Argentina, Mexico Defy Latin American Markets’ Slump

Argentina’s Merval index led the gains, climbing 3.47, while Mexico’s index closed 0.10% higher, with the NYSE closed for Martin Luther King day

The Merval (MERVAL) gained 3.47% on Monday.
By Bloomberg Línea
January 16, 2023 | 07:14 PM

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A roundup of Monday’s stock market results

👑 Argentina’s Merval leads in Latin America:

Argentina led the gains in Latin America on Monday, a day on which the majority of the region’s markets closed lower. The Merval (MERVAL) gained 3.47%, buoyed by the shares of Banco de Valores (VALO), Cresud (CRES), Grupo Supervielle (SUPV) and Loma Negra (LOMA).

“The Merval remains unstoppable and starts another bullish week, surpassing the 250,600 basis points mark. The day’s volume traded in shares amounted to 3,044 million pesos and a little over 1.16 billion pesos in the Cedears market”, said analyst Fernando Staropoli of Rava Bursátil.

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📉 A bad day for Brazil’s Ibovespa:

In contrast, Brazil’s Ibovespa (IBOV) saw the sharpest drop on Monday, with Vale (VALE3), Ambev (ABEV3) and BTG (BPAC11) as the main negative weights on the index.

Investors continue to monitor the crisis of Americanas (AMER3), shares of which fell 38.41% today.

The exposure of banks and companies to contagion from the Americanas case has investors worried. Banco Bradesco (BBDC4), Banco Santander (SANB11), Itaú (ITUB4) and BTG are the financial institutions most exposed to the retailer’s loans, according to a Citi analysis released Monday.

Citi estimates that the financial impact on banks’ net income could range between 3% and 7% for Santander, BTG and Bradesco. In the case of Itaú and Banco do Brasil, the impact should range between less than 1% and 3%. The negotiation process of Americanas with creditors in the country and abroad will have a new representative: it will be the British financial group Rothschild & Co, according to the company.

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Also on the day’s agenda, the central bank’s Focus report pointed to higher interest rates this year. Economists consulted by the monetary authority revised upwards the Selic projections for December, from 12.25% to 12.50%. Inflation expectations also deteriorated: from 5.36% to 5.39% in 2023.

🗽On Wall Street:

The New York Stock Exchange remained closed Monday for Martin Luther King Day. A gauge of global equities stalled after its best start to a year in a generation as investors assessed whether the rally has gone too far given the outlook for inflation, growth and earnings. European stocks rose.

The MSCI ACWI Index was little changed after posting the biggest advance for the first two weeks in data going back to 1988. Futures on the S&P 500 and Nasdaq 100 indexes fell at least 0.2% each. US spot markets were closed for a holiday. European stocks were boosted by gains in real estate companies.

While inflation in the US appears to have peaked, aggressive policy tightening by the Federal Reserve and other central banks risks pushing the global economy into a recession that could hurt corporate profits. The World Bank last week added to the gloomy outlook, warning of “one of the sharpest slowdowns we have seen in the past five decades.”

“It’s been quite a frantic start to the year so investors may be capitalizing on the opportunity to catch their breath,” Craig Erlam, a senior market analyst at Oanda Europe Ltd., wrote in a note. “The question now is whether earnings season will enhance that new sense of hope or spoil the party before it really gets going. A bad earnings season could undermine hopes of a soft landing that looks more possible now than it has for many months.”

Earnings will be a key catalyst this week as traders assess whether companies were able to navigate headwinds including higher interest rates. The busy period will also be punctuated by corporate earnings, including Wall Street heavyweights Goldman Sachs Group Inc. and Morgan Stanley.

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The dollar snapped a three-day losing streak. The Bloomberg Dollar Spot Index rose 0.2%, the euro fell 0.1% to $1.0819, the British pound fell 0.3% to $1.2195, the Japanese yen fell 0.5% to 128.53 per dollar and the offshore yuan fell 0.5% to 6.7462 per dollar.

Several Fed officials will be speaking this week, providing more clues on their policy priorities. The World Economic Forum’s annual meeting kicks off in Davos, Switzerland, with speakers there including European Central Bank President Christine Lagarde and the International Monetary Fund’s Kristalina Georgieva.

Meanwhile, Japanese markets continued to be driven by speculation of a shift in monetary policy, with the Topix index trading lower as the yen’s rebound weighed on exporters.

Investors are on guard for another surprise from the Bank of Japan when it sets policy on Wednesday. The yen strengthened to levels last seen in May and Japan’s benchmark 10-year bond yield pushed above the top of the BOJ’s ceiling for a second day.

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Bitcoin fluctuated between gains and losses Monday, following a rebound over the weekend, when it surged amid optimism that it may have bottomed.

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🔑 The day’s key events:

Crude oil fell for the first time on Monday after eight consecutive sessions of gains. Trading volume today was lower than usual as US-based investors were away for today’s federal holiday.

In addition, a key report from the Organization ofPetroleum Exporting Countries (OPEC) is due tomorrow and the International Energy Agency (IEA) report is due on Wednesday. There are also expectations for comments that may come from the World Economic Forum in Davos.

West Texas Intermediate (WTI) for February delivery fell below $79 a barrel after rising more than 8% last week. While Brent for March settlement fell to $84 a barrel.

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Crude has had a volatile start to the year, collapsing in the first week of 2023 before recovering. China’s quick turnaround in Covid policy, a weaker dollar and expectations that the Federal Reserve may be coming to the end of its rate hike cycle are moving oil prices.

The drop in oil is “probably a temporary pause after a strong rally last week,” said Giovanni Staunovo, an analyst at UBS AG. This week’s market outlook from OPEC and the IEA “has the potential to support prices on stronger Chinese demand,” he said.

🍝For the dinner table debate:

The annual meeting of the World Economic Forum began in Davos, Switzerland on Monday, with warnings from executives and economists about the likelihood of a global recession this year.

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Of the 4,410 business leaders surveyed by PricewaterhouseCoopers LLP (PwC) in October and November 2022, 73% estimated that global growth will fall in the next 12 months. This is the worst figure since the survey began in 2011.

In addition, 40% of Davos business leaders expressed concern that their companies may not survive a decade from now. Another survey of chief economists released by the Forum found that two-thirds expect a global recession in 2023 as companies cut costs; 18% see such a recession as “extremely likely.”

Concerns are likely to feature heavily this week as more than 2,700 executives, bankers and economists head to the Swiss ski resort of Davos for the first time in January since 2020. While recent data has raised hopes that economies can still achieve a soft landing, last year’s spike in inflation and subsequent interest rate hikes by central banks have many bracing for a contraction in economies.

Sebastián Osorio Idárraga, a content producer at Bloomberg Línea, and Robert Brand and Srinivasan Sivabalan of Bloomberg News, contributed to this report.