Financial markets moderate morning losses, but declines continue

Mexico City. Financial markets in the Americas continue to post losses at mid-session. With markets already closed in Asia and Europe, Wall Street and the foreign exchange markets continue to post significant losses, although they have reduced them compared to the start of the session on Monday.

At mid-session, the Mexican peso fell from its initial price of 19.64 units to around 19.40 units per dollar.

Although the exchange rate in Mexico has already returned, the Mexican peso is the second most depreciated currency in the session, according to data from Banco Base.

The dollar index, which measures the dollar’s performance against a basket of six international currencies, fell 0.48 percent in mid-session trading at 102.497 units.

According to CIBanco’s analysis department, financial markets started the week with sharp falls due to speculation that the United States may enter an economic recession, after last Friday’s US employment data revealed that 114 thousand jobs were created in July and the unemployment rate rose to 4.3 percent, the highest rate since October 2021.

However, CIBanco considered that such a scenario seemed hasty and everything pointed to an exaggerated reaction.

Wall Street continues to trade at a loss. The falls continued in today’s session, with losses exceeding 4 percent in Apple and Nvidia, the main technology benchmarks.

In addition, after the Japanese stock market plunged 12.4 percent on Monday, the VIX index, also known as the “fear index,” has hit its highest level since the pandemic, rising more than 40 percent to 35 points.

The Nasdaq fell 3.18 percent, while the S&P 500 and the Dow Jones lost 2.67 and 2.29 percent.

The Mexican Stock Exchange, for its part, fell 1.03 percent, trading at around 51,702 units, where Cultiba fell 15 percent; Peñoles 5.03 percent; Bimbo, 4.15 percent; Grupo Carso, 3.77 percent or Banco del Bajío, 3.19 percent.

Pessimism was moderated by the announcement that the US ISM services index marginally exceeded expectations and was in expansion territory. However, nervousness about a possible recession has had an impact on risk aversion.

Oil prices are falling, with an eye on the Middle East and all the events of the last few hours. Brent is down 0.47 percent, at $75.45 per barrel; while WTI is down 0.56 percent, at $73.11.

Bitcoin’s fall stands out, with a reduction of 8.62 percent, trading at $53,700.

The other side of the coin

During a period of near-zero interest rates in Japan, large investors borrowed Japanese yen at low interest rates, converted them into U.S. dollars, and used them to buy U.S. stocks.

Now that the Bank of Japan (BOJ) raised its interest rate last week and is expected to rise further, the yen has strengthened significantly against the dollar.

Now, not only do these investors have to pay higher interest on the yen they borrowed, but they now also face huge foreign exchange losses. The dollar assets they hold may not be enough to repay the yen they have borrowed.

This has led to a faster sell-off in US stocks and even further declines in the short term. The escalation of the war in the Middle East and US political uncertainty are also increasing fear in financial markets, analysts predict.