Argentina Leads LatAm-Wide Losses; US Stocks Advance

Latin America’s markets closed with losses on Thursday despite gains in the US, although investors are still weighing the prospect of an encroaching recession

A YPF SA facility in Plaza Huincul, Neuquen province, Argentina.
By Bloomberg Línea and Bloomberg News
June 23, 2022 | 06:10 PM

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

📉 A Bad Day:

Latin American stock markets closed with losses for the second consecutive day on Thursday, as evidence mounts that a global economic recession is on the horizon.

Argentina’s Merval (MERVAL) saw the sharpest decline during the day after accumulating a drop of almost 3%.

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YPF (YPFD) shares were the hardest hit in the session, amid the contraction in the prices of the main raw materials. Transportadora de Gas del Norte (TGNO4) and Cresud (CRES) were also among the biggest losers.

Brazil’s Ibovespa (IBOV) was impacted by the fall of Vale (VALE3), Petrobras (PETR3; PETR4) and Gerdau (GGBR4) shares.

The Mexican stock market also closed lower, with the S&P BMV/IPC (MEXBOL) falling due to the poor performance of the raw materials, finance and communication services sectors.

🗽 On Wall Street:

US Treasuries rallied after another batch of economic data fell short of expectations, ratcheting up recession worries. American equities advanced as the decline in yields made stocks relatively more attractive.

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The S&P 500 ended almost 1% higher after waffling throughout the day, and is now up more than 3% in the past three days. The tech-heavy Nasdaq 100 (CCMPDL), whose members have been more sensitive to the rise in bond yields, jumped 1.5%. The 10-year yield fell back below 3.10% just nine days after spiking to within a whisker of 3.50%. Commodities from oil to copper remained under pressure as signs of waning demand mounted.

Data on Thursday did little to boost sentiment about a global economy battered by a flurry of central bank rate increases. Jobless claims hovered near a five-week high, while manufacturing and services activity in the US cooled in June, lagging estimates and adding to worries the Fed’s efforts to fight inflation will upend growth.

Federal Reserve Chair Jerome Powell said in testimony to the US House that his commitment to bring down price increases is “unconditional,” a characterization he made at last week’s Fed meeting but one he omitted before lawmakers Wednesday. Fed Governor Michelle Bowman also said she supports raising interest rates by 75 basis points again in July, followed by a few more half-point hikes.

“It’s clear that the economy is weakening, and Wall Street is wondering if at some point the Fed will abandon its inflation-fighting approach. (...) Recession talk remains front and center, and that means any stock market rally will likely be short-lived,” said Edward Moya, an analyst at Oanda.

“With Chairman Powell finally acknowledging that while a soft landing is possible, however difficult, and that the Fed’s commitment towards curtailing inflation may lead the economy into a recession, the market is wavering between a growth scare and an all out recession,” Quincy Krosby, chief equity strategist at LPL Financial, said in a note.

The S&P 500 had risen more than 2% Tuesday on speculation after back-to-back weekly routs of more than 5% each had reset valuations in line with the Fed’s policy moves. Volatility remains elevated across assets, though, as economists debate whether the world’s largest economy is robust enough to withstand a Fed that looks poised to raise rates at least 50 basis points each at its next three meetings.

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“The problem is, if the Fed does pivot earlier than people thought it’ll only be because the economy is a lot weaker than people thought and the stock market is a lot lower than people thought,” said Matt Maley, chief market strategist at Miller Tabak + Co. “So people need to be careful about looking for a Fed pivot early. If the Fed pivots early it will be because we’re in really rough shape, and that’s not bullish.”

Traders are now starting to price out any action on rates beyond the December meeting with latest data showing an additional 175 basis points of hikes priced before that meeting.

The dollar was little changed. Powell, on Thursday, said that US debt is on an “unsustainable path” which could be a concern for the dollar over the long term. Bitcoin climbed back above $20,000. A digital dollar should be backed by the government, according to Powell, who rejected the idea of a private stablecoin during his testimony.

🔑 The Day’s Key Events:

Oil prices continue to lose ground, as the voices that point to the possibility of an economic recession hitting the demand for crude oil become stronger.

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The two main benchmarks, WTI and Brent, fell more than 1% and prices per barrel remain far below the $120 per barrel seen last week.

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On Wednesday, Federal Reserve Chairman Jerome Powell pronounced for the first time the possibility of a recession in the United States. He also insisted that the central bank is committed to reducing the highest inflation in decades.

The market will not receive this week’s U.S. inventory status update after the Energy Information Administration announced that a power outage damaged some of the agency’s hardware.

🍝 For the Dinner Table Debate:

Netflix (NFLX) continues to adjust its business in the midst of its cost-cutting strategy and as it tries to stop the outflow of subscribers. The company announced the layoffs of 300 employees, most of them in the United States and spanning virtually all areas of the company.

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“While we continue to invest significantly in the business, we made these adjustments to grow our costs in line with our slower revenue growth,” a Netflix spokesperson said in an email seen by Bloomberg.

“We are grateful for all they have done for Netflix and are working hard to support them through this difficult transition,” the statement read.

The streaming company reported in the first quarter of the year the loss of 200,000 subscribers and has since evaluated introducing advertising to the platform or starting to charge more for its users to share their account password.

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The layoffs announced Thursday are in addition to the 150 announced in May, citing a slowdown in its revenue. Netflix’s estimate is to lose two million subscribers by the end of second quarter.

-- Carlos Rodríguez Salcedo, a content producer for Bloomberg Línea, and Isabelle Lee and Enrique Roces Gonzalez, of Bloomberg News, contributed to this report