Argentina’s Merval Leads LatAm Gains; NYSE Closes Lower Amid Inflation Expectations

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

🌎 Argentina’s Merval leads in Latin America:

Latin America’s markets closed mixed on Tuesday, with the highest gain for Argentina’s Merval (MERVAL), while Chile’s IPSA closed with the sharpest decline.

The Merval gained 1.11%, driven upward by the shares of Aluar Aluminio Argentino (ALUA), Transportadora Gas del Norte (TGNO4) and Transener SA (TRAN).

Argentina’s statistics bureau INDEC is preparing to release the inflation figure for April, which is expected to be between 7.2% and 7.6%. If private sector estimates are met, it would represent approximately triple the figure for that period in Venezuela, according to data from the Venezuelan Finance Observatory.

The CPI for April will be released on Friday and the estimated numbers are not positive. In fact, this Monday it was known that in the City of Buenos Aires it reached 7.8%, with a strong impact on food prices. For April, some consulting firms had to correct upwards their forecasts and up to 7.6% is expected, according to C&T Asesores Económicos.

Chile’s IPSA dropped 1.04%, dragged down by the performance of the communication services, basic consumer goods and real estate sectors.

On Tuesday, a Chilean bill to raise taxes on the mining industry took a key step forward with the approval “Ad Referendum” by the Senate Finance Committee of a new maximum tax rate, one of the most controversial issues of the proposal.

The committee agreed to set the maximum potential royalty rate for large copper producers at 46.5% of operating profit, down from the 47% previously proposed. The commission will formally approve the new cap this afternoon. The bill will then go to the full Senate, before returning to the Chamber of Deputies for a final vote.

🗽On Wall Street:

US equities slumped ahead of a critical inflation report while the debt ceiling impasse dragged on investor sentiment. The dollar edged higher.

The S&P 500 ended Tuesday 0.5% lower with PayPal Holdings Inc. the worst performer on the index after outlook disappointed. The Nasdaq 100 slid 0.7%. Stock gauges have been stuck in narrow trading ranges as traders weigh the potential end of the Federal Reserve’s interest rate hikes against the possibility of an economic slowdown.

The Nasdaq Composite (CCMPDL) dropped 0,63% and the Dow Jones Industrial Average 0.17% on Tuesday.

Shares of Airbnb fell postmