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Analysis: Market instability may be just beginning

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Vincent

The sharp fall in the stock market on Monday, which pushes the benchmark stock index Ibovespa close to the lows of the year, seems to be a movement of strong caution, but not yet of panic. For now, what seems to determine the fall of the Ibovespa is the sale of assets that were too stretched by investors who are waiting for two important events ahead: the maturity of $129 million in interests that need to be paid by Evergrande, the Chinese giant that could default; and the U.S. Federal Reserve meeting on Wednesday, when the market will know if there is a real risk that the U.S. interest rate hike will happen sooner than expected.If the market were in a panic, future interest rates would not be falling, and the real would be losing much more ground against the dollar. According to reports from market players, the negative movement that seems to be more concentrated in the stock market happens in an orderly way. But it can get worse. And therefore, the next events deserve a lot of attention.Before thinking about what’s behind this market downturn, it’s good to remember that analysts have been debating for some time whether the rise in stock and commodity prices had gone too far. And it seems that three important arguments to believe that, yes, it is necessary to correct the excesses, have emerged.The first is the slowdown in the Chinese economy, which directly impacts raw material prices. The second is the change, still very subtle, in the narrative of the large central banks, which are...

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