A roundup of Monday’s stock market results from across the Americas
👑 Argentina’s Merval leads in Latin America:
Latin American stock markets started the week trading mixed. Argentina’s Merval (MERVAL) was the indicator with the highest gains in the region for the second consecutive session, following the good mood of the US market. Specifically, the Argentinean stock market closed 3.09% higher.
Shares of Cresud (CRES), YPF (YPFD) and Grupo Financiero Galicia (GGAL) pushed the index higher.
Agustín Rossi will replace Juan Manzur as the government’s cabinet chief, and who until now was director of the Federal Intelligence Agency (AFI) and is also a former defense minister. He will take over the new role on February 15.
“Rossi is a well-known militant and political leader from Santa Fe, head of the block of deputies of the governments of Néstor Kirchner and Cristina Kirchner”, the Presidency said in a statement to the press.
📉 A bad day for Chile’s IPSA:
Chile’s IPSA (IPSA) saw the region’s sharpest losses on Monday, falling 0.49%. Shares of Empresas CMPC (CMPC), Colbun SA (COLBUN) and Empresas Copec (COPEC) saw the sharpest losses.
The hawkish turn at the latest Central Bank of Chile meeting and stronger-than-expected January inflation data have sent economists and traders scurrying to modify their views for policy rates in 2023, impacting market movements.
Just a few weeks ago, most analysts expected the bank to start cutting rates in April. The debate was more about how much they would cut. Now, however, expectations of a rate cut at the central bank’s next meeting in April and perhaps the May meeting as well have been removed.
Add to this that in late January, central bank president Rosanna Costa told Bloomberg that inflation remained “extraordinarily high.”
🗽On Wall Street:
US stocks ended Monday with broad gains after a survey showing Americans have drastically reduced their expectations for household income growth suggested that Tuesday’s consumer price data might not be as bad as once feared.
The S&P 500 added 1.1%, with every sector save energy in the green. The tech-heavy Nasdaq 100 rose 1.6% following its first weekly loss of 2023.
“The household income piece was positive (for stocks) in that it points to wage disinflation expectations,” he wrote, noting it was the largest one-month drop in the nearly 10-year history of the series.
The Nasdaq Composite (CCMPDL) gained 1.48% and the Dow Jones Industrial Average climbed 1.11%, its sharpest rise in a month.
A New York Federal Reserve consumer survey showed that one-year inflation expectations were little changed in January, which was “modestly reassuring” for Vital Knowledge’s Adam Crisafulli.
Oil prices, a key inflation component, fell on a report that the Biden administration plans to sell more crude oil from the Strategic Petroleum Reserve. West Texas Intermediate crude futures dropped below $80 a barrel.
Yet two-year Treasury yields rose to a new high for the year after climbing 23 basis points last week following the much stronger-than-expected January employment data.
Traders are reassessing how high US interest rates will rise this year, with inflation and jobs data looming later this week. This has fueled bets for the Fed rate to peak at 5.2% in July, up from less than 5% a month ago.
Equity indexes climbed Monday despite warnings from prominent strategists. JPMorgan Chase & Co.’s Marko Kolanovic said that investors should be in bonds since “a recession is currently not priced into equity markets.” The team led by Morgan Stanley’s Michael Wilson argued that US stocks are ripe for a selloff after prematurely pricing in a pause in Fed rate hikes.
“While equity and credit markets have priced a soft landing based on peaking short-term rates and inflation, we view recent action as another bear market rally, turbocharged by a surge in US dollar liquidity, weak positioning and short covering,” wrote Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “Furthermore, the rosy view is unconfirmed by other capital markets, with economic data reflecting complex crosscurrents from the extraordinary COVID reopening.”
Alexandra Wilson-Elizondo, head of multi-asset retail investing at Goldman Sachs Asset Management, thinks the market rally could have legs over the next few months.
“We’ve strongly believed that the handoff from goods disinflation to services was going to take time and that the Fed would have to remain in restrictive territory to do that,” she said in a phone interview. “And so we’ve maintained a cautious positioning in our portfolios, but we looked to real fundamental catalysts for those relative value trades such as the China reopening.”
Art Hogan, chief market strategist at B. Riley, said that equities’ positive moves Monday were due to investors seeing the glass as “half full.”
“There are more tailwinds than headwinds in this market right now,” he said in a phone interview. “There’s a lot more going right than going wrong and investors are reacting that way — at least today in front of the CPI report.
But Irene Tunkel, chief US equity strategist at BCA Research, says that concerns about inflation will soon be replaced by concerns about economic growth.
“The market is already celebrating a soft-landing, they’re celebrating the end of inflation,” she said in a phone interview. “But I don’t think that we are out woods yet because I think there is a narrow window between inflation turning and growth slowing in a more sort of acute way.”
In Europe, optimism over resilient economic growth pushed European equities higher. The Stoxx 600 index was lifted by construction, industrial goods and consumer stocks while energy and real estate underperformed.
India’s inflation rate of 6.5% breached the top end of the central bank’s target for the first time in three months. The yen weakened past 132 per dollar after whipsawing Friday following news reports that Kazuo Ueda would be picked to become the Bank of Japan’s next governor. Japan’s government is set to officially announce the nomination of the new BOJ governor on Tuesday.
Traders are also keeping a keen eye on geopolitical developments after the Pentagon shot down an unidentified object that it tracked over Michigan, according to US officials familiar with the matter. This was the fourth time in eight days a balloon or high-flying craft has been shot down over the US or Canada.
The Bloomberg Dollar Spot Index fell 0.2%, more than any closing loss since Feb. 7, the euro surged 0.4%, more than any closing gain since Feb. 1, the British pound surged 0.6%, more than any closing gain since Jan. 17 and the Japanese yen fell 0.8% to 132.41 per dollar.
🍝For the dinner table debate:
The US military had never shot down objects out of ts airspace until it brought down the Chinese balloon off the coast of South Carolina in early February. Now such incidents are happening practically every day.
The events have caused so much surprise (and even panic) that Pentagon officials were asked about it Sunday night while most of the country was watching the Super Bowl. One reporter went so far as to ask about the chances of the objects being extraterrestrial. “I haven’t ruled anything out at this point,” said Gen. Glen VanHerck, commander of the North American Airspace Defense Command.
Officials said they had begun to monitor the skies more closely in the days since the suspected Chinese spy balloon crossed US territory, triggering both a national uproar and a new round of tensions with China. The result was the downing of smaller objects over Alaska on Friday, northern Canada on Saturday and Michigan on Sunday.
“We have been keeping a closer eye on our airspace at these altitudes, including upgrading our radars, which may explain, at least in part, the increase in objects we have detected over the last week,” Deputy Defense Secretary Melissa Dalton told reporters.
Leidys Becerra, a content producer at Bloomberg Línea, and Isabelle Lee and Cristin Flanagan of Bloomberg News, contributed to this report.