Interest Rates and Recession Fears Push Metals Down

June 23, 2022 | 5:00 pm

The Mexican Stock Exchange (BMV) marked its second day in the red, posting its lowest level since March 2021, trailing miners such as Penoles Y Mexico Group to a losing close, as metals tumbled on rising interest rates.

In this way, the Price and Quotation Index (CPI) of the BMV ended the day with a drop of 1.03%, to 46,657.88 points, marking its lowest level since March 5, 2021, according to data from investing.com.

The companies that led the losses they were Peñoles, with a drop of 8.67%, its biggest drop since March 14; and Grupo México, with a drop of 5.71%, the highest since July 30, 2021.

InbursaQualitas Controllera and Alfa also joined the losing close.

SAT influences the fall of miners

Ivan Santinan independent analyst, shared with THE CEO that said drop in Mexican mining companies also resulted after the SAT reported the results of the tax evasion studies carried out in 2021, where evasion in the mining industry.

Through a statement from the Ministry of Finance and Public Credit (SHCP) in conjunction with the SAT, it was reported that the Autonomous University of Coahuila (UAC) analyzed the possible evasion of the Income Tax (ISR) of the mining sector, which is estimated to be for an amount that oscillates in the 19,000 million pesos, representing 89.6% of the total collection (21,000 million pesos) of the mining sector, excluding the extraction of gas and oil, in the period from 2016 to 2019.

It was detected that this possible evasion is carried out when mining companies disguise investments in extraction as an expense or reclassify it, in order to increase their deductions and thus pay less taxes.

the statement said.

The subsectors identified with the greatest possible evasion were companies with extraction of silver, lead and zincand iron, which together represent 70% of the total estimated evasion, detailed the SAT.

Don’t stop reading: Financial and mining sector evaded taxes between 2015 and 2019: SAT

Copper closes at its lowest level since February 2021

For his part, the copper registered its lowest price in 16 months due to the concern of investors about a possible economic recession world.

At the close of the day, the metal It fell 5.10% to $3.7428 a pound, its lowest price since February 12, 2021.

The collapse also stemmed from the fact that the increase in interest rates from the Fed and weak economic data fueled concerns about demand.

On the other hand, the gold price it extended losses for a fourth consecutive session, falling 0.5%, to close at $1,829.80 an ounce, its lowest level in just over a week, FactSet data shows.

The price of gold fell on the possibility of higher benchmark interest rates in the United States. This is due to the fact that higher rates reduce the demand for gold, by increasing its opportunity costs.

Banco Base indicated in a note.

In the same way, the silver added to the decline of its peers by closing with a loss of 1.8%, at a price of 21,042 dollars per ounce, according to data from Market Watch.

What factors determined the drop in metals?

One of the main factors that determined the drop in metals is fears of a possible recession in the United States, given that the president of the Federal Reserve (fed), Jerome Powellmentioned on Wednesday that it is very difficult to achieve a moderate impact on the economy during the process of interest rate increases.

If the US economy falls into recession, the demand for gold could increase due to its function as a safe haven asset.

shared Banco Base.

Jerome Powell testified before Congress on Wednesday, announcing that the central bank plans to continue raising interest rates until you see clear evidence that inflation is slowing to its 2% target.

“An economic recession is certainly a possibility. We are not trying to cause a recession, but we do believe that it is absolutely essential to reduce inflation,” Powell said during the congressional hearing.

Meanwhile in Mexicothe Board of Governors of Banco de México (Banxico) went up in 75 basis points the interest rate for the first time in history, to place it at 7.75% in order to contain the inflation which is at its highest level in two decades.

Keep reading: US recession fears threaten global economy

With information from Reuters and MarketWatch