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Economy

Dollar: When is the devaluation coming?

by archyde

An issue that always makes people talk because we are in Argentina, is the Dollar. But we always have to talk about different exchange rates and we will start with the Official Dollar, which is where the devaluation is expected, since a Dollar is seen to be very delayed.

At some point they have to make that devaluation. The Central Bank, from the Soybean Dollar, was able to collect dollars to be able to bank a little more for when it has to be released.

In what month can it happen?

In October we do not believe that it will happen since they hope to have the economy a little more stabilized.

Another month that everyone believes this can happen is December. But it is not a correct month to do it, since it is a time of much consumption. If it is devalued, there may be a problem in prices and that consumption may fall. It does not suit them. As much as everyone believes that December is when the measures are taken in Argentina, this is not the case. This month is when social chaos breaks out, because that is when society is tired.

Having said that, there are two months that this devaluation can happen. One of them is November. Let’s remember that this year we have the World Cup, which starts on November 20, but the energy starts earlier. Days in which the attention will be very focused on football and less on the economic situation.

Secondly, the month in which there are usually financial and monetary movements historically in our country is January, while everyone is on vacation, they are distracted. In December, although they are all very fast, they are still attentive, see what happens. In January this is not so, we are in another world.

At this time a devaluation can occur, which there is talk that it can be up to 50% in the official exchange rate.

How can this impact? Find out about all the consequences and how these measures can be triggered in the video that I leave below. Subscribe to my channel to anticipate everything that can happen in our country and how to protect your finances.

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Economy

Future dollar, market thermometer: is devaluation expected?

by archyde

the market of future dollar It usually has two main roles in the investor’s view of the future: it works as an exchange insurance or as a hedge against a possible greater devaluation and it can also be a thermometer of what the market expects for the evolution of the exchange rate. In recent months, Implicit rates were high due to a strong devaluation expectation, but analysts note some changes in the dynamics behind the launch of the soybean dollar at $200.

As EcoGo economist Lucio Garay Méndez explains to iProfesional, what has been happening for a few weeks is that “The inflow of foreign exchange for the soybean dollar postponed the expectations of abrupt devaluation for 2023 and, today, what what we are seeing is a brief lull along the entire futures curve“.

The same is observed from Ecolatina, which recently published a report, in which they highlighted that the acceleration in the liquidation of foreign exchange from agriculture, which has already exceeded US$5,000 million, contributed to appease expectations of devaluation in the immediate future and made the reserve accumulation target for the third quarter feasible agreed with the International Monetary Fund (IMF).

The Head of Research of that consulting firm, Santiago Manoukian, points out in this regard that “the process of entering dollars through this route has not yet finished and is allowing a strong recomposition of reserves“. Also, added to this positive process of income of dollars from the field, the promise of income from loan funds from the Inter-American Development Bank (IDB), which will be around $700 million this month. “These variables are being reflected in the implicit rates of ROFEX future dollar contracts, which have trended downward in recent times.“, describe Manoukian.

Future dollar: who is going to that market

Grupo Broda’s economist, Elena Alonso, explains that, at the moment, the future dollar is working above all as an exchange rate insurance or as a cover. “It is useful, for example, to the importer who needs coverage because he has to access the MULC in 180 days.”

This is within the framework of the restrictions applied by the BCRA for the financing of imports in the official exchange market, the MULC, and that requires them to seek funds outside of it 180 days until the end of the year.

The future dollar serves as a thermometer for the market, but also as a hedge.

Faced with this reality, which gives them a certain unpredictability about what price the exchange rate will be at when they can finally access the official exchange market, Alonso explains that “one option is to access the future dollar to hedge against the expectation of devaluationbecause it allows them to put a floor and a ceiling for the exchange rate in a sale or purchase operation”.

What happens to the future dollar since the soybean exchange rate arrived

In what market are those who go to dollar futures currently operating? Manoukian explains that, Since the launch of the soybean dollar, a drop in the implicit rates has been observed: it details that there was a fall of 1.6% in those of September 2022, of 3.1% for those of the next month and of 0, 5% for December.

While for those with longer terms, there is a rise: 0.6% for January 2023, 2.3% for February, 4% for March and between 6% and 7.7% for from April to June. “Implied rates on futures contracts for the second quarter of next year, especially, are climbing,” Manoukian reports.

