Fed Chair Kevin Warsh stated the US economy strengthened since June while inflation trends showed little improvement. Warsh said he has difficulty calling current financial conditions restrictive, signaling existing rates do not sufficiently restrain economic activity. Price stability has been a problem for more than five and a half years, he noted during the press conference. Beto Saadia, chief economist at Nomos, characterized the communication as clearly hawkish, with the “higher for longer” stance resuming dominance. The assessment was widely shared by the FOMC according to Warsh’s own words, reinforcing this is not an isolated position.
The decision occurred on the same day Brazil’s Copom was expected to cut the Selic rate from 14 percent to 13.75 percent annually, shrinking the interest rate differential between the two countries. Ricardo Trevisan, CEO of Gravus Capital, noted that for foreign investors part of the advantage of holding resources in reais disappears on the eve of a decisive election and with corporate credit under stress. The Copom loses room to accelerate the cycle and should continue deciding meeting by meeting with great caution in communication, Trevisan added. Thursday’s session will be defined by the communiqué rather than the cut itself, with expectations for a cautious central bank unwilling to commit to cycle continuation.
Petrobras PN shares fell 3.53 percent and ON shares dropped 4.27 percent tracking the 2.69 percent decline in Brent crude to $105.83 per barrel. The S&P 500 closed down 0.45 percent while the 10-year US Treasury yield reached 5.0205 percent from 4.996 percent previously. B3 data through September 14 showed foreign capital outflows continued, with net external balances positive at R$7 billion in the month compared with R$7.3 billion through September 11. Braskem shares plunged 15.17 percent after UBS BB downgraded the stock to sell and slashed the price target from R$10.50 to R$3.75, citing no easy exit from the company’s current scenario. Valor Econômico reported the petrochemical sent creditors more detailed terms for financial restructuring incorporating debt haircut provisions.
This article was curated and published as part of our South American energy market coverage.
