Wednesday, December 07, 2022

Markets start September with risk aversion

Global financial markets begin September with an increase in risk aversion due to two factors:

  1. The Chinese government has decided to lift confinement measures in the city of Chengdu, Sichuan province, due to a rise in the number of coronavirus cases, with 157 new cases on Wednesday. The city has a population of 21 million residents and confinement will force people to stay at home if they do not have special authorization. For now, the term of imprisonment has not been defined and markets anticipate that this will be reflected in a greater slowdown in economic activity.

It is important to add that Chengdu is a manufacturing hub in the heart of China, so confinement would not necessarily mean the closure of ports, but it increases the risk of new disruptions in supply chains and reduced demand for raw materials.

  1. Markets await monetary policy announcements from major central banks around the world, which are expected to continue raising their interest rates to tackle high inflation. Highlights include announcements by the Reserve Bank of Australia on September 5, the Bank of Chile on September 6, the Bank of Canada on September 7, the European Central Bank on September 8, the United Kingdom on September 15, the United States on September 21. With the Central Bank of Brazil. The monetary policy announcements of Indonesia, Switzerland, Norway, South Africa, Turkey and Japan coincided on 22 September.

At the end of the month, the key announcements will be the Bank of Thailand on 28 September and the Bank of Mexico on 29 September. In Mexico, August Inflation will be published on September 8, while in the United States it will be published on September 13.

Due to the publication of economic indicators, there is also risk aversion due to caution in the short term. PMI Manufacturing Indicator Eurozone In August, it stood at 49.6 points, slightly lower than initial estimates, for two months below the 50-point contraction limit and for seven months in a row. in china, Caixin Manufacturing PMI fell to 49.5 points from 50.4 in August, returning to contraction territory for the first time since May. The risk of a fall in the indicator for September continues with the new confinement measures.

It should be added that the market is also awaiting the non-farm payrolls for August in the United States of America which is published tomorrow, Friday, along with other indicators of the labor market. Preliminary applications for unemployment assistance were published this morning for the past one week, in which 232 thousand applications were reduced from 5 thousand. With this, the revised series shows three consecutive weeks that applications for unemployment aid have decreased, from the first week of August, when they were 252 thousand.

This contributes to expectations of a stronger labor market in the United States and speculation that the Federal Reserve will continue to raise its interest rate aggressively.

Due to risk aversion, most currencies start the session with losses against the dollar. The peso shows a depreciation of 0.25% or 5 cents, trading around 20.19 pesos per dollar, with the exchange rate touching a minimum of 20.1249 and a maximum of 20.2392 pesos per dollar. Between the crosses of the main dollar, Only the Russian ruble shows an appreciation of 0.64 percent.

Conversely, the most depreciating currencies are South Korean won with 1.23%, Israeli Shekel with 1.00%, Norwegian Krone with 0.79%, Swedish Krona with 0.74%, Brazilian Real with 0.58%, Euro with 0.52%, Danish with the krone 0.51% and the British pound 0.44%. The Mexican peso ranks 14th among depreciating currencies.

It is important to add that the euro begins trading session at $1.0004 per euro, while the pound starts at $1.1582 per pound.

The raw material market has witnessed losses, with WTI turnover at $87.87 per barrel, a decline of 1.88%, whereas, Copper down 1.84% and is trading at $7,701 per metric ton. Just like that, Zinc, aluminum and nickel fell by 2.35, 6.63 and 3.32%, respectively. Gold eased to a six-week low of $1,700.05 an ounce on firm US dollar and prospects of higher interest rates globally. With the above, gold is trading 0.45 percent lower at $ 1,703.42 an ounce.

Capital markets are witnessing losses since the Asian session, Japan’s Nikkei 225 index lost 1.53%, Hong Kong’s Hang Seng lost 1.79% and Shanghai’s Shenzhen 0.86%. The market in Europe drops by more than 1% on average. London’s FTSE 100 fell 1.21%, France’s CAC 40 1.12% and Germany’s DAX 1.04%. In the United States, the futures market lost marginally, with the S&P 500 down 0.43% and the Nasdaq 0.64 percent.

During the session, the exchange rate is expected to trade between 20.02 and 20.28 pesos per dollar.

money and debt market

In the money market, the 10-year Treasury note rate shows an increase of 5.9 basis points, to 3.25%. In Mexico, the 10-year M bond rate starts unchanged at 9.06 percent.

derivatives market

To hedge against depreciation of more than 20.50 pesos per dollar, a call option with an exercise date within one month has a premium of 1.58% and represents a right but not an obligation to buy dollars in the above level. On the other hand, the interbank forward for sale is 20.2935 pesos in one month, 20.8985 in 6 months and 21.6335 pesos per dollar in one year.

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