So, deduce that what the market is showing today is, really, a moderation of devaluation expectations favored by the implementation of the soybean dollar at $200, but it warns that a shift in the curve is seen forward.

The evolution of the rate, according to Ecolatina.

The evolution of the rate, according to Ecolatina.

And, from the Bullmarket Brokers Research team they point out that this is related to the fact that “the market is seeing an exchange rate delay or a future devaluation, but observes that the Central Bank has firepower in the short-term curve”. This is thanks to the soybean dollar, as indicated.

Consequently, What the BCRA does is intervene in the dollar futures market so that the devaluation exceptions are less and combines it with a strong increase in the monetary policy interest rates. to take pressure off the dollar, which is what it did last week.

It is worth mentioning that seven days ago, as anticipated, the BCRA ordered a rate hike of 550 points and fixed the performance of the traditional fixed term, which is the one made by human beings for up to $10 million, at a Nominal Annual Rate (TNA) of 75%, which is equivalent to an Effective Annual Rate (TEA) of 107%. Similarly, it adjusted the rate applicable to Liquidity Bills (LELIQ), which also went from 69.5% to 75%. The increase was highly anticipated by the market and is in line with the expectations of the City, which anticipated an increase of between 400 and 600 points.

Dollar: does the market believe there will be devaluation?

Manoukian details that “what the market expects is that, Thanks to the latest measures to apply a differential dollar for the agro-export sector, the Government can avoid a devaluation jump for nowcontrary to what was expected a few months ago, but he considers that it will be difficult for him to sustain this over time”.

In the same sense, from BullMarket they point out that “as long as the Government continues to put restrictions on the dollar and create distrust in the market, exceptions and coverage will always continue to increase.”

It refers to the last barriers to access to the dollar that the Government applied for the beneficiaries of energy subsidies and soybeans. Let us remember that this last measure generated much criticism from the sector and resulted in internal within the government as well.

The graph shows the coverage of the curve.

The graph shows the coverage of the curve.

Let us remember that hours after the measure was known, the generalized rejection of the agricultural entities and the Secretary of Agriculture was made public, Jose Bahillo said that the resolution of the Central Bank did not include “the producers who have been accompanying the export increase program with so much effort“. The post was retweeted by the Minister of Economy, Serge Massaand the Central later clarified that the scope of the measure was for exporting companies: “The provisions disclosed are not applicable to human beings,” it specified.

On the other hand, according to Garay Méndez, also At this time, the fact that “the real exchange rate continues to fall behind” plays in the movements of the future dollar., since it anticipates that, at some point, it would have to be corrected, especially considering that “it is very likely that no more soybean dollars will enter in October.” Thus, he anticipates that the futures market will probably overheat again in the coming months.

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Economy

Dollar: why would the Central Bank not devalue until this Thursday?

by archyde

A call for solidarity: “savers and investors, do not rush to make decisions if you believe that the Government will devalue”. At least, he won’t, in his right mind, until next Thursday. Why? very simple, the Banco Central (BCRA), who also slowed down the rate of daily devaluation in recent days, will not shoot himself in the foot. At least, it should not do it, if in the directory of the BCRA the spirit of survival prevails and the fear of future questions about the duties of a public official.

It happens that next Wednesday the futures contracts of dollar. There are open positions in the market for approximately US$8.5 billion. That is what is registered in the two markets where these hedges are operated for the exchange rate, the ROFEX and the MAE.

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Economy

The 3 Latin American countries that have suffered the worst devaluations of their currency this year against the dollar | Chile | Argentinian | Colombia | Peru | Peruvian Sol | WORLD

by archyde

As uncertainty about the economic future sweeps the globe, the dollar continues to gain ground against the rest of the currencies.

And some of the largest Latin American economies are no exception.

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Argentina, Chile and Colombia These are the three countries that have suffered the worst devaluations of their currencies so far this year against the dollar.

In contrast, Mexico has not seen major turbulence in the foreign exchange market, while the brazilian real and the peruvian sol have not taken the hit so far and, on the contrary, they have appreciated in the first six months of this year.

The fact that a country’s currency depreciates increases the price of imported products, increases inflation and makes it more expensive to pay debts in dollars, a situation that can generate fiscal pressures in the countries that emptied their coffers to face the pandemic and they currently have very little room for manoeuvre.

The appreciation of the dollar comes amid a rapid increase in interest rates, which in Latin America has been especially rapid, a measure that seeks to control inflation but, at the same time, puts a little brake on growth.

Bloomberg.

Why have currencies devalued so much? Argentina, Chile and Colombia? Although they share a common backdrop on the international front, they each have their own internal reasons that have contributed to the depreciation of their currencies.

Argentina

The Argentine peso heads the ranking of the most depreciated currencies in Latin America during the first half of this year among the largest economies in the region.

No doubt the currency’s current loss in value is part of a historical trend. After decades of economic crises, with recurrent inflationary cycles, Argentines do not trust the peso as a reserve currency, and choose to take refuge in the greenback.

The Argentine peso was created 30 years ago with the intention of stabilizing the currency after a period of hyperinflation and for a decade it was worth the same as a US dollar, thanks to a law that made the two currencies equal.

On July 2, Argentina's economy minister, Martín Guzmán, resigned. In his replacement, President Alberto Fernández appointed Silvina Batakis. (GETTY IMAGES).
On July 2, Argentina’s economy minister, Martín Guzmán, resigned. In his replacement, President Alberto Fernández appointed Silvina Batakis. (GETTY IMAGES).

Today a peso is equivalent to less than a dollar cent (compared to the free market dollar, it is not even half a cent).

“The reason for this tremendous devaluation, one of the worst in the world, can be summed up in one thing: lack of confidence“, explains Verónica Smink, correspondent for BBC Mundo in Argentina.

In recent years, he adds, political issues have been added to macroeconomic problems that have accelerated the devaluation process.

The electoral defeat of the former center-right president -and friend of the markets-, Mauricio Macri, in 2019, generated a spike in the dollar.

And, more recently, the public fights between the current president, Alberto Fernández, and his powerful vice president, Cristina Fernández de Kirchner -which led to the resignation of the Minister of Economy on July 2-, have also generated uncertainty, causing a new rise (and consequent devaluation of the peso).

This is also argued by Ricardo Delgado, economist and president of the consulting firm Analytica, for whom “The background of the depreciation has to do with the political crisis that exists in Argentina within the governing coalition.”

GETTY IMAGES.
GETTY IMAGES.

Fernández and Kirchner, he adds, have two very opposite views on economic policy and, particularly, on how to deal with the agreement with the International Monetary Fund.

While the president is in favor of continuing with the agreement signed in March, the vice president is clearly against it, she explains in dialogue with BBC Mundo.

In this scenario and with an economy that has issued a lot of currency in the last two years as a result of the pandemic,”there are many pesos in circulation that, in a context of rising inflation and political uncertainty, make people want to take refuge in the dollar as reserve of value.

Argentina has year-on-year inflation close to 62% and projections towards the end of the year point to a much higher rise.

Chile

The Chilean currency had been weakening against the US currency, but when it momentarily set an all-time high of 1,000 pesos per dollar on July 6, it sparked a heated debate about what is happening in the foreign exchange market.

The Chilean peso is the second currency that has depreciated the most in 2022 among the large economies of Latin America, after the Argentine currency.

The president of Chile, Gabriel Boric, said that the increase in the price of the dollar is “tremendously worrying”. (GETTY IMAGES).

President Gabriel Boric declared that the rise of the dollar “it is extremely worrying” and argued that one of the main reasons “is the drop in the price of copper as a result of two factors that are external to the national.”

“One is the prospects of recession in Europe and the United States, which will only be clarified at the next meeting of the Federal Reserve, which still has some time, and also the process that China is still following with the closure of cities that has lowered the demand for copper,” he specified.

Along with the international scenario, Boric warned that “there are also internal factors and in this uncertainty, without a doubt, contributes”, referring to the September 4 plebiscite in which the country will finally decide whether to approve or reject the proposal for a new New Constitution. drawn up by a Constitutional Convention elected by popular vote.

Leonardo Suárez, Director of Studies at LarrainVial, a financial services firm, argues that the main reason for the rise in the dollar in Chile is the increase in the current account deficit, that is, spending on imports of goods and services is higher than export earnings.

GETTY IMAGES.
GETTY IMAGES.

This deficit, he adds, was driven by a “overspending” last year, in the context of a massive liquidity injection -both due to fiscal aid as a result of the pandemic, and due to the early withdrawal of pension funds.

The exchange depreciation, he says in dialogue with BBC Mundo, had already been coming since the end of 2019, when in the midst of the social outbreak a political agreement was reached to change the Constitution. From that moment on, he affirms, “there was a punishment to the exchange rate”.

And in the last month, a sharp drop in the price of coppercausing a greater depreciation of the Chilean peso against the dollar, given that 56% of total Chilean exports are copper.

“This generates a shock of expectations in the markets and that is why the Chilean peso is hit harder than other currencies.”

All this happens when forecasts about a possible global recession grow more every day, a scenario that affects the price of copper and, therefore, the income that Chile receives.

Colombia

The Colombian currency “has been devalued more than most of its peers in Latin America,” says Ricardo Ávila, an analyst senior of the Colombian newspaper El Tiempo, in dialogue with BBC Mundo.

Indeed, the Colombian peso ranks third in the ranking after Argentina and Chile.

Gustavo Petro will assume the presidency of Colombia on August 7. (GETTY IMAGES).
Gustavo Petro will assume the presidency of Colombia on August 7. (GETTY IMAGES).

In addition to the international context that has pushed large investors to shelter their capital in less risky assets, “in the case of Colombia there is an extra element that has to do with political risk,” Ávila explains.

From his perspective, there is concern about the arrival of Gustavo Petro to power, to the extent that he has delivered the message that Colombia will depend less and less on oilwhich is the main export product.

Given the prospect that Petro is not going to sign new oil exploration contracts, for example, the projections show, Ávila points out, that in 2026 Colombia would have to start importing gas and in 2028 Colombia would have to start importing oil.

If that promise comes true, there is a fear that Colombia will face a currency deficit and devaluation, he explains.

“In the last month the Colombian peso has been devalued a lot and that coincides with the election of Petro.”

Other observers argue that this is not so because Colombia’s debt papers have not been devalued. Now, specifically on the exchange issue, says the expert, “If the perception is that there will be a lower inflow of dollars, eventually that affects the exchange rate.”

The only country that marks a clear trend against the current is Uruguaywhose currency has appreciated more than 10% in 2022 against the dollar.

GETTY IMAGES.
GETTY IMAGES.

The Uruguayan peso has rebounded since the country’s central bank announced on May 17 that it planned to raise its benchmark rate by at least 100 basis points to 10.25% in mid-August, as one of the measures to contain inflation.

The currency is also getting a boost from booming exports of agricultural commodities such as beef, wood pulp and soybeans, against a backdrop of rising commodity prices following the Russian invasion of Ukraine. .

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Economy

what can the government do now

by archyde

A few days before the first review of the goals of the agreement with the FMI which will take place in May the small amount of $160 million that the Central Bank bought in April worries the market and sows doubts about the possibility of complying with the pattern of accumulation of reservations scheduled for the second quarter. Economists say a default will put pressure on the financial dollars, which this month closed with the highest monthly rise since November 2021.

The program with the IMF contemplates a goal of accumulating net reserves for this year of US$5.8 billion. The Minister of Economy Martin Guzman He assured that the reserve accumulation, fiscal deficit, and monetary assistance goals planned for the first quarter of the year were met, which will be monitored by an IMF technical mission in May.

In this sense, analysts estimated that the guideline for the first quarter of the year, which involved achieving an increase of US$1.2 billion in reserves with respect to the stock of December 2021, was achieved in an “adjusted” manner“In addition, they emphasize that it was achieved exclusively thanks to the first disbursement that the IMF made after having formally approved the new program with Argentina on March 25 last.

The BCRA had closed March with a purchasing balance of US$275 million Despite the record liquidation of agriculture as a result of the rise in the price of commodities due to the effect of guerra between Russia and Ukraine. And it was expected that the monetary entity would improve that performance in April thanks to the beginning of the high season for the settlement of the thick harvest. However, the dynamic was worse before the large demand for dollars from the private sectorespecially by importers.

The BCRA accumulated purchases for US$160 million in April, an amount much lower than the US$1,373 million in the same month of 2021.

Dollars: low level of purchases

The BCRA ended on the last day of April with net purchases for US$10 million, with which the intervention balance for the month was US$160 million for purchases.

A) Yes, In the first quarter of the year, the monetary entity accumulated a positive balance of US$110 million, as indicated to iProfesional official sources.

Emiliano Anselmileader of the PPI macroeconomics team, compared that the BCRA in April 2021, with a similar pace of agricultural settlements, had managed to accumulate net purchases for US$1,373 million. And in the first quarter of last year he had reaped a positive balance of US$3,639 million.

In EconViews They highlighted that “Purchases made in April are going to be one of the lowest since 2003 in nominal terms; if we adjusted for dollar inflation, it would be even worse.”

Among the causes of the low level of purchases in April, Anselmi explained that the incentives generated by a bowl in pesos less than crawling peg, both exporters and importers, conspire against the accumulation of reserves. “Exporters are encouraged to postpone the settlement of their grains since in the change to pesos they can only obtain a lower yield. And importers have the incentive to borrow in pesos to advance their purchases,” he said. He also attributed it to the “structural factor of the exchange rate lag: having appreciated so much in 2021 means that importers leave the BCRA practically empty-handed”.

In the same way, the consultant LCG stated that “the trade balance is showing a less auspicious performance for the rest of the year based on a demand for imports higher than expected, which is reflected in the little capacity of the BCRA to capitalize the foreign currency coming from a record liquidation of the harvest”. And he added: “Furthermore, the temptation to resort to traditional vices such as the exchange delay to stop the acceleration of inflation It is once again seen as a risk that can have negative consequences for the reserve accumulation goal that, we understand, is not negotiable with the IMF,” he said.

Also, an analysis of the consultant 1816 judged that “The BCRA is having a hard time buying because there is more demand for imports and because there are more departures for tourism”.

The agreement with the IMF contemplates a cumulative reserve target of US$4.1 billion for the second quarter

The agreement with the IMF contemplates a cumulative reserve target of US$4.1 billion for the second quarter.

Can the reserve goal for the second quarter be met?

Anselmi specified that “the reserve accumulation goal is US$4.1 billion at the end of the second quarter.” Based on the calculation of the current stock of PPI reserves, the analyst projected that between May and June “it is necessary to increase US$2,775 million in net reserves to comply with the guideline with the IMF, equivalent to buy u$s69.4 million daily average“. “We are skeptical that they can fulfill it, in April they bought an average of US$9 million per day,” he argued.

in tune, Sebastian Menescaldidirector of Eco Go affirmed that “clearly, the goal is a bit complicated. It was expected that in April the BCRA would buy something more similar to between US$700 and US$900 million.”

In EconViews They highlighted that “one month after signing the agreement with the IMF, the program needs to enter the pits. Of all the committed goals, the accumulation of reserves is the most vulnerable.” The consultant judged that the panorama “does not look simple” and projected: “To comply with what was agreed, the BCRA should add US$2,524 million to its coffers, either through purchases or loans from multilateral organizations.”

According to the calculations of the consultant 1816“to meet the reserve target for June, the stock would have to rise US$1.5 billion per month in May and June, so that except for an extraordinary inflow of foreign exchange (such as the IMF Resilience and Sustainability Trust) it seems very difficult for Argentina to meet that target”.

For his part, the economist Federico Glustein He stressed that “in the program agreed with the IMF, the reserves should grow US$5.8 billion throughout the year, including the IMF transfers of more than US$3 billion as an extra contribution. It is going to be really complex.” that US$2.5 billion come in for the remainder of the year,” he predicted.

On the low level of accumulation of dollars and the doubts raised by analysts about meeting goals, sources from the monetary entity allege that “in March it was a record for imports in the last decade, and in April it will be repeated.” And they assure: “Just as we exceeded the guideline for the first quarter, we are going to meet the goal for the second”.

For some economists, the BCRA will fail to meet the quarterly goal and could request a waiver

For some economists, the BCRA will fail to meet the quarterly goal and could request a waiver (forgiveness) from the agency.

Is the first IMF waiver coming?

Anselmi said that, initially, a possible breach of the reserve goal it was only glimpsed for the last quarter of the year “since the accumulation pattern is very demanding, which jumps from US$4.4 billion in the third quarter to US$5.8 billion at the end of the year.” But given the low level of purchases in April and the risk of not meeting the goal, the economist emphasized: “We do not rule out that the government tries some device, some new reinforcement of the stocks; basically, it should step on imports,”

According to his vision, “The BCRA is between a rock and a hard place. Either step on imports, something that the IMF is not very happy about either and can affect economic activity, because it can mean that there are no inputs for production; or request a waiver (excuse me) to the international organization”.

in tune, Menescaldi He also foresees that the BCRA’s dilemma will be “either they fail to meet the goal or they begin to close the tap on imports more, which limits the growth of activity. It is a complex decision.”

More stocks or more devaluation?

Claudio Caprarulo, director of Analytica, evaluated what levels of balance tradesl as low as the one recorded in the first quarter “are not sustainable” and the Government “is presented with two paths”. The first, she said, is “increase the level of devaluation to, with that, try to discourage imports”. But he warned that “the problem is that with these levels of inflation It would be adding more fuel to the price increase, and it would not be advisable”.

The BCRA could deepen the stocks on imports to accumulate more reserves, some economists speculate

The BCRA could deepen the import trap to accumulate more reserves, some economists speculate.

The economist considered that “the second way is to try to lower the level of importsalthough that goes against one of the indicative goals that was committed to with the IMF, which is to disarm the controls.” And he speculated that “what the Government could do is delay imports. That is, to deepen the trap but in a more elegant way.”

“It could also raise the interest rate more so that companies borrow more expensively and do not have as much extra liquidity as to allocate it to increase imports above the level they need to produce,” he estimated.

Given the current scenario, Glustein agreed that two possible scenarios open up: “Either more restrictions on imports, which is the main destination of the dollars coming in at the moment; or a devaluation to accommodate the panorama of reserves and the external balance, since the acceleration of the crawling peg continues to be lower than inflation and appreciates the peso more and more in a context of strengthening of the dollar, where emerging markets depreciate and capital begins to emigrate to safe markets”.

In its opinion, the BCRA “surely he prefers restrictions on imports, which is something that has been happening but on a smaller scale”. And he warned that “the cost that it can have is, in some specific industries, missing stock“.

for the economist Andrew Borensteinthe BCRA “is going to do trial and error, alternating between (more) stocks and acceleration of the crawling peg.”

Meanwhile, a report from EconViews stated that “the solution would be to speed up the rate of devaluation to ensure that the supply (of dollars) can satisfy the demand, but if we are realistic, it is most likely that if it is needed, the BCRA will choose to restrict quantities and continue limiting imports “.

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Economy

tough forecast for the market

by archyde

“Hay bad news everywherethe question is how the markets did not fall before”. It is a phrase that some operators affirm before and Dire Tuesday for stocks in the different stock markets, in which international indices plummeted to 4%. And the Merval of Buenos Aires was not alien to this, with a drop of 1.7%.

The coincidence of the analysts consulted by iProfesional is that a “Perfect storm”, where there is a sum of data and negative contexts for global activity. Among them are economic and political eventssuch as the imminent rise in interest rates by the United States Federal Reserve (Fed), high world inflation, the advance of Covid-19 in China, and the Russian invasion of Ukrainewith such an escalation of conflict that the threat of becoming a world war has already been added.

Added to this is a fact that is no less important: it is considered in the market that company valuations were at very high levels and now the “expected” setting of positions.

Therefore, the estimates of the experts is that, in the best of cases, due to all this combination of events, the world market can make a stock price adjustment that can range from 10% to 15%. Even more alarmist forecasts hold that if the economic recession begins to spread, it is expected that there may be corrections up to 30% in various quotes.

Analysts maintain that the shares have a margin of fall that can reach up to 30%.

Falling stocks and markets

In figures, this Tuesday there were notorious crashes in the markets global.

In this sense, in the United States, the Nasdaq plunged almost 4%, followed by falls of 2.8% in the S&P500 and 2.4% in the Dow Jones. In fact, some Actions referents of the planet came to plummet to 12%, as was the case with the papers of Tesla.

In the previous, the european markets had also shown wide falls, with the spanish ibex reflecting a down 1.6% and the German Dax falling 1.2%.

At the regional level, the Brazilian Bovespa fell by more than 2% and the Merval of Buenos Aires fell 1.7%. Precisely, in the main index of Buenos Aires, stood out the setbacks of the shares of YPF (-4%), Banco Macro (-3.8%) and Edenor, down 3.3 percent.

