Brazil stocks slip, real rebounds after Trump's 50% tariff threat

By Marc Jones and Rodrigo Campos

LONDON/NEW YORK, July 10 (Reuters) - Brazil's stock market was dragged lower by its financial sector on Thursday while the real currency rebounded, a day after U.S. President Donald Trump's shock move to slap 50% tariffs on imports from Latin America's largest economy, citing political disagreements.

Currency volatility gauges were at their highest since the back-end of April's tariff announcements after the real slumped as much as 2.8% BRL= on Wednesday in reaction to what Deutsche Bank described as an escalation of tensions. The currency ended down 2.3% Wednesday but bounced on Thursday and was up 0.5% on the day at 5.544 after earlier touching a five-week low of 5.6277 per greenback.

U.S.-listed shares of Brazilian companies fell, with a widely followed Brazil ETF EWZ down 1.6%. Itau Unibanco fell 4.2%, Banco Santander Brasil was down 3.2% and Nu Holdings dropped 4.5%, while state oil firm Petrobras PBR lost 0.4% and Embraer fell 4.7%. The main local stock market index .BVSP shed 0.5%.

Brazil's 10-year local benchmark note yield BR10YT=RR had been steadily rising since hitting a 2025 low of 13.45% last week, and on Thursday jumped 13 basis points to 13.892%.

"Although U.S. unilateral tariffs on Brazil are not entirely irrelevant, their macroeconomic impact would be modest," said local investment manager ARX Investimentos in a client note. " When combined with a coordinated economic policy response, Brazil is well positioned to neutralize adverse effects and preserve economic stability, even in a scenario of rising global trade protectionism."

Brazil's bonds have been a strong performer in emerging markets this year, with international dollar-denominated bonds returning nearly 8% and local currency ones a whopping 20%. The local stock market hit a record high this month, yet is still among the cheapest in terms of dollars paid for expected earnings.

MSCI's dollar-denominated Brazil stock index is up nearly 25%, too, helped by the year's double-digit 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 South American country'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.

Brazil is a closed economy that has a trade deficit with the U.S., where consumers face sharp price rises on food staples like coffee and orange juice if the 50% tariffs stick, according to traders and experts.

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.

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."