Argentina Heads LatAm Market Gains; NYSE Continues Downward Slide

Argentina’s Merval index closed 2,20% higher, while stocks slumped on Wall Street as investors await the Federal Reserve’s next move

Argentina's Merval index led the gains in Latin America on Tuesday.
By Bloomberg Línea
December 06, 2022 | 09:24 PM

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A roundup of Tuesday’ stock market results from across the Americas

👑 Argentina leads in Latin America:

Latin American markets closed mixed on Tuesday, with the sharpest gain for Argentina’s Merval (MERVAL), which rose 2.20% to recover some of Monday’s losses, while Colombia’s Colcap (COLCAP) gained 1.55%.

BBVA bank expects the Colombian economy to slow down to 0.7% in 2023 from the 8% estimated for this year’s auction, according to the Spanish financial institution’s most recent projections presented on Tuesday. It also expects the dollar to remain strong in the country until at least 2024.

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Brazil’s Ibovespa (IBOV) and Mexico’s S&P/BMV IPC (MEXBOL) rose 0.72% and 0.44% respectively.

📉 A bad day for Chile’s IPSA:

Chile’s IPSA (IPSA) dropped 0.66%, dragged down by the materials and real estate sectors.

The board of the Central Bank of Chile (BCCh) agreed on Tuesday to maintain the key interest rate at 11.25%. The interest rate will remain at its current level until the “state of the macroeconomy indicates that this process has been consolidated,” the monetary authority added in its decision.

Peru’s S&P/BVL (SPBLPGPT) dropped 0.40%, with the shares of Aenza S.A.A. (AENZAC1) and Cementos Pacasmayo S.A.A. (CPACASI1) falling 1.52% and 1.25%, respectively.

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🗽 On Wall Street:

US stocks with the heaviest short interest dropped 3.5% Tuesday, more than double the losses in the S&P 500, going by thematic baskets compiled by Goldman Sachs Group Inc. In what may be a sign bears are reloading, Russell 3000 shares with the highest quintile of short sales trailed those with the lowest more than 2 percentage points, according to data compiled by Bloomberg.

The retrenching came as a four-day slide dragged the S&P 500 back below its 200-day moving average amid concern that stronger-than-expected reports on the US labor market and services industry would force the Federal Reserve to stick to its aggressive pace of tightening to tame runaway inflation.

The S&P 500 notched up four days of losses, falling 1.44% on Tuesday to 3,941.26 points, below the 200-day average, while the Nasdaq Composite (CCMPDL) slid 2% and the Dow Jones Industrial Average 1.03%.

The renewed selloff is a vindication for hedge funds that, according to Wall Street’s major prime brokers, added to bearish wagers last week in the face of market gains. While prior bouts of rising bearishness like this have given way to short squeezes this year, this episode reflects growing angst ahead of next week’s inflation reading and Fed’s final policy decision of 2022.

“Few HFs see much upside at current market levels and are perhaps looking to trade the range,” JPMorgan Chase & Co.’s team including John Schlegel wrote in a note to clients Friday. “Positioning levels still appear fairly low on a longer-term basis (which could support a rally), but they’re not as low as they were at the end of September to argue that the market will keep shrugging off bad data points.”

While the S&P 500 is on track for just its second double-digit loss in 20 years, it’s been a rewarding time for bears. Down more than 40%, the Goldman basket of most-shorted stocks is poised for its worst annual performance since data began in 2008, a loss that essentially amounts to profits for those wagering against these shares.

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But reaping these gains would have required a strong stomach. Bear-market rallies have come time and again, including a 14% jump in the S&P 500 over the seven weeks through the end of November. Short sellers were forced to unwind a total of $53 billion of their positions in individual stocks last month alone, according to IHS Markit data compiled by Morgan Stanley’s sales and trading team. That’s the fastest short covering since at least 2018.

Yet the bears remain uncowed. On Wednesday when the S&P 500 surged 3% on Fed Chair Jerome Powell’s comments on a possible downshift in the pace of tightening, hedge funds tracked by JPMorgan stepped up their wagers against single stocks.

A similar pattern played out at Goldman, where hedge fund clients last week put up short sales at a rate that outpaced their long buying by a ratio of 1.5 to 1. At Morgan Stanley, fund clients increased shorts with the bulk of addition concentrated at the index level via exchange-traded funds and across technology and financial industries.

The boldness is paying off, at least for now. The Goldman’s basket of most-shorted stocks dropped more than 3% for two days in a row.

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From Morgan Stanley to JPMorgan, many Wall Street firms have seen their strategists calling for the S&P 500 to test its 2022 lows next year, citing everything from a looming earnings contraction to persistent Fed tightening.

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The bleak sentiment got another boost from Goldman’s financial-services conference Tuesday, where some Wall Street chiefs sounded alarms about consumer weakness.

It’s “a bit of a perfect storm near term,” said Dennis DeBusschere, founder of 22V Research. The “Fed looking at lagged data pushes up terminal rate at the same time companies are sounding worse and worse on growth outlook.”

🔑 The day’s key events:

Oil erased the gains of 2022 and fell to the lowest level since December 2021, on market fears about the recovery of global demand, erasing the effects that the cap on Russian crude imposed by the European Union could have on the market.

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On Tuesday, WTI crude oil fell 3.48% to $74.25 per barrel, erasing this year’s gains, and benchmark Brent plunged 3.62% to $79.69 per barrel.

Traders are “fleeing the market,” Ed Morse, global head of commodities research at Citigroup Inc, said in an interview with Bloomberg Television, explaining that it is due to the “absurd” price actions oil has experienced recently. “We’re approaching the end of the year, and those who made money this year didn’t want to lose any,” he added.

The oil market structure is at a point of “free fall,” Bloomberg said, with the US trading gauge at its weakest level in two years, pointing to ample supply in the near term.

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🍝 For the dinner table debate:

With debt service payments for the world’s poorest nations rising by about a third to more than $62 billion in 2022 from a year earlier, these costs will continue to divert resources away from health and education next year as interest on deferred payments accrues, the World Bank said.

Public debt reached record levels during the pandemic in both rich and poor nations, while total global external debt rose 5.6% to $9 trillion at the end of 2021 from the previous year. For the most fragile countries, high fiscal and debt vulnerabilities have undermined economic stability.

While the G20 forum of nations allowed the 48 poorest countries to defer $8.9 billion in May 2020 repayments under the so-called Debt Service Suspension Initiative (DSSI), which freed up funds to counter the effects of covid-19, the reprieve ended in December last year.

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“Payments scheduled for 2023 and 2024 could remain elevated due to high interest rates, principal maturity, and compounding of interest on the Debt Service Suspension Initiative deferrals,” the World Bank said.

Sebastián Osorio Idárraga, a content producer at Bloomberg Línea, and Lu Wang of Bloomberg News, contributed to this report.