Argentina Leads LatAm Gains; NYSE Closes Lower As Investors Fear Fed Tightening

Brazil’s Ibovespa closed higher despite the post-election tension, while US markets dropped as investors await Wednesday’s Fed meeting

Photographer: Michael Nagle/Bloomberg
By Bloomberg Línea and Bloomberg News
November 01, 2022 | 09:00 PM

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

👑 Argentina leads in Latin America:

Latin American markets closed with gains on Tuesday, with Argentina’s Merval (MERVAL) and Mexico’s S&P/BMV IPC (MEXBOL) leading the gains.

The Merval gained 2.04%, with the shares of YPF S.A. (YPFD), Banco BBVA Argentina (BBAR) and Grupo Financiero Galicia (GGAL) gaining the most.

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Analysts’ good forecasts for YPF are boosting the company’s shares, and it is estimated that it could reach pre-pandemic values of around $9 a share in the short term.

Shares on the Mexican exchange with the strongest gains were Qualitas Controladora (Q*), Grupo Bimbo (BIMBOA), and Industrias Penoles (PENOLES).

Brazil’s Ibovespa (IBOV) closed 0.77% higher, driven by the performance of the commodities sector. The index accelerated gains around 14:40 (Brasilia time) on the news that President Jair Bolsonaro called the press to make his first statement after his defeat in the presidential election and rose as much as 1.9%.

The shares of Companhia Paranaense de Energia (CPLE6), CSN Mineracao S.A. (CMIN3 and Grupo São Martinho (SMTO3) boosted the index’s upward thrust.

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🗽 On Wall Street:

US stocks closed lower on Tuesday as data showing a solid US labor market bolstered speculation that Federal Reserve policy could remain aggressively tight even with the threat of a recession.

At a time when good news is considered bad news when it comes to policy conjectures, the S&P 500 wiped out a rally as the figures highlighted an unexpected rebound in US job openings, which may keep the pressure on the Fed. It was the 26th time in 2022 that the equity gauge erased a gain or loss of at least 1% in one session -- the most for any year since the financial crisis.

The S&P 500 dropped 0.75%, the Dow Jones Industrial Average 0.24% and the Nasdaq Composite (CCMPDL) 0.89%. The Dow Jones Industrial Average traded near a resistance level that saw the index halt a few rally attempts in the past few months.

Apple Inc. (AAPL) shares dropped almost 2% while Amazon Inc’s (AMZN) value ended trading below $1 trillion for the first time since 2020.

After the close, Advanced Micro Devices Inc. topped earnings estimates and signaled that inroads in the lucrative server chip market will continue to bolster its finances.

Two-year US yields -- which are more sensitive to imminent Fed moves -- topped 4.5% after sliding as much as eight basis points earlier in the day.

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“Hopes for a Fed dovish pivot are misplaced if today’s job openings are any guide,” said Ronald Temple, head of US equity at Lazard Asset Management. “Despite other signs of economic deceleration, the job openings data taken together with nonfarm payroll growth indicate the Fed is far from the point where it can declare victory over inflation and lift its foot off the economic brake.”

Friday’s jobs report is currently forecast to show US employers added about 196,000 workers to payrolls in October. Economists are expecting the unemployment rate to edge up to 3.6%, and for average hourly earnings to post another solid advance.

Former Treasury Secretary Larry Summers said in a tweet that the “growing chorus” for the Fed to pause interest rate hikes very soon is “badly misguided.” He added that this is “consensus of economists who have a track record, since COVID, of being dismally wrong on inflation.” Summers also noted that the Fed should “stay on the current course and then evaluate things.”

To Matt Maley at Miller Tabak + Co., a lot of what will take place in markets over the next few weeks will hinge upon Powell’s signals on Wednesday as well as the subsequent Fedspeak. Tom Porcelli at RBC Capital Markets says that if the Fed’s boss really wants to transition to shallower hikes, he should maintain some element of hawkishness as there’s a “decent risk of creating confusion.”

