Argentina Heads LatAm Market Gains; US Stocks Claw Back a Little

The Merval index led the gains in LatAm on Wednesday, while US stocks rebounded in late trading a day after hot inflation had sparked the biggest rout in more than two years

Argentina's Merval index led the gains in Latin America on Wednesday.
By Bloomberg News and Bloomberg Línea
September 14, 2022 | 08:36 PM
Reading time: 7 min.

A roundup of Wednesday’s stock market results from across the Americas

🥇 Argentina leads in Latin America:

Latin America’s stock markets closed with mixed results on Wednesday after Tuesday’s battering as risk aversion returned in response to disappointing inflation data in the US.

Argentina’s Merval index (MERVAL) recovered after Tuesday’s gains, with shares of Transportadora de Gas del Sur (TGSU2), Central Puerto (CEPU) and Pampa Energía (PAMP) among the best performers.

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During the day, investors weighed the local inflation figure, which registered a slight deceleration in August, reaching 7%, after an all-time high in July. The official report indicated that year-on-year inflation reached 78.5%.

Chile’s IPSA (IPSA) rose, boosted by the rebound of SQM/B (SQM/B) shares, which have the largest weight in the index. The company presented a $1.5 billion plan to reduce its impact on a salt flat in northern Chile.

The world’s second largest lithium producer will invest the money in developing technologies that will allow it to eliminate the use of subsoil fresh water, among other measures.

📉 A bad day for Colombia’s Colcap, Brazil’s Ibovespa:

Risk aversion generated by the rising cost of living in the US continued to have a knock-on effect on Latin America’s markets, where Colombia’s stock exchange saw the sharpest losses as investors weighed up declarations by President Gustavo Petro regarding a proposed pension reform that would change the way retirement funds are calculated, and which could affect private funds’ investments in the stock exchange.

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Mexico’s S&P/BMV IPC index (MEXBOL) closed lower también cayó arrastrado por el comportamiento de los sectores de materiales, servicios de comunicación y productos básicos de consumo.

Shares of Grupo México (GMEXICOB) and Grupo Financiero Inbursa (GFINBURO) suffered the sharpest losses.

Investors are waiting the next decision by the US Federal Reserve and the possibility of a recession in the US, according to Banorte analysts.

Brazil’s Ibovespa (IBOV) extended its losses from Tuesday, with the raw materials, consumer discretional and consumer basics sectors the worst performers.

🗽 On Wall Street:

US stocks rebounded in late trading a day after hot inflation sparked the biggest rout in more than two years, but the main indices only clawed back a little after Tuesday’s tumble.

After swinging between gains and losses throughout the day, dip buyers emerged to send the S&P 500 into the green at the close. Trading volume was about 20% above the 30-day average for the time of day, as investors weighed the Federal Reserve’s next policy steps.

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The S&P 500 climbed 0.34%, the Dow Jones Industrial Average 0.10% and the Nasdaq Composite (CCMPDL) 0.74%, clawing back a little ground after tumbling 5.15% on Tuesday.

The US dollar fell, while short-end Treasury yields edged higher.

The benchmark sank more than 4% Tuesday following a shock consumer-price figure that prompted investors to ratchet up wagers for interest-rate increases. Those jitters eased Wednesday after data showed producer prices fell for a second month. Retail sales due Thursday and University of Michigan readings Friday will be parsed for clues on the strength of the economy and inflation expectations.

Swaps traders are now pricing in a hike of three-quarters of a percentage point when the Fed meets next week, with some wagers appearing for a full-point move. The two-year Treasury yield, the most sensitive to policy changes, rose two basis points after jumping as much as 22 basis points Tuesday, pushing it more than 30 basis points above the 10-year rate. That deepened the curve inversion in what is generally a recession warning.

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“Investors are trying to figure out if yesterday changes anything, and that is a tug of war,” Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, said. “Everyone is waiting to see the next inflation data point and importantly hear what the Fed thinks next week. Friday’s University of Michigan is important from the inflation expectation outlook.”