As for the Argentine actions that listed in New Yorkthere were also notorious falls, where the losses were led by YPF (-7.4%), Globant (-6,9%) y Macro deskwith a negative 6.3%.

The global alarm over a new rate hike by the Fed, high inflation and geopolitical conflicts, generates a global recession

Concerns about a new rate hike by the Fed, inflation and geopolitical conflicts hit stocks.

Prospects for further declines in share prices

The landscape for coming weeks sounds bleak, according to the expressions of the analysts. “Are so many reasons for this fall It strikes me that the market has endured so much without going down, with all the things that are happening”, he tells iProfesional Paula Bujia, Director of Fifth Investments.

From the numbers, he asserts that the global stock valuations ‘not cheap’ because their price earning is around 18 or 19 times, with the uncertainty of what the corporate earnings will be in the immediate future. “With the new Fed rates and high inflationa more logical price earning valuation for firms would be 16. Then, the S&P500 should fall to at least 4,000 points. So there is a little more room to go down, which may have a correction in its maximum prices of between 10% to 15%“, estimates Spark plug.

In his opinion, if a deep recession is entered, this situation brings falls in market prices “close to 30%”. Something that would be much more problematic for the market.

According to the vision of Paul Arriazueconomist and portfolio manager of Carbón Divest, “with these falls it is reflected that the prices were at a very high level for years and that there were no adjustments in between. There is a depletion in the share price, plus the mistrust that exists about Biden and a set of macro factors, which are going to mark a drop in values”.

For now, it is estimated that the early rise in Fed rates will hit tech companies squarelywhich are a very important part of the market.

The United States Federal Reserve (Fed) may raise rates in the coming days to curb inflation

The Fed may raise rates in the coming days to try to curb inflation, which weighs on activity.

Market crash: just a day to forget?

The look of the analysts consulted by iProfesional regarding the near future of the markets, generates more doubts and uncertaintiesin the midst of an extremely complex international context from the political and economic point of view.

According to Gustavo Neffa, economist and analyst at Research for Traders (RfT), “there is a feeling that the price floor has not yet been touched, given the Russian Nuclear War Threat, the imminent strong rate hike for the coming week from the Fed and, finally, the feeling of recession in the US for the coming months”.

According to market experts, there is a 97% consensus that the Fed will raise interest rates between 75 and 100 basis points, a high level for developed markets, pressured by high inflation in the United States.

“We are in a excessive volatility scenario, where the markets do not find more than falls and percentages in the red. The doubts that hover around a recession in the American market”, he details to iProfesional Gonzalo Gavina, PPI financial adviser. And he adds: “Usually, in this type of scenario, the investor seeks refuge in safer investmentsactivating the famous ´flight to quality´ (flight to quality), either stocks with value or sovereign/corporate bonds with a good credit rating”.

In summary, for Gaviña, at the moment it is “difficult to predict” a floorbut considers that it will be necessary to be very attentive to the next movements of the market. “To closely follow the american banking industry and the energetic“, recommends.

The Russian invasion of Ukraine puts economic activity in Europe on alert and puts pressure on inflation due to more expensive energy.

The Russian invasion of Ukraine puts economic activity in Europe on alert and puts pressure on inflation.

Fear of recession and global crisis

The truth is the global situation is volatile and with risks of recession advancing, in an environment of prices of the economy rising at a fast pacea warlike conflict in which its evolution is unknown, and a closure of borders in China due to the advance of Covid, with a consequent brake on activity.

“Hay Many worries. For starters, the Fed is going to be much more aggressive in raising rates, because the inflation is too high. So it may be that instead of a smooth landing for the economy, it now ends in a recession. That is one of the first concerns of the market”, summarizes Bujía.

Among the facts of international politics, the news also stands out that, perhaps, Russia cut off gas supply to Poland, and that adds tension to the war in Europe. Something that will affect the prospects of economic growth of the Old Continentsince the Monetary Fund reduced its projections in that sense.

“In addition to lower growth due to high inflation, the energy solution that replaces Russian sources will be more expensive,” Bujía warns.

And he ends: “To that must be added to Chinawhich has zero tolerance for Covid cases and has more than 20 million people in lockdown and isolated. That affects global growth and commodities. There is actually bad news everywhere, the question is how did everything not fall before?

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