Author: micillogabriel@gmail.com

US Treasury yields surged by up to 10 basis points, and the Chilean peso was the third-worst performing emerging market currency of the day.

On Monday, the dollar rose to $980 as retail sales in the United States increased more than expected, challenging expectations of monetary easing. Meanwhile, Iran’s attack on Israel over the weekend contributed to investor risk aversion.

The local exchange rate jumped by $8.45 to $979.55 – marking two-week highs – at the close of the market session, making the Chilean peso the third-worst performing currency of the day among emerging markets. In parallel, the dollar index rose by 0.15% to a new high since November, while Treasury bond yields surged by up to 10 basis points (bp).

In general, external geopolitical concerns add volatility to international markets, which will have a more amplified effect on the Chilean peso.

Brent crude oil recovered to $90 per barrel, erasing its initial decline of the day, while gold rose by 1.76% to new historical highs. Investors are watching for potential Israeli retaliation against Iran for the attacks carried out on Saturday, which were largely repelled.

Another factor is US consumption. The solid retail sales figures follow those of inflation and nonfarm payrolls, both of which were above expectations. These are clear indications that the US economy continues to perform well, which could lead the Federal Reserve to postpone interest rate cuts for a longer period.

The exchange rate rose despite the Comex copper rebounding by 2.54% to $4.37 per pound, its highest price in nearly two years. This is mainly in response to supply constraints, driven by new prohibitions from the US and the UK, preventing Russian commodities from trading on the London Stock Exchange and CME, thus avoiding acceptance of new production from Russia.

The Minister of Mining specified that if there is more than one interested party in an area, a bidding process will be carried out. On July 9th, information regarding which salares have attracted interest will be disclosed.

With the publication of the “Expression of Interest and Information Requirement,” the Ministry of Mining and InvestChile initiated today the process for private investors to declare their interest in exploring, exploiting, or processing specific salt flats (salares). Investors are asked to specify how much they intend to invest, what technology they will use, the timeframe for their operations, their origins, financial and stock market history, experience in the area, among other details.

According to the Minister of Mining, interested firms can submit inquiries until May 17th, which will be answered within a maximum period of 10 days from their formulation.

“What we are initiating is a process to express interest,” stated Minister Williams, which allows for determining “where there is a possibility of developing projects.”

The minister emphasized that these expressions of interest only cover 26 salares, representing 18% of the salt flat surface, as protected basins entirely or partially by the state or in the process of being protected are excluded.

The minister clarified that if there is more than one interested party, a bidding process will be conducted, and if there is an impact on indigenous communities, the relevant consultation will be carried out, which on average takes six months, after which the respective Special Lithium Exploitation Contracts (CEOL) will be processed. Williams indicated that such contracts would be ready or in process by the first quarter of 2025.

The minister detailed that the CEOLs will establish aspects such as technology, contract duration, production quantity, state compensation (lease fees and royalties), among other issues.

In turn, the Minister of Economy, Nicolás Grau, stated that the goal is to have three to five new projects in the country by the end of President Boric’s government, excluding Codelco’s projects in the Salar de Atacama, which will contribute to doubling the country’s lithium production.

The Chilean stock market was also retreating due to profit-taking following recent gains. Meanwhile, Wall Street was down 1.7%, with investors buying dollars, bonds, and gold as safe havens.

Tensions escalated on Thursday in the Middle East, prompting investors to sell stocks both in New York and Santiago. As a result, the latter stock market abruptly halted its recent advances, with a sell-off affecting its main stock index.

The Chilean S&P IPSA was down 2.39% at 6,565.53 points, potentially ending its streak of three consecutive record highs. SQM-B (-3.38%), Latam (-3.38%), and Enel Chile (-3.37%) led the losses, with all 29 IPSA stocks trading in the red. If sustained, the index would experience its worst trading day since October 30 of last year.

The local stock market suffered significant losses, aligning with the majority of international equity markets. The IPSA’s risk-off mode is attributed to increased geopolitical tensions in the Middle East, specifically the possibility of Iran attacking Israel.

On Wall Street, the Nasdaq Composite was down 1.55%, the S&P 500 retreated 1.67%, and the Dow Jones fell 1.22%. Bond yields declined, the global dollar strengthened, and gold reached new highs amid the flight to safety. Brent crude oil jumped 0.82% to $90.47 per barrel, reaching highs not seen since October.

Israel anticipates a direct attack from Iran, which could happen as soon as this Saturday, according to sources cited by Bloomberg. The situation in the Middle East is particularly concerning, especially as the world awaits Iran’s response to the recent attack on its embassy in Syria.

All of this unfolds amid ongoing uncertainty in the markets regarding whether the Federal Reserve will indeed lower interest rates this year. Additionally, shares of JPMorgan (-5.08%) were declining from their highs as they disappointed with their first-quarter results, with net interest income slightly below estimates.

The initial scenario predicted by the market for US monetary policy has shifted due to inflation data that exceeded expectations.

On Friday, the dollar surpassed $960 as investors worldwide sought refuge amid growing uncertainty about whether the Federal Reserve will actually lower interest rates this year. This is compounded by the fact that Israel is reportedly preparing for a direct attack from Iran in the coming days.

The local currency jumped $15 to $970.9 – session highs – on market quotations before noon, indicating a bullish weekly balance. Dollar purchases proliferated globally, with the dollar index rising 0.67% to 106 points, its highest level since early November 2023.

The dollar in Chile rose despite the fact that Comex copper climbed 0.46% to US$4.27 per pound, having reached a peak of $4.36 overnight after March trade balance figures in China, but losing momentum around noon.

Doubts about whether the Fed will cut rates this year are complicating the scenario further, after US CPI data showed signs of persistent inflation on Wednesday.

Furthermore, the fact that it is Friday and agents do not want to be exposed to possible geopolitical events over the weekend also influences. The dollar worldwide is responding to an escalation of geopolitical tension because if other countries enter the war between Israel and Hamas, this could escalate much more than we think. Indeed, investors are seeking refuge in the dollar and exiting equities.

Agents are also seeking refuge in bonds, causing interest rates to fall, and in gold bullion, pushing the metal to a new all-time high. Brent crude oil surged more than 2% to $92 per barrel due to potential supply constraints in a zone of significant producers.