Brazil's financial markets looked set for a bumpy start on Thursday, with traders still trying to grasp U.S. President Donald Trump's shock move to slap 50% tariffs on Latin America's largest economy rather than the 10% previously indicated.
Currency volatility gauges were at their highest since the back end of April's 'Liberation Day' panic, after the real slumped as much as 2.8% on Wednesday in reaction to what Deutsche Bank described as an escalation of tensions.
U.S.-listed shares of Brazilian firms and banks sank in premarket trading, with Itau Unibanco losing 2.7%, Banco Santander down 2.4% and state oil firm Petrobras (PETR4.SA) down nearly 1%.
Bond traders were also bracing for the local market to reopen. Brazil's bonds have been a strong performer in emerging markets this year, with international dollar-denominated bonds returning nearly 8% and local real ones a whopping 20%.
MSCI's dollar-denominated Brazil stock index is up nearly 25%, too, helped by the year's 13% surge in the real.
Graham Stock at RBC BlueBay Asset Management said Trump's reasoning for the 50% tariff level had centred on his grievances around a court case against right-wing former Brazilian president Jair Bolsonaro, as well as legal moves against U.S. social media firms.
"The economic implications are nevertheless fairly modest," Stock said, as just over 10% of Brazil's exports go to the U.S., and were worth only around 1% of the former's GDP.
"The risk is that President Lula seeks to exploit his defiance of U.S. interference as a badge of honour in the run-up to the October 2026 elections, in which case de-escalation becomes less likely," he said.
Wednesday's decision by Trump followed a threat on Monday to impose an additional 10% tariff on the BRICS group of developing nations - of which Brazil is the 'B' - which he called "anti-American."
The tariffs on Brazil could have a significant impact on food prices in the United States.
Around a third of the coffee consumed in the U.S., the world's largest drinker of the beverage, comes from Brazil and more than half of all the orange juice sold in the U.S. also comes from the South American agricultural powerhouse.
