A roundup of Tuesday’s stock market results from across the region
👑 Argentina leads in Latin America:
Latin American stock markets performed well on Tuesday, recovering part of the losses they had accumulated in the last two days. Argentina’s Merval (MERVAL) rose 2.38%, its eighth consecutive day of gains.
“The local stock market index has accumulated a gain of over 100% since the end of June, when it began an upward trend that seems to have no end, at least in the short term,” wrote Mauro Natalucci, account executive at Rava Bursátil, in a commentary on the Argentine stock market.
With similar results, Brazil’s Ibovespa (IBOV) ended the day up 1.96%, driven by commodity-linked stocks.
Opportunity, the local Brazilian hedge fund, said on Tuesday that the Brazilian real could weaken by up to 13% if President-elect Luiz Inácio Lula da Silva goes ahead with his costly spending plan. The currency could touch 6 units to the U.S. dollar, a scenario that would leave stocks vulnerable, said Marcos Mollica, portfolio manager at the fund.
Chile’s IPSA (IPSA) and Peru’s S&P/BVL (SPBLPGPT) both gained 0.71%, while Colombia’s Colcap (COLCAP) gained 0.59%.
📉 A bad day for Mexico’s BMV:
Mexico’s S&P/BMV IPC (MEXBOL) was the only one to fall on Tuesday, dropping 1.78%, after Grupo Televisa SAB (TLEVICPO) shares plummeted 5.27%, and Walmart de México SAB’s (WALMEX*) shares fell 3.57%.
Mexico’s Energy Minister Rocío Nahle informed that the country’s new oil refinery, Dos Bocas, will produce gasoline as of 2023, and which is currently undergoing safety testing.
🗽 On Wall Street:
US stocks pared most of their losses, with traders unwilling to make big bets ahead of Jerome Powell’s speech Wednesday. Gains in energy and financial firms tempered a slide in big tech. Amazon.com Inc. (AMZN), which is selling investment-grade debt, saw its shares slump, while Apple Inc. (AAPL) shares also dropped, by 2.11%. Trading volume was below the average of the past month. A gauge measuring the global yield curve inverted for the first time in at least two decades -- signaling a recession.
The Dow Jones Industrial Average managed a timid advance of 0.01%, while the Nasdaq Composite (CCMPDL) and the S&P 500 dropped 0.59% and 0.16%, respectively.
Powell is expected to cement expectations the Fed will slow its pace of hikes next month -- while reminding Americans that its fight against inflation will run into 2023. Some policymakers stressed this week they will raise borrowing costs further, with one key official saying that he sees rates heading somewhat higher than he had forecast just a couple of months ago.
“The Fed has hiked enough -- and quickly enough -- to make recession a base-case scenario in our book,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments. “Volatility and risk premia are likely to remain elevated as long as the Fed is fighting inflation in a growth slowdown.”
Goodwin also noted that equity earnings don’t usually begin to drop until an economic recession starts. That means equity market fundamentals “may still deteriorate,” she added.
Corporate America’s bloated margins are likely to start coming down in 2023 as certain expenses start to normalize, according to Goldman Sachs Group Inc.’s David Kostin. The firm’s strategists, along those at other banks including Morgan Stanley have been saying they see a slowdown in earnings growth next year.
Alicia Levine at BNY Mellon Wealth Management says that even in a shallow recession, S&P 500 companies can still see earnings declines of 20%.
“There is still risk here in the end,” Levine told Bloomberg Television. “This is the transition year. Next year is, ‘OK, now your rates are higher, what does it mean for the real economy?’ And that I think we really have not priced in.”
The Fed’s actions, stubborn inflation, the war in Ukraine and the outlook for corporate earnings “make for a tough tale to tell for the stock market over the next 12 months,” said Kevin Philip, partner at Bel Air Investment Advisors.
Last week, institutional clients and hedge funds poured money into stocks, while retail clients sold off for a fifth straight week -- with selling likely to continue through next month, according to Bank of America Corp. strategists led by Jill Carey Hall.
Recent flow momentum along with lack of “capitulation-like outflows” signal that investors believe the market has already bottomed. But BofA strategists say they see further downside risk ahead of a first half of 2023 bottom.
Several widely followed DeMark indicators, which try to anticipate momentum and long-term trend reversals, suggest the Cboe Volatility Index may be poised for a reversal.
History shows that the appearance of a “countdown 13″ pattern has led to turns in the past, with a cluster of such signals occurring at the more-recent lows. The so-called fear gauge last week fell to its lowest level since August as the S&P 500 advanced.
Meantime, former greenback bulls including JPMorgan Asset Management and Morgan Stanley say the era of dollar strength is ending as cooling prices spur markets to trim bets on further Fed tightening. That may spell buying opportunities for the currencies of Europe, Japan and emerging markets.
🔑 The day’s key events:
Regarding oil prices, WTI maintained its gains by advancing 1.24%, hitting $78.20 per barrel, in a market that is awaiting OPEC+’s next decision on its overall production, while Brent for settlement in January gained 0.61%, with a price per barrel of $83.70.
Along with the expectation for the OPEC+ meeting and the decision to be taken by the European Union on a price cap for Russian crude, oil prices had a brief positive impact on Tuesday after China signaled that it will boost vaccination against Covid-19 in older adults, amid an escalation of contagion cases and protests over the Covid-zero policy.
OPEC+ “does not like the contango and that is what has raised market expectations of deeper cuts. I don’t rule out deeper cuts, that’s of course on the table, but I would say that’s not our base case,” Amrita Sen, chief oil analyst at consultancy Energy Aspects, told Bloomberg TV.
On the currency markets, the Bloomberg Dollar Spot Index fell 0.1%, the euro fell 0.1% to $1.0326, the British pound fell 0.1% to $1.1947 and the Japanese yen rose 0.1% to 138.79 per dollar.
🍝 For the dinner table debate:
Global bonds joined US bonds in sending recession signals: a gauge that measures yields globally reversed for the first time in at least 20 years.
The average yield on sovereign debt maturing in 10 years or more has fallen below those between 1 and 3 years, according to a Bloomberg gauge. That has never happened in records going back to the turn of the millennium.
The inversion of the yield curve is often seen as a harbinger of the start of a recession, with investors shifting their money into longer-term bonds because of pessimism about the shorter-term outlook.
“Central bankers, paralyzed by inflation fears, will keep cash rates anchored in the tightening zone for longer,” said Prashant Newnaha, rates strategist at TD Securities Inc. in Singapore. “This will be a key catalyst for continued curve flattening.”
Sebastián Osorio Idárraga, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.