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While the magnitude of Tuesday’s rout was impressive, the S&P 500 only reversed most of the gains made in the previous four sessions. The lack of a surge in the VIX index -- known as the “fear gauge” -- suggests that the selloff was a recalibration of those expectations rather than panic selling.

“The fact that the market was not able to break above its morning highs must be disappointing for the bulls,” said Matt Maley, chief market strategist at Miller Tabak & Co. “During the summer selloffs, the market always seemed to be able to bounce-back quickly. Since it hasn’t been able to do that today, some short-term traders seem to be backing away from the market a bit more.”

“People with a plan don’t panic -- so in days like yesterday where volatility is at extremes, good investors and good advisors are looking for opportunity,” Tom Mantione, private wealth advisor at UBS Financial Services, said on Bloomberg Radio, noting Wednesday’s PPI report was “constructive.”

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“I kind of think the Fed may be overdoing it here a little bit. Maybe we need to let this play out a bit,” Mantione added.

Corporate news

Verizon Communications Inc. fell after signaling another weak quarter in terms of new subscribers while Twilio Inc. rose after the maker of customer communication and marketing software said it will cut about 11% of jobs and restructure the company. California sued Amazon.com Inc., saying the company forces third-party merchants to agree to policies that lead to “artificially high prices” for consumers.

Natural gas futures surged the most among major US-traded commodities as hot weather forecasts and a looming rail strike added to concern about tight supplies ahead of winter.

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The Stoxx Europe 600 index slipped almost 1%, extending Tuesday’s 1.6% drop. Utilities were the among the worst-performing sectors as the European Commission considers plans to contain the energy crisis, which may include revenue caps.

The yen pulled back from a slide toward the key 145 level versus the dollar after a Nikkei report that the Bank of Japan conducted a so-called rate check with traders to see the price of the currency against the greenback. The finance minister warned he wouldn’t rule out any response if current trends continued. The country’s 10-year bond yield rose to 0.25%, the upper end of the central bank’s policy band.

On the currency markets, the Bloomberg Dollar Spot Index fell 0.2%, the euro was little changed at $0.9979, the British pound rose 0.4% to $1.1540 and the Japanese yen rose 1% to 143.19 per dollar.

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🔑 Key events of the day:

Oil prices rebounded after yesterday’s drop, caused by the inflation data in the United States, after China, the main importer of the raw material, began to relax lockdowns imposed to curb the spread of Covid-19.

Authorities in the city of Chengdu, which had imposed a two-week lockdown, announced that they had controlled the spread of the virus and will begin to relax restrictions in seven districts from midday Thursday.

Prices were also supported by news that the US may start buying more crude once the WTI benchmark falls below $80.

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Joe Biden administration officials, quoted by Bloomberg, explained that the aim would be to top up the country’s strategic reserves, which are now at the lowest level since 1984.

“Crude oil prices look set to rise further now that the White House is focused on refilling reserves and not further tapping them,” said Edward Moya, an analyst at Oanda.

However, the market still faces risks going forward. The International Energy Agency estimated that China’s oil demand will see its biggest drop in three decades and that global consumption will rise by 2 million barrels per day this year, less than its previous forecast.

“For now, a deteriorating economic environment and recurring Covid-19 confinements in China continue to weigh on market confidence,” the agency said in the report.

🍝 For the dinner table debate:

The Covid-19 pandemic is nearing an end, the head of the World Health Organization (WHO), Tedros Adhanom Ghebreyesus, said during a press conference on Wednesday. The official adopted a more optimistic tone after saying that there has never been a “better position” in the fight against the virus.

According to the WHO head, last week saw the lowest number of Covid-19-related deaths in the world since March 2020. However, he called on countries to encourage the use of vaccines, particularly in older and at-risk population.

Future waves of infections need not translate into waves of deaths, added Maria van Kerkhove, WHO’s chief technical officer for Covid-19, Bloomberg reported.

The organization declared the virus a pandemic on March 11, 2020, and so far, nearly 6.5 million deaths and more than 606 million infections have been recorded.

-- Carlos Rodríguez Salcedo, a content producer at Bloomberg Línea, and Stephen Kirkland of Bloomberg News, contributed to this report.

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