A roundup of Monday’s stock market results from across the Americas
🌎 Brazil’s Ibovespa climbs 0.93%:
Latin American stock markets were predominantly up on Monday, with Brazil’s Ibovespa (IBOV) rising 0.93% to post the region’s highest gains, driven by the energy and industrial sectors.
In the last 10 trading sessions, Brazil’s main index has only closed negative on two days. Azul S.A. (AZUL4) shares were the best performer on Monday, gaining 3.93%. Likewise, Petrobras S.A. (PETR4) shares rose 2.63%.
Meanwhile, Chile’s Ipsa (IPSA) and Mexico’s S&P/BMV IPC (MEXBOL) had minimal increases of 0.25% and 0.16%, respectively, on a low trading day due to the national holiday in the United States.
The Council of the Central Bank of Chile opted to maintain the monetary policy rate (TPM) at its highest level in two decades, 11.25%, at its meeting on Monday, but has left the door open to the expected start of the cutting cycle because the decision was not adopted unanimously.
The bank’s vice governor Pablo Garcia and board member Stephany Griffith-Jones voted to reduce it by 50 basis points. Meanwhile, the president of the issuing entity, Rosanna Costa, and board members Alberto Naudon and Luis Felipe Céspedes.
Meanwhile, the S&P/BVL Peru (SPBLPGPT) fell 0.07%. The Argentine and Colombian markets were also closed due to national holidays.
🗽On Wall Street:
Stocks fell Monday as concern about the global economy and the path of rates sapped the strength of a blistering second-quarter rally.
A decline of 1% in Europe’s main equity gauge swept up almost every industry. Among the biggest individual movers, Sartorius AG slumped 15% after issuing a bigger-than-expected profit warning. In Asia, disappointed hopes for further stimulus pushed down Chinese tech companies.
With the path of rates increasingly uncertain, traders are vacillating between the lure of the rally and concern it’s exhausted and that the market has become overbought.
Wall Street’s rally has now erased more than a year of Fed-induced losses, with stocks, volatility and the dollar shaking off the impact of 10 rate hikes. The S&P 500 index just capped a fifth straight week of gains and is now higher than it was the day the Federal Reserve kicked off its campaign.
“Optimism, or maybe just squeezed pessimists, is perhaps the strongest theme in global markets right now,” Giles Gale, rates strategist at NatWest Markets, wrote in a note. “Inflation looks surprisingly well behaved despite the Fed’s weak protests.”
US stock and bond markets were closed Monday for a holiday. Futures contracts on the S&P 500 and Nasdaq 100 dipped 0.1%.
Looking ahead, Fed Chair Jerome Powell will give his semi-annual report to Congress on Wednesday. Federal Reserve Bank of St. Louis President James Bullard and his counterparts in New York and Chicago are also among this week’s speakers.
Policymakers at the Fed kept interest rates unchanged at their latest meeting but warned of more tightening ahead. The decision last week came with forecasts for higher borrowing costs of 5.6% in 2023, implying two additional quarter-point rate hikes or one half-point increase before the end of the year.
“Markets are still pricing in a lower path of interest rates compared to the Federal Reserve’s dot plot,” said Janet Mui, head of market analysis at RBC Brewin Dolphin. “While we are close to peak rates, it is uncertain how long rates will stay high. Markets have a more dovish lens on that.”
Elsewhere, short-term borrowing costs in the UK climbed to 5% for the first time since the global financial crisis amid concern the troubling inflation outlook could lead to more aggressive monetary tightening from policymakers.
Chinese tech companies fell, with Alibaba Group Holding Ltd, JD.com Inc., and Baidu Inc. all tumbling more than 3% to drag the Hang Seng Tech index down as much as 2.9%.
Investors had been primed for China’s cabinet to possibly announce fresh stimulus after a meeting on Friday, but it stopped short of releasing any specific proposals. The lack of tangible evidence for support adds to worries over a slowing economy, unnerving investors who had bid up Chinese equities last week in the hope of a sweeping package.
The Bloomberg Dollar Spot Index rose 0.2%, the euro fell 0.2% to $1.0918, the British pound fell 0.3% to $1.2777 and the Japanese yen was little changed at 141.96 per dollar.
🍝 For the dinner table debate:
Options traders have lowered their expectations for emerging market currency volatility to levels seen before Russia’s invasion of Ukraine in February last year.
Specifically, the JPMorgan Emerging Markets Volatility Index, a gauge of three-month expected swings, fell to 8.86% on Friday. It was the first time the gauge closed below 9% since the war in Ukraine and the lowest level for the indicator since October 2021.
The lower anxiety also signals optimism that the dollar’s downward trajectory will continue for the remainder of the year.
As the Federal Reserve takes a small pause in interest rate hikes and some developing countries halt them, money managers expect the global tightening cycle that began more than two years ago to peak and reverse.
Sebastián Osorio Idárraga, a content producer at Bloomberg Línea, and Cecile Gutscher of Bloomberg News, contributed to this report.