Fears about inflation and the expectation of a more aggressive monetary tightening by the Federal Reserve (Fed), which could lead to a recession in the world’s largest economy, yesterday generated a storm in global financial markets, which plunged to stock markets, to emerging market currencies, such as the peso, and to cryptocurrencies.
Added to this were new closures in China, due to the increase in Covid infections, which sharpened the pessimism of investors.
The turbulence in the markets infected the peso, which broke the ceiling of 20 units. closed in 20.4565 unitswith a depreciation of 2.38 percent, their biggest loss since September 23, 2020according to data from the Bank of Mexico.
“The fall of the peso is related to the general nervousness in the markets, given the high level of inflation that does not give in and has paid for risk aversion on the part of investors, with respect to the fact that the Fed will have to increase rates faster than expected, causing riskier assets to flee,” he said. Benjamín Álvarez Juárez, manager of stock market research at CI Banco.
Gerardo Copca indicated that if the “Bank of Mexico raises the rate by 75 basis points at its next meeting, it will most likely favor the peso and we could see it close to 20 pesos and even below this level.”
“The dollar strengthening This is because last Friday May inflation was published in the United States at an annual rate of 8.6 percent, reaching a new maximum since December 1981, confirming that inflationary pressures persist,” he commented. Gabriela Siller, director of economic analysis at Banco Base.
He added that the market has interpreted the data as a “sign that the annual inflation could continue to reach new highs in the coming months, so there is now speculation that the Federal Reserve will abandon its easy monetary stance more aggressively.”
Cryptocurrencies also reported a negative session, with bitcoin losing 16 percent to $22,487.
“Confidence in the crypto markets took a huge hit when a bloodbath broke out on Wall Street and the Celsius platform halted all account withdrawals and transfers, and after Binance had to pause bitcoin withdrawals for several hours,” explained Edward Moya.
On Wall Street, the benchmark stock indices reported their steepest fall since last May 18, and added four days down.
The Dow Jones lost 2.79 percent to 30,516 points, its lowest level since February 2021. The Nasdaq technology fell 4.68 percent to 10,809 units, its lowest level since September 2020, and the S&P 500 fell 3.88 percent to 3,782 points, the lowest since January 2021.
“US stocks only had one way to go after inflation fears intensified and the risk of a stronger Fed tightening, which could lead to a recession much sooner, increased,” said Edward Moya, an analyst at oanda
The consensus of analysts estimates that the Fed will raise the Federal Funds interest rate by 50 basis points this week, but some institutions foresee an adjustment of 75 points, and even up to 100 points.
Gabriela Siller explained that the falls in the stock markets are due to analysts’ growing fear of the materialization of two risks that go hand in hand: on the one hand, the risk that the US economy enters a recession in the face of higher rates, and on the other hand, On the other hand, higher inflation prompts the Fed to adopt a more restrictive monetary stance than expected, causing greater damage to economic activity.
“The main US stock index, the S&P 500, accumulated a fall of 22.18 percent compared to its historical maximum and officially closed in the bear market,” he said.
In Mexico, the S&P/BMV IPC fell 0.05 percent to 48,445 points, its lowest level since May 2021. For its part, the FTSE BIVA fell 0.11 percent to 1,020 units.