the sustained devaluation trend that surprisingly shows the Chinese yuan and the advance made yesterday by the president of the Federal Reserve of the United States, Jerome Powell, on accelerating the turn towards a less lax monetary policy, were combined today to revive the global risk aversion and accelerate the outflow of funds from emerging markets.
The combination of both factors, being very harmful to the Argentine economy, is also what is behind the escape that the free prices of the dollar are trying in the local market, especially the “jump” greater than 11% ($188.70 to $209.05) that registered in the week the Cash with Liquidation (CCL) in the local square.
The climate change in the global market can be seen in the generalized reds with which the European stock markets closed (they fell from 1.4% to 2.5%), the average 3% collapse with which the main Wall Street indices closed and the depreciations greater than 2% recorded by all currencies in the region, with the Brazilian real in the lead (-3.92%).
Additionally, the global value of the dollar (measured by the Dollar Index against six other major currencies) closed at 101.33 pointswhich represents a maximum of more than two years (since before the start of the pandemic).
All of these factors left the local multilateral real exchange rate slightly below 100 pointswhich represents its lowest value since May 2018 (when the run against the peso was incubating) and 3.5 points below the level it should maintain, as recently agreed by the Government with the IMF, which would force the Bank Central Bank (BCRA) -if maintained- to further accelerate the devaluation of the peso.
The biggest concern is generated by the sustained fall of 1.8% that the Chinese currency showed in the week (it is already down 2.5% so far this month), to reach its lowest exchange rate against the US dollar in nine months, amid the new confinements ordered by its authorities in the face of a resurgence of Covid, something that has paralyzed port activity and once again puts the rest of the world before the possibility of suffer a new collapse in the supply chain.
It is a considerable depreciation that affects China’s purchasing power and, therefore, can impact emerging countries that provide raw materials, such as Argentina.by subtracting demand.
And what is, by the way, behind the generalized adjustment that the prices of the commodities, including soybeans, which is giving back the rise of the last 48 hours (it lost a little more than US$12).
To that is added the pressure exerted by the new market projections on the rate of adjustment that interest rates in the United States could have in the future, after Powell has anticipated that a possible rise of 50 basis points will be “on the table” at the monetary policy meeting held by the Fed in May. And after he admitted that he now judges “it is appropriate to move a little faster”, given that he considers that he cannot do anything to solve the supply problems of the economy, but he can act on demand to try to contain inflation. .
After these statements, the futures contracts linked to the US monetary policy rate were traded today anticipating that the costs of short-term loans will be located in a range of 0.75% to 1% after the meeting to be developed in 15 days and one from $2 to 2.25% at the close of the one scheduled for July 26 and 27. Even the economists of some brokerage houses, such as those of Nomura Research, already they expect the Fed to raise the rate 0.75 percentage point at each of the June and July meetings.
“The Renminbi’s signal of weakness should be closely monitored, especially for the impact it could have on commodities. Chinese devaluations have in the past coincided with gloomy periods for commodities and, therefore, for the assets linked to them”, warns the consulting firm Delphos Investment.
“The market fears for a rapid tightening of the Fed’s policy and a strong slowdown in China that will drag the American and global economy into a recession over the next year”, warned the economist Fernando Marull.
“We are facing the beginning of a new shock external of proportions that can activate a rally global bullish for the dollar”, the analyst and economist Jorge Compagnucci had been warning days ago,