Argentina Leads LatAm Market Gains; US Stocks Recover

Argentina’s MERVAL index advanced 1.43% on Wednesday, while the NYSE broke a two-day run of losses

People pass in front of the entrance sign to the Buenos Aires Stock Exchange in Buenos Aires, Argentina. Photographer: Diego Giudice/Bloomberg
By Bloomberg Línea and Bloomberg News
August 03, 2022 | 06:00 PM

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

👑 Argentina Out Front:

Argentina’s stock market led a mixed day for Latin American markets, together with the main stock market indexes in Brazil and Mexico.

The Merval (MERVAL) closed the session with an increase of more than 1%. The shares of Pampa Energía (PAMP), Edenor (EDN) and Cresud (CRES) stood out during the day.

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Argentina’s newly appointed Economy Minister Sergio Massa faces inflation estimated to reach 90% this year, lack of progress on the $44 billion agreement with the International Monetary Fund and withdrawals by Argentines of $1 billion from bank accounts in the last month.

Brazil’s Ibovespa (IBOV) closed the session higher with the impulse of the main indexes in the United States.

The fall of Vale (VALE3) and Gerdau (GGBR4) shares on a day of losses for iron ore prevented further increases in the index. However, the advance of Cielo (CIEL3) shares helped on the positive side, after the publication of second quarter results above market analysts’ expectations.

Gains were also the order of the day for the Mexican stock market with the health, finance and materials sectors boosting the S&P/BMV IPC (MEXBOL).

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📉 A Bad Day for Chile:

Chile’s stock market registered the sharpest losses on Wednesday, despite the optimism generated by gains on the US markets, with the IPSA (IPSA) index ending the day with a fall of 0.81%, dragged down by the performance of the non-basic consumer products, materials and finance sectors.

The decline of Sociedad Química y Minera (SQM/B) weighed especially on the index, with a fall of more than 2%. The shares of Banco de Chile (CHILE), Falabella (FALAB) and Itaú (ITAUCORP) added to the day’s losses.

Falls by shares in Sociedad Química y Minera (SQM/B), which dropped more than 2%, weighed on the index, while shares in Banco de Chile (CHILE), Falabella (FALAB) and Itaú (ITAUCORP) also had a negative effect.

During the day, Chile’s Finance Minister Mario Marcel assured that he does not expect to see significant reductions in inflation until the last quarter of the year.

“Only toward the end of the year will we begin to see this (inflation) decrease as a result of the monetary policy that the Central Bank has been applying, and also of the normalization of the exchange rate”, he said in a press conference.

🗽 On Wall Street:

US stocks snapped a two-day decline on Wednesday as corporate earnings and economic data came in better than expected. Treasuries trimmed losses as traders priced in further interest-rate hikes from the Federal Reserve.

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Solid reports from Moderna Inc. and PayPal Holdings Inc. pushed the Nasdaq 100 up as much as 3%, taking it to a level last seen in May.

The S&P 500 closed up 1.56%, the Dow Jones Industrial 1.29% and the Nasdaq Composite (CCMDPL) 2.59%.

“The economy doesn’t look at all bad after the solid gains by Moderna (MRNA), Gilead Science (GILD), CVS (CVS), Electronic Arts (EA), Starbucks (SBUX) and SoFi (SOFI)”, Edward Moya, an analyst at Oanda, said.

“Now that we’re 70% through the earnings reporting season, we can clearly say that it’s not the earnings Armageddon that many had feared,” said Art Hogan, chief market strategist at B. Riley Wealth. “That’s important.”

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The Treasury 10-year yield pushed past 2.80% before falling to 2.70% later in day as investors recalibrated expectations for the Fed’s rate-hike path. Recent data also eased concerns of a broader economic slowdown as growth in the US services sector unexpectedly strengthened to a three-month high in July.

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Treasuries had rallied last week after Chair Jerome Powell signaled that the pace of future rate increases may slow later this year, boosting the odds for cuts next year in market-implied measures. But several Fed leaders have since said the central bank is far from done with tightening and remains laser-focused on tamping down price gains that are the hottest in four decades.

“If there is a change in tone by Fed members, it is similar to a parent that is finally telling the kids that you’ve had enough candy, no more,” wrote Peter Boockvar, chief investment officer at Bleakley Financial Group. “For decades the Fed always gave the markets more candy, especially when the kids cried out for it. Now, the kids are going to have to do without as long as inflation is at the very unsatisfactory levels that it’s pacing at, even with an expected fall.”

Markets are also somewhat calmer as US-China tensions simmered after House Speaker Nancy Pelosi left Taiwan. Her visit had provoked an angry response from China, and markets were on the edge ahead of her arrival on Tuesday.

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US stocks roared back on Wednesday after a session of many twists and turns the previous day. But equities trading doesn’t reflect the headwinds confronting the market, according to Goldman Sachs Group Inc. strategist Sharon Bell.

“There’s a little bit of complacency in there and markets are not fully taking into account the risks,” Bell said in an interview with Bloomberg TV.

Thin liquidity during the summer lull also tends to magnify small market moves, said April LaRusse, head of investment specialists at Insight Investments.

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“Sometimes that can make it look more exciting than it probably really is,” she said.

The Cboe VIX Index also shows price swings are usually prevalent in the summer and early autumn. August and September are historically the two worst months for the S&P 500 Index.

Oil fell after a brief rally as traders mulled the lack of relief for oil markets and a poor demand outlook. The dollar pared gains after hitting a one-week high.

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🔑 The Day’s Key Movements:

Oil prices fell after signs came from the United States that gasoline demand is already starting to slow, amid high costs and signs of recession.

According to Energy Information Administration data, the four-week average of gasoline consumption is even below the summer of 2020 when mobility was reduced by Covid-19, Bloomberg reported.

Adding to falling demand in the United States, as it battles the highest inflation in decades, was the decision by OPEC and its allies to increase supply by just 100,000 barrels per day by September.

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The group of countries cited a slowdown in demand so the increase, according to Bloomberg calculations, is a small fraction of their total production and less growth than they have been adding in recent months.

🍝 For the Dinner Table Debate:

Inflation has become a headache throughout the world and Organization for Economic Cooperation and Development (OECD) countries are no exception.

The behavior of prices, at the end of the first half of the year, continues to show an upward trend and in June the organization’s average inflation figure reached 10.3% annually, the highest figure recorded for this month since 1988.

The performance has been affected by food and energy prices, which increased in most countries, the OECD said.

In the case of food prices, these registered a year-on-year increase of 13.3% in June, which represented the highest increase since July 1975.

In Latin America, the countries with the highest inflation levels for June were Chile and Costa Rica, with CPI variations of 12.5% and 10.1%, respectively. Slightly lower were Colombia (9.7%) and Mexico (8%).

-- Carlos Rodríguez Salcedo, a content producer at Bloomberg Línea, and Vildana Hajric, Isabelle Lee and Natalia Kniazhevich of Bloomberg News, contributed to this report.