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Wall Street recoils from new movements in Treasury bonds and recent IPSA quarantines

After the Ministry of Health announced new restrictions in the country due to the rise in infections, the Santiago Stock Exchange fell 0.63%, to 4,878 points.

Despite the fact that yesterday was a day of new records for the US stock market, driven by announcements from the Federal Reserve on interest rates, inflation and unemployment, this Thursday the session closed completely in the red.

Given the strong prospects of investors for a speedy economic recovery, the yield on 10-year US Treasuries was above 1,719%, a value not seen since January 2020 and that marks the return of a word not so desired by the market: inflation. Likewise, 30-year bonds reached their highest level since 2019, standing at 2.47%.

“We come from historically low interest rates, and some bullish movement is healthy. It really is the pace that could be worrisome, “Fund Evaluation Group CEO Becky Wood told the Financial Times.

Because tech stocks are particularly sensitive to rising returns, the Nasdaq had a fall of 3.02% that placed the technology index at 13,116 points. Meanwhile, the Dow Jones closed at 32,862 with a decline of 0.46%, while the S&P 500 lost 1.48%, reaching 3,915 points.

“Just saying that the Fed is not going to raise rates until 2023 doesn’t really mean anything. The Fed is on the sidelines, but if bond yields keep going up, that’s what really hurts the economy,” he told Reuters Inverness Counsel’s chief investment strategist in New York, Tim Ghriskey.

Local overview

The 6,200 new cases of Covid-19 reported by the Ministry of Health this morning have marked the agenda in Chile, especially when eight communes in the Metropolitan Region, including Santiago, will return to quarantine starting this Saturday.

This, added to the inflationary pressures of the United States due to the rise in Treasury bonds, caused that the Santiago stock market fell 0.63%, placing the S&P IPSA at 4,878 points.

The companies with the most falls were Arauco Park (-3,82), Itaú (2.62%) and Copec (-2.21%), while the gains took them CAP (3,90%), Ripley (2.86%) and Vapors (2,44%).

Faced with the news, the head of the Confederation of Production and Commerce (CPC), Juan Sutil, affirmed that the most important thing is the health and care of all Chileans, which is why they pick up the government’s call to companies to reduce the mobility of their workers and promote teleworking.

While, copper closed the day with a rise of 0.70% on the London Metal Exchange, which placed the red metal at $ 4.123 a pound. Conversely, the dollar stands at $ 718.7 with a drop of $ 10.6.

“If we see that inflation fears continue, we will probably see that the increases in bond rates continue and this will continue to push the dollar, which could take it above $ 720”, predicts the market strategist of XTB Latam, Sebastián Espinosa.

Europe rises

The Old Continent closed optimistically on Thursday after Fed Chairman Jerome Powell announced that inflation levels are still below the 2% target and that interest rates will remain low at least until 2023.

Regarding the effect of US Treasuries on the region, Bank of America Merrill Lynch European equity strategist Milla Savova told Reuters that they expect “more benefits for bond yields in response to the sharp acceleration in global growth, rising inflation and reduced monetary policy accommodation.”

“Combined with our expectations of a rebound in the Eurozone PMI and an increase in oil prices, this would imply about 15% more profitability above value versus growth at the end of the third quarter,” he adds.

In this session, the DAX was the protagonist when reaching new highs with a rise of 1.23%, which placed the Frankfurt index at 14,775 points, driven by the shares of automotive companies and banks that expect great growth due to the global economic recovery.

In the same line, the Euro Stoxx 50 climbed 0.46% to 3,867 points, the CAC 40 in Paris rose 0.13% to 6,062, and the IBEX 35 in Madrid gained 0.29%, reaching 8,624 points.

For its part, the FTSE 100 was up 0.25% after the Bank of England left interest rates unchanged, ensuring that the UK’s economic recovery is accelerating.

“That tells us that the bank is much more aligned with the Federal Reserve’s attitude towards recent market movements than with that of the European Central Bank.” ING developed markets economist James Smith told Reuters.

Market in Asia

Boosted by the announcements of the Fed’s monetary policy and the success of technology in yesterday’s session, Asian stock markets ended the session with significant gains.

Japan’s Nikkei 225 rose 1.01% to 30,216 points, as did the Topix Index, which was over 2,000 points with 1.23% growth.

As Pictet Asset Management strategist Takatoshi Itoshima told Reuters, “The Fed gave investors confidence by removing uncertainties in the rate outlook by committing to keep its interest rate close to zero.”

Finally, Hong Kong’s Hang Seng advanced 1.28%, while China’s CSI 300 and China’s Shanghai Composite climbed 0.80% and 0.51%, respectively.


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