A roundup of Tuesday’s stock market results from across the Americas
👑 Brazil’s Ibovespa gains 4.21%:
Latin American markets closed with gains again on Tuesday for the second day, with Brazil’s Ibovespa (IBOV) posting the highest gains, up 4.21% at closing, boosted by the shares of Gol Linhas Aereas Inteligentes (GOLL4), Azul SA (AZUL4) and Hapvida Participacoes e Investimentos (HAPV3).
Brazil’s inflation slowed more than expected in March, reaching its lowest level since January 2021, as Congress prepares to debate the new fiscal framework proposed by President Luiz Inácio Lula da Silva’s government.
Data released Tuesday showed that year-on-year inflation was 4.65%, down from 5.6% in February and below the 4.71% estimated by analysts surveyed by Bloomberg. Month-on-month inflation slowed to 0.71%.
The country’s central bank has held its benchmark rate at 13.75% for five straight meetings in response to a deteriorating inflation outlook.
🗽On Wall Street:
US stocks lacked conviction, trading in a narrow range as investors braced for inflation data that could signal if the Federal Reserve will once again lift interest-rates.
The tech-heavy Nasdaq 100 slumped 0.7%, sliding for the fifth session of the past six, as traders mulled the likelihood of another rate increase in May. The S&P 500 skidded in the final minutes of the session reversing a 0.4% gain to end the day little changed. This year’s outperformers — namely mega-cap tech stocks — weighed on the benchmark. Yields on US government notes rose with the policy-sensitive two-year at 4.03%.
The Dow Jones Industrial Average gained 0.29%.
Cracks in 2023′s equity advance are appearing, as hedge funds and other speculators amass the deepest short position since November 2011 when the US sovereign credit rating was cut. Bank of America Corp. data showed investors were selling US stocks across the board for the past two weeks as investors position ahead of Wednesday’s closely watched inflation print.
“If inflation runs hotter than expected, it’ll undermine the idea that the Fed will be cutting rates aggressively by year-end, and that will leave markets susceptible to a pullback,” Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter wrote.
Friday will also kick off what’s forecast to be the worst earnings season since the depths of the pandemic crisis as some of the biggest banks in the US report.
Alicia Levine, head of investment strategy and equity advisory solutions at BNY Mellon Wealth Management, told Bloomberg Television that “earnings have to move lower.”
“Earnings estimates have barely budged in the last five weeks,” Levine said. “That doesn’t really pass the reality test.”
The Fed appears on track to keep raising rates despite recent bank strains, with resilient labor markets and higher oil prices holding sway for policymakers focused on their price-stability mandate.
Markets are pricing in a strong likelihood the Fed will raise borrowing by a quarter-point May 3 to contain inflation, after US payrolls rose at a firm pace last month and the unemployment rate dropped. Wednesday’s report on consumer prices, expected to show a 0.4% monthly increase in the core consumer price index, could cement the Fed’s rate path.
A scenario where the central bank halts rate hikes in May, which markets had briefly entertained last month as fragility in banks raised recession fears, looks increasingly remote.
After May, though, swaps are pricing in a pivot to easier policy. Traders predict rates will peak around 5%, with the Fed then cutting by roughly 50 basis points before the end of 2023.
New York Fed President John Williams said that one more increase to the target rate was a “reasonable starting place,” on Tuesday. The central bank’s newest member, Chicago Fed President Austan Goolsbee, counseled “prudence and patience” on monetary policy though he stopped short of calling for the government agency to pause.
“The Fed mantra has been once we get to the terminal rate, and that’s where the data dependency moves things around, but once we get to the terminal rate, we’re staying there for a while,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.
“If the bond market is right, then the equity market probably has not fully reflected those recession-type conditions to likely hit earnings beyond what we’ve already seen,” Sonders said in a phone call. “This idea that the Fed can not just pause but pivot, and that’s great for the stock market, to me that doesn’t make sense.”
For now, some asset managers say markets could be range-bound as the chances of an upcoming economic slump are weighed.
“We’re focusing on three areas to determine if the baton passes from rate hikes to recession,” said Saira Malik, chief investment officer at Nuveen pointing to the upcoming inflation report, a potential pause in rate increases after May, as well as recent recession indicators, including manufacturing and jobs data. “Even though the Fed may pause, we’re not in the camp that we will see rate cuts in 2023.”
Meanwhile, the International Monetary Fund trimmed its global growth forecasts citing the recent banking sector turmoil and Russia’s invasion of Ukraine. Bitcoin advanced for the fourth day, blowing past the key $30,000 level for the first time in 10 months.
Oil gained, with West Texas Intermediate trading above $80 a barrel. Gold rose to trade around $2,000 an ounce while the dollar fell.
The Bloomberg Dollar Spot Index fell 0.2%, the euro rose 0.5% to $1.0914, the British pound rose 0.4% to $1.2427 and the Japanese yen was little changed at 133.70 per dollar.
🍝 For the dinner table debate:
Twitter Inc. has ceased to be an independent company after merging with a new shell company called X Corp. sparking speculation about what Elon Musk intends for the social media platform.
Twitter “no longer exists” after merging with X Corp, according to a document filed April 4 in a California court over a lawsuit filed last year against the company and its former CEO, Jack Dorsey, by conservative activist Laura Loomer.
It is unclear what this change means for Twitter, which has undergone a thorough overhaul since Musk bought the company for US$44 billion last year. The billionaire owner suggested in the past that the Twitter purchase would be an “accelerant” to create “X,” which he called an “app for everything.” Musk tweeted about the move on Tuesday with the single character “X.”
The world’s second-richest man has expressed his desire for X to be similar to WeChat, a superapp owned by Tencent Holdings Ltd. (TCEHY) that is used for everything from payments and event ticket bookings to messaging.
Leidys Becerra, a content producer at Bloomberg Línea, and Carly Wanna and Emily Graffeo of Bloomberg News, contributed to this report.
