Worse to Come For Markets After Rout

Meltdown in European and Asian stocks beat up Mexican and Brazilian bourses Monday, but there may be worse to come. The Bovespa closed 6.6% weaker at 53,709 and the Mexican bolsa finished 5.35% softer at 25,285. The losses were driven by fears of US weakness, which is set to become more pronounced, according to analysis by BCP. “Unfortunately, we are in the early stages of the credit crisis,” says BCP. “Problems with the monoline insurers are now threatening the much larger municipal market,” it adds. A downgrade of AMBAC, and most likely MBIA, will heavily curtail many munis from gaining access to cheap credit, according to BCP. It adds that there are growing concerns about the future of the CDS market. “Serious problems lie on the horizon,” says BCP. “The credit contraction will take a long time to fully manifest itself, with the brunt of the pain to occur in 2009 – rather than in 2008,” it adds.