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“As we have not yet reached the peak for Fed rate hikes, it’s highly unlikely that we’ve already seen the bottom of this bear market, especially given the history of Fed rate hikes peaking before the market troughs,” noted Seema Shah, chief global strategist at Principal Asset Management. She anticipates the market floor for this cycle will most likely be reached in the first or second quarters of 2023.

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For now, Shah sees both market and inflation volatility persisting alongside further Fed rate hikes in the last few months of 2002 and into early next year.

Lauren Goodwin at New York Life Investments says she believes the Fed may pause its rate hikes soon even amid strong inflation. Financial conditions have tightened substantially, and recession should be considered a base case, she added.

“Let me be clear -- a Fed pause is not the same as a pivot,” Goodwin added. “Certainly, deteriorating economic and credit conditions could cause the Fed to pivot modestly at some point, but a full pivot into accommodative territory is highly unlikely in the next year.”

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Also weighing on market sentiment was a report showing US manufacturing neared stagnation in October as orders contracted for the fourth time in five months, while an index of prices paid fell to a more than two-year low. The figures added to evidence of recession concerns as central banks step up the fight to get inflation under control.

Earlier in the day, speculation that China is preparing to gradually exit the stringent Covid Zero stance helped boost equities. A gauge of the nation’s stocks listed in Hong Kong surged almost 7% intraday. Shares pared gains after Chinese Foreign Ministry spokesman Zhao Lijian said he’s “not aware” of a committee on ending the policy.

On the currency markets, the Bloomberg Dollar Spot Index fell 0.2%, the euro was little changed at $0.9878, the British pound rose 0.1% to $1.1483, and the Japanese yen rose 0.3% to 148.19 per dollar.

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🔑 The day’s key events:

Oil prices rose again on Tuesday, after two consecutive sessions of losses, amid speculation that Beijing is preparing to phase out restrictions on its Zero Covid initiative, which has battered the country’s economy, although China’s Foreign Ministry has said it is unaware of such a plan.

West Texas Intermediate (WTI) for December delivery rose 2.1%, settling above$88 a barrel. Brent for delivery in January also closed higher, close to $94.

In addition to the possibility of China removing its restrictions due to the pandemic, the weakening of the dollar also favored prices, since raw materials quoted in that currency are more attractive to buyers.

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“Potential changes in China’s Covid policy, real or speculated, will create volatility in crude trading,” said Rebecca Babin, energy trader at CIBC Private Wealth Management. But she warned that if “investors thought China was changing its Covid policy, the move higher would be much more significant.”

Although oil is down nearly a third since early June, futures ended October higher, the first monthly gain since May, boosted by OPEC’s production cut deal. The group’s Secretary General Haitham Al Ghais said Monday that the cuts were necessary because economic uncertainty would lead to oversupply.

🍝 For the dinner table debate:

President Jair Bolsonaro broke his silence two days after losing the presidential elections on Sunday.

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Bolsonaro thanked the 58 million voters who voted for him and made reference to “peaceful” demonstrations in the first post-election statement after Sunday’s second round.

His brief speech, in which he did not mention the victory of Luiz Inácio Lula da Silva, was followed by a comment by minister Ciro Nogueira, who stated that the government will start the transition process after talks with Workers’ Party (PT) president Gleisi Hoffman.

“I was always called undemocratic, but I always played according to the Constitution,” Bolsonaro said. “I will continue to respect the Constitution,” he noted.

It took the president more than 40 hours to make a statement after Sunday’s results were made official by the Superior Electoral Court (TSE). Previously, Bolsonaro called some of his ministers, such as Paulo Guedes and Ciro Nogueira, and had invited the ministers of the Supreme Federal Court (STF) for a conversation. However, the court members turned down the invitation and said they will only go after the president acknowledges his defeat.

Leidys Becerra, a content producers at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.