colombia’s peso COP= was set for its worst day ever, down more than 6% to hit a new low of 3,835.