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🌎 Argentina’s Merval leads LatAm gains:
Latin American stock markets closed higher except for Colombia’s Colcap (COLCAP), which dropped 0.43%.
Colombia will manage to meet the fiscal rule targets, although the government’s debt burden is expected to increase by almost 40% next year, said President Gustavo Petro. The Colombian president said that in the 2024 draft budget to be delivered to Congress, public investment will increase by 10.5% to 95 trillion pesos, while the Administration reduces the primary deficit, in line with the fiscal rule.
Meanwhile, Argentina’s Merval (MERVAL) maintained its streak and rose 1.68%, boosted by the results of Banco BBVA Argentina S.A. (BBAR) and Banco Marco S.A. (BMA), which gained 4.0% and 3.5%, respectively.
The International Monetary Fund (IMF) will grant $10.8 billion in loans for the rest of the year as part of revisions to refinance a record $44 billion program with the cash-strapped country, according to people familiar with the matter.
Following this agreement, Moody’s Investors Service gave a lapidary forecast assigning a “very high probability” that the country will default in the next two years. “Meeting the new fiscal and reserve accumulation targets will be very challenging, suggesting that macroeconomic conditions will tend to continue to deteriorate until the end of the year,” Moody’s said.
Mexico’s S&P/BMV IPC index (MEXBOL) closed up 0.35% on Friday, driven by shares in the healthcare (+1.15%) and consumer staples (+0.78%) sectors.
The Mexican peso, the Colombian peso and the Brazilian real are positioned as the best performing currencies worldwide, according to Bloomberg data, and although their appreciation has helped to reduce inflationary pressures and encourage consumption, this strength could generate some problems in the region’s economy, according to Moody’s.
Chile’s IPSA (IPSA) and Brazil’s Ibovespa (IBOV) closed the last trading day of the week up 0.32% and 0.16%, respectively. The Lima Stock Exchange did not trade due to a national holiday.
🗽On Wall Street:
Wall Street shook off worries over the Bank of Japan policy tweak as another round of US data bolstered bets on the so-called Goldilocks scenario of an economy that’s neither running too hot nor too cold.
The stock market powered ahead as key gauges of inflation showed further easing while Americans grew more optimistic about the economic outlook. When taken together with recent figures showing the US has remained fairly resilient despite aggressive rate hikes, the reports fueled speculation the Federal Reserve will be able to avoid a recession.
It’s a week “chock full of economic data that all points to a higher probability of a soft landing,” said Gina Bolvin, president of Bolvin Wealth Management Group. “This could be the catalyst to send the market to new highs.”
Megacaps led gains in equities Friday, with the Nasdaq 100 up almost 2% and the S&P 500 rising 1% and notching its third straight weekly advance. Meta Platforms Inc. and Tesla Inc. each climbed more than 4%, while Intel Corp. rallied about 6.5% on a bullish sales forecast. Bond yields fell alongside the dollar.
Recession talk fades
Tech firms in the US are talking less about recession and more about artificial intelligence this earnings season — signaling that companies are increasingly optimistic about a soft economic landing.
Nearly half of the Nasdaq 100 firms have reported their results, and executives are less frequently using words like “headwinds”, “inflation”, and “recession” in calls with investors, according to a Bloomberg analysis. That’s a sharp reversal from last year, when such concerns drove steep equity losses.
With the macro environment being quite powerful right now, investors are buying the notion that the Fed has been able to bring inflation down without a recession, according to David Donabedian, chief investment officer of CIBC Private Wealth US.
“The market has had a trifecta of good news over the last few weeks,” Donabedian said. “Inflation is coming down, the economy is holding steady, and earnings thus far are coming in ahead of expectations. This is fueling a strong market environment and the rally continues.”
BOJ tweak
In what looked like a “sell the rumor, buy the news” episode, US markets saw a reversal from Thursday, when anxiety was running high before the BOJ decision. Governor Kazuo Ueda announced Friday the central bank would allow yields to rise above a ceiling it now calls a point of reference. That paves the way for a future normalization of policy that has implications for a wide range of global assets and markets heavily exposed to Japanese money.
Yields on 10-year Japanese government bonds jumped to their highest since 2014 as investors speculated whether this tweak was a precursor to more drastic changes for Japan’s ultra-easy monetary policy.
Any significant adjustment to the YCC policy would have implications for the Treasury market given that Japan households are one of the largest buyers of US debt, according to Dennis DeBusschere founder of 22V Research. The rationale is: if yields in Japan become more attractive, there could be selling of US government bonds to buy the Asian nation’s debt.
“But the actual YCC change was not as dramatic as feared,” he noted.
In corporate news, US regional lenders posted their longest streak of weekly gains since March 2021, bolstered by a merger deal for PacWest Bancorp. Procter & Gamble Co. rallied Friday as the maker of Gillette razors reported earnings that beat estimates. Ford Motor Co. slipped as it expects to see losses from electric vehicles hit $4.5 billion this year. Exxon Mobil Corp. retreated as it fell short of analysts’ expectations with a third straight drop in profit.
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.4% to $1.1022
- The British pound rose 0.5% to $1.2857
- The Japanese yen fell 1.1% to 141.07 per dollar
🍝 For the dinner table debate:
Sixty-two percent of people surveyed in 29 markets by Ipsos believe their country was on the wrong track in July, compared to 38% who believed the opposite, remaining stable compared to the results of the previous month’s report.
The What Worries the World report shows that the top global concerns are inflation (38%), followed by crime and violence (31%), poverty and social inequality (30%), unemployment (26%) and financial and political corruption (26%).
Ipsos highlights that inflation has been the top global concern in the survey for the past 16 months. However, the level of concern about inflation reported in July is the lowest of the year.
Sebastián Osorio Idárraga a content producers at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.
