A roundup of Wednesday’s stock market results from across the Americas
🌎 Argentina’s, Brazil’s markets close higher:
Latin America’s stock markets closed mixed on Wednesday, with Argentina’s Merval (MERVAL) gaining 5.01%, having returned to work following a long-weekend holiday since June 16.
The Merval climbed to position itself following the holidays, with shares of Argentine companies gaining up to 9% on the NYSE, with bonds also seeing important gains.
The shares of Edenor S.A. (EDN) climbed 17.37% and those of Cresud S.A. (CRES) 12,85%, while banking shares also saw a strong day, according to Fernando Staropoli, an account executive at Rava Bursátil.
Brazil’s Ibovespa (IBOV) also closed higher, gaining 0.67%, while the rest of the region’s markets closed lower.
Colombia’s Colcap (COLCAP) dropped 0.80%, dragged down by the shares of Grupo Argos S.A. (GRUPOARG), which fell 5.55%, and those of Grupo de Inversiones Suramericana S.A. (GRUPOSUR), which closed 4.38% lower.
Colombia could begin to soften its monetary policy over the next three months as inflation cools and the peso stabilizes around its current rate, Finance Minister Ricardo Bonilla told Bloomberg.
Peru’s S&P/BVL (SPBLPGPT) dropped 0.06% and Mexico’s S&P/BMV IPC (MEXBOL) 0.56%, while the Chilean stock exchange remained closed for National Indigenous Peoples’ Day.
🗽On Wall Street:
US stocks slid after a renewed warning from Federal Reserve Chair Jerome Powell that higher rates would be needed to combat inflation, thwarting bets that the US central bank was nearing the end of its tightening cycle.
The Nasdaq 100 has slumped more than 2% over the past three sessions. AI and chipmakers were weak with Intel Corp. and Avanced Micro Devices Inc. falling around 6% on Wednesday. The tech-heavy benchmark and the S&P 500 Index notched three-day losing streaks, the longest since early May. Two-year Treasury yields, considered the most sensitive to interest rates, rose to 4.7% following a bounce on a strong 20-year bond auction.
Fed Chair Jerome Powell reiterated that higher rates are needed to combat inflation in his semi-annual report to Congress. Two more rate hikes this year is “a pretty good guess,” he said, while backing the central bank’s 2% inflation target.
Policymakers kept interest rates unchanged at their meeting last week, their forecasts imply around two additional quarter-point rate hikes or one half-point increase. Since then, money markets have been attaching roughly 80% odds to a quarter percentage point hike in July.
“Powell really was consistent with his messaging to Congress and by extension the markets,” said Joe Gilbert, a portfolio manager at Integrity Asset Management. “He reiterated that inflation is public enemy number one and the Fed must rein it in to provide stability to the system and stable growth for the economy. He is maintaining optionality even with another jobs report and CPI before the next Fed meeting.”
Amid the hawkish Fed signaling as well as crowded bullish positioning, narrow breadth and stretched valuations, the second-quarter stock rally has hit a wall as investor enthusiasm wanes. The market’s fear gauge, the Cboe Volatility Index or VIX, was strangely placid, dropping to the lowest since January 2020.
“The positioning and the chasing is no longer likely to be the big tailwind that it was for the last six or seven weeks. That’s why, things go parabolic, they don’t do so in perpetuity,” Anastasia Amoroso, chief investment strategist at iCapital, told Bloomberg Television’s The Open before Powell’s speech on Wednesday.
“If the right catalyst comes along, they tend to correct, at least partially. And I think we’re looking at a catalyst this week, which is potentially hawkish Fed Chair Powell,” she said.
Wall Street is paying close attention to yields on the 10-year note — a drop in price is viewed as a sign of investor confidence in the economy — which reached its steepest inversion against the two-year note since the 1980s in March.
If, “the 10-year starts to rise because all of the sudden the inflation expectations start to become more entrenched, that would certainty cause a problem for risk assets,” according to Amoroso.
“You wonder if the market wants to push back on the Fed, if Powell is not hawkish enough, if the Fed did not do enough for the market,” said Brian Weinstein, head of fixed income at Morgan Stanley Investment Management Inc.
“When I look at 10-year Treasuries, it’s not high enough yet. I’m surprised the yield curve hasn’t bear steepened if they want to challenge the Fed,” Weinstein told The Open. “Until we get higher yields on the longer part of the curve, I think people continue to buy riskier assets.”
Elsewhere, crude climbed above $72 a barrel and Bitcoin rallied past $30,000 for the first time since April amid speculation over BlackRock Inc.’s surprising filing for a US spot Bitcoin exchange-traded fund.
The Bloomberg Dollar Spot Index fell 0.3%, the euro rose 0.6% to $1.0988, the British pound was little changed at $1.2776 and the Japanese yen fell 0.2% to 141.77 per dollar.
🍝 For the dinner table debate:
Latin America is poised to become a bright spot among emerging markets in the coming years as higher interest rates drive foreign-investment flows, according to Banco Santander Brasil SA’s head of markets for the region.
Luiz Masagão, who has also headed the bank’s Brazilian treasury desk since 2018, says the U.S. in its monetary tightening cycle should be one of the drivers of even better performance from Latin American rates and currencies. The region is home to three of the top five emerging market currencies so far this year, led by the Colombian and Mexican pesos.
Latin America is the only “investable” bloc among developing countries, he said, as Central and Eastern European nations struggle with the economic fallout from Russia’s invasion of Ukraine and the unattractive risk premium in China and other Asian markets.
“It’s a region where rates are generally high, so the premium is higher compared to anywhere else,” he said. “There is optimism for Latin America in the medium to long term in terms of investment flows.”
Sebastián Osorio Idárraga, a content producer at Bloomberg Línea, and Emily Graffeo and Peyton Forte of Bloomberg News, contributed to this report.