Argentina’s Merval Index Plummets; Powell Comments Send Wall Street Tumbling

Only Colombia’s stock exchange closed with gains in Latin America on Tuesday, while a speech by the chairman of the Federal Reserve revived fears of further interest rate hikes among US investors

Jerome Powell, chairman of the US Federal Reserve, during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, DC, US, on Tuesday, March 7, 2023. Powell is expected to echo fellow central bankers in suggesting interest rates will go higher than policymakers anticipated just weeks ago if economic data continue to come in hot.
By Bloomberg Línea
March 07, 2023 | 08:51 PM

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A roundup of Tuesday’s stock market results from across the Americas

👑 Only Colombia’s Colcap closes higher:

Latin American stock markets closed mostly in the red on Tuesday, but Colombia’s Colcap index (COLCAP) was the only one that managed to escape the bad mood of the US and regional markets.

The Colombian index closed with a slight gain of 0.09%, driven mainly by the consumer staples sector, followed by the non-core consumer products and utilities sectors.


The strong performance of the shares of Grupo Nutresa (NUTRESA), Organización Terpel (TERPEL) and Preferencial Grupo Argos (PFGRUPOA) pushed the index into the green.

February inflation in Colombia was 13.28%, an increase of 5.27 percentage points compared to the result of the same month of 2022 (8.01%).

Although in other Latin American countries prices have started to decrease, in Colombia inflation continues at levels not seen since 1999 and have had an important boost from foodstuffs in the midst of the strong ravages of the La Niña phenomenon.

However, Finance Minister José Antonio Ocampo indicated “that the country’s inflation has reached a ceiling” and, in particular, that the annual inflation rate for low-income households and agricultural products has slowed. “In March we will begin to see a slower pace of price increases,” Ocampo said.


📉 Argentina’s Merval leads the losses:

Argentina’s Merval (MERVAL) saw the sharpest losses on Tuesday, closing 2.58% lower after being dragged down by Wall Street’s bearish pace.

Declines among the shares of YPF (YPFD), Aluar Aluminio (ALUA) and Transportadora de Gas del Sur (TGSU2) pushed the Argentine index into negative territory.

The sharpest fall was for energy giant YPF, which saw its shares tumble more than 6%. However, its balance sheet will be released on Friday and is expected to meet analysts’ expectations.

In other business of the day, Economy Minister Sergio Massa participated in a meeting in Chile with the board of directors of the Latin American Development Bank (CAF), which confirmed the disbursement of $840 million within the framework of two agreed loans to the country.

Of the amount committed by the entity headed by Sergio Díaz Granados, $540 million will be used for the North Gas Pipeline Reversion Project - complementary works to the President Néstor Kirchner Gas Pipeline, and $300 million will be part of a program for the access to rights for persons with disabilities (ANDIS).

Both loans will be disbursed immediately, in a context in which the Government is suffering from a shortage of net reserves and is negotiating with the International Monetary Fund (IMF) to reduce this target.


🗽On Wall Street:

Wall Street got a reality check as Jerome Powell’s hawkish rhetoric prompted a shift higher in Federal Reserve rate wagers, reviving recession fears and crushing the riskier corners of the market.

The S&P 500 slid 1.53%, the Dow Jones Industrial Average 1.72% and the Nasdaq Composite (CCMPDL) 1.25%.

During a Senate testimony, the Fed’s boss signaled officials are ready to speed up the pace of tightening and take rates to higher levels should inflation keep running hot. Equities saw an abrupt slide, with the S&P 500 back below 4,000. The swap market showed a half-point hike in March as more likely than a quarter-point move, with the projected peak now hovering near 5.6% — a recalibration that was cited in a note from market veteran Peter Boockvar entitled: “A time for Advil and a check on the fed funds futures.”

Another worrisome development was that the US 2-year yield exceeded the 10-year one by a full percentage point on Tuesday for the first time since 1981. Situations in which shorter-term rates are higher than those at the longer end are referred to as curve inversions — and are often seen as potential harbingers of a recession. The dollar climbed 1%, sinking commodity prices, with oil tumbling the most since early January.


“Powell just said the quiet part out loud,” said Callie Cox at eToro. “The economy is performing impressively well, but that could complicate the Fed’s efforts to bring inflation down. Therefore, the Fed could accelerate rate hikes and hike more than expected to bring inflation down. This isn’t surprising news, but it’s a tough reminder for markets after such a brisk rally.”


The sharp advance in stocks from the October lows had indeed been supported by “hope over reality,” according to John Lynch at Comerica Wealth Management, who added that the outlook for a “higher for longer” Fed policy rate should be taken seriously by markets.

To Fawad Razaqzada at City Index and, Powell sounded more hawkish than some had envisaged, spurring “fears over a potential hard landing” given the monetary policy transmission lag.

Some economists also took Powell’s remarks as a sign that the Fed is more likely to take a bigger move at the March 21-22 meeting, though several market watchers are still expecting the central bank to roll out a more incremental 25 basis-point hike. Policymakers will have a chance to review the February jobs data and an update on consumer prices before they meet again.


The next few economic reports could be “make-or-break” numbers as they could shape the Fed’s economic projections at its next policy meeting, according to David Russell at TradeStation. To BlackRock Inc.’s Rick Rieder, an extremely tight labor market and persistently high inflation boosts the chance that the Fed may lift its policy rate this cycle to as high as 6% — from the current range between 4.5% and 4.75%.

“I do not think the Fed goes 50 bps at any of the remaining rate hike meetings at this point after already slowing the pace and will continue on with 25 bps until it finally stops,” said Boockvar.

“We underscore that even though we think 50 in March is not odds-on, we still view Powell’s delayed marking to market of the Fed posture in response to recent data as materially risk off,” said Krishna Guha at Evercore.


US payroll growth has topped estimates for 10 straight months in the longest streak in decades, a trend that, if extended, will boost pressure on the Fed to keep raising interest rates. Beginning in April last year, the median forecast in each survey of economists fell short of the government’s initial estimate of payrolls by an average of 100,000 a month — the most in data compiled by Bloomberg back to 1998.

Ahead of the February jobs report on Friday, the projection is for a 224,000 increase, which would be about half the pace seen in January.

Billionaire Ken Griffin said the setup for a US recession is unfolding, with the Fed needing to raise interest rates further after Americans were stung with “traumatic” levels of inflation. The founder of Citadel and Citadel Securities said the central bank is limited in how much it can fight inflation with interest-rate increases, likening the tool to “having surgery with a dull knife.”


On the currency front, the Bloomberg Dollar Spot Index rose 1%, the euro fell 1.2% to $1.0551, the British pound fell 1.6% to $1.1829 and the Japanese yen fell 0.9% to 137.15 per dollar.

🍝 For the dinner table debate:

Some 3.1 billion people cannot afford a healthy diet globally, reflecting the impact of higher consumer food prices during the pandemic and more frequent extreme weather events that are disrupting supply chains, according to the United Nations’ Food and Agriculture Organization (FAO).

FAO estimated in a study that the number of people who could not afford a healthy diet in 2020 increased 112 million people over 2019. It also revealed that Latin America and the Caribbean is the region where a healthy diet costs the most, at $3.89 per person per day in 2020, followed by Asia ($3.72), Africa ($3.46), North America and Europe ($3.19) and Oceania ($3.07).


There are also great disparities between countries when it comes to purchasing healthy food. In Colombia it costs about $3 per person per day, while in Panama it costs $4.47 and in Jamaica it costs more than $6 per day.

Leidys Becerra, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.