:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/SJACNOUW4JGOVFXA6P33NPEMYQ.jpg "People pass in front of the entrance sign to the Buenos Aires Stock Exchange in Buenos Aires, Argentina. Photographer: Diego Giudice/Bloomberg")
A roundup of Tuesday’s stock market results from across the region
👑 Argentina’s Merval stays on top:
Latin America’s stock markets closed mixed on Tuesday, with the gains led by Argentina’s Merval index (MERVAL), which climbed 1.31%, with the shares of Transportadora Gas Norte (TGNO4), Central Puerto (CEPU) and Grupo Supervielle (SUPV) leading the gains.
The International Monetary Fund (IMF) announced Tuesday it will carry out a new technical review in Argentina in the next few days, after having started the evaluation in a hybrid format, as confirmed by Bloomberg Línea.
Sources of the multilateral organization highlighted that the work and communication continue smoothly and stated that the intention is that the technical team can continue with this task in the city of Buenos Aires during this week.
At the same time, the IMF anticipated that the Argentine authorities will visit the United States to finalize the conversions corresponding to the fourth quarter of 2022 and to negotiate a new disbursement for more than $5 billion.
📉 A bad day for Mexico’s BMV:
Mexico’s S&P BMV/IPC (MEXBOL) saw Latin America’s sharpest losses during Tuesday¡s trading, falling 1.32%, dragged down by shares of the communications and services sectors. Shares of Grupo Televisa (TLEVICPO), Banco del Bajio (BBAJIOO) and Industrias Penoles (PENOLES) had the sharpest declines.
The Citibanamex Expectations Survey, by unanimity of the analysts consulted, points to the Bank of Mexico (Banxico) raising the interest rate by 25 basis points at its next monetary policy meeting on February 9, to leave the benchmark at a level of 10.75%.
The market expects the central bank to raise the interest rate by 25 basis points, replicating the US Federal Reserve’s most recent hike.
🗽On Wall Street:
Stock traders bracing for Federal Reserve chairman Jerome Powell to push back against the powerful rally that led to a loosening in financial conditions didn’t really get that on Tuesday, with the market finding encouragement to move higher.
What the Federal Reserve’s chief said Tuesday wasn’t that much different from his remarks last week, noted JPMorgan Chase & Co.’s Michael Feroli. Powell basically highlighted that disinflation has begun, it has a long way to go and further hikes will likely be needed if the jobs market remains strong. When asked if he would have raised rates by 50 basis points in February, instead of the 25 basis points as officials did, Powell demurred.
“The important takeaway is that Powell had a chance to signal a shift to a more aggressive posture and he didn’t take it,” wrote Bill Adams, chief economist for Comerica Bank in Dallas. “In the near-term, the Fed will likely continue to make one (or perhaps two) more hike(s) before going on hold.”
After briefly falling as traders digested Powell’s remarks, the S&P 500 resumed its advance and halted a two-day slide that was driven mostly by overbought conditions. The tech-heavy Nasdaq 100 climbed over 2%, led by giants Microsoft Corp. and Apple Inc. The dollar fell alongside Treasury two-year yields, which are more sensitive to imminent Fed moves.
The S&P 500 halted a two-day slump and gained 1.29%, the Nasdaq Composite (CCMPDL) climbed 1.90% on the back of big tech share gains such as Microsoft Corp. (MSFT) and Google’s parent company Alphabet Inc. (GOOG), while the Dow Jones Industrial Average gained 0.78%.
“The bond bullish response in the US rates market indicated that Powell’s decision to set a tone that wasn’t particularly more hawkish than last week’s comments was a disappointment for those anticipating the payrolls print would have changed the messaging,” said Ian Lyngen at BMO Capital Markets. “Staying the course in this context underwhelmed a subset of investors hoping for a more aggressive response.”
Earlier Tuesday, Fed Bank of Minneapolis President Neel Kashkari said January’s strong labor-market report shows the US central bank would need to keep raising rates. “Right now I’m still at around 5.4%,” he told CNBC, referring to his forecast for how high rates need to go to bridle inflation. The Fed raised its benchmark to a range of 4.5% to 4.75% last week.
JPMorgan’s Feroli added that markets “shouldn’t expect the same degree of hand holding” from the central bank as it gets closer to the terminal rate as data will dictate its path.
Traders will also keep a close eye on Joe Biden’s speech to a joint session of Congress on Tuesday evening in light of renewed tensions with China and a brewing showdown with House Republicans over raising the federal debt ceiling.
For investors worried that stock prices are going to be pummeled by shrinking corporate profits, here’s a little bit of good news: the drop so far seems largely priced in.
With fourth-quarter results from more than half of the S&P 500 companies already in, earnings per share have fallen 2.8% from a year earlier, according to data compiled by Bloomberg Intelligence. That’s less than the 3.3% drop expected before earnings season began. The smaller-than-anticipated drop suggests that the profit contraction isn’t beginning as badly as once feared, lending support to share-price valuations.
“We continue to see broadening breadth and constructive price action to support further upside in equities,” said Craig Johnson at Piper Sandler. “Our short-term indicators suggest some areas may have rallied too much, too fast. However, we do not expect a significant reversal of the current YTD uptrend and view pullbacks and consolidations as buying opportunities.”
Still, as the Nasdaq 100 approaches a bull market and earnings estimates are trending down, valuations have swelled to expensive levels compared with real bond yields, posing a risk to the rally.
The tech-heavy benchmark’s forward price-to-earnings ratio has jumped to 24, the highest level since April, spurred by bets that inflation has peaked and the Fed will pivot soon. The move is at odds with the inflation-protected 10-year Treasury yield, which remains high on fears that stronger-than-expected economic data will keep the pressure on the Fed to stay hawkish.
On the currency markets, the Bloomberg Dollar Spot Index fell 0.4%, the euro was little changed at $1.0724, the British pound rose 0.2% to $1.2040, the Japanese yen rose 1.2% to 131.10 per dollar.
🍝For the dinner table debate:
Ecuador’s bonds plunged after voters unexpectedly rejected constitutional changes proposed by President Guillermo Lasso, weakening his market-friendly government and strengthening the socialist opposition.
With more than 98% of votes counted, Lasso is on track to fail on all eight proposed amendments, including one that would allow extradition of alleged drug traffickers to the United States. At the same time, allies of former leftist president Rafael Correa won broad support in local elections, including victory in the mayoralty of Guayaquil, one of the country’s largest cities.
The country’s dollar debt maturing in 2030 fell about 14 cents since Sunday’s vote to 56 cents, the lowest level since November, Bloomberg reported. The additional yield investors demand to hold the nation’s notes over similar U.S. Treasuries widened to more than 14 percentage points, according to JPMorgan Chase & Co.
Leidys Becerra, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.
