Volatility in markets and dollar would follow next week

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Labor data better than expected in the US they triggered a ‘black’ week for the stock markets, commodities and currencies. The turbulence would continue, but it would settle down throughout the year

The publication of two solid macroeconomic data in the United States was enough for this week to be one of the most turbulent in the global financial markets since the financial crisis of 2008.

On Friday, February 2, the Labor Department of that country reported the lowest level of unemployment since 2001 (4.1% of the labor force) and wages growing at their best pace in eight years. These signs of labor market strength led markets to think that the Federal Reserve could raise its benchmark interest rate more quickly than expected.

This change in expectations caused sales waves of various assets, both in the US. as in the world. The main stock indices of Wall Street, the Dow Jones and the S & P 500, closed the week with decreases of over 5%, their worst results in two years. On the European and Asian stock exchanges, a similar pattern was seen.

The prices of raw materials also suffered losses. For example, copper and gold – key metals for the Peruvian economy – fell 5.77% and 2.44%, respectively.

Moreover, depreciation was seen in the currencies of the region. The exchange rate in Peru rose from S / 3.238 to S / 3.277, a rise as pronounced as the view during the turbulence caused by the vacancy request in December. Other currencies in the region, such as the Colombian and Chilean peso, followed the same path.

The trigger of the high financial volatility of the last week has not yet been completely internalized by the market, so the turbulence would be expected to continue, considered the global strategist at J.P. Morgan, Kerry Craig.

“The markets have not yet adjusted to the expectation that the Fed may raise its interest rate four times this year,” he said. This possibility is different from the path set out by Janet Yellen in her last meeting under the Federal Reserve, which envisaged three increases.

But not only the strength of labor data in the US. It would have affected the markets. For Juan Carlos Odar, executive director of Phase Consultores, part of the volatility has been caused by the uncertainty associated with how monetary policy could change with the new president of the FED, Jerome Powell.

Among all financial assets, there is one that has appreciated: the dollar. Jorge Estrella, central manager of Economic Studies of the Central Reserve Bank (BCR), considers that this is why the turbulence would be temporary.

“This means that investors have disposed of their stocks and bonds, and they are running on cash. That means that at any time they re-enter the market. When they see prices returning to their levels, they will return that cash to the markets, “he said.

Wednesday will be a key day for the financial markets: USA. it will reveal its latest inflation data and, if it is not aligned with market expectations, there could be more episodes of volatility.
However, there should be no more volatility throughout the year, Odar predicts. The economist anticipated that, after the meeting of the FED in March, the panorama should be clarified and volatility should moderate.

Meanwhile, Estrella pointed out that episodes of turbulence respond to technical factors, but the fundamentals of the world economy justify that commodity prices remain high, as well as stock indexes.

Finally, the BCR official assured that the monetary authority will be in charge of monitoring the foreign exchange market to reduce the volatility that could suffer.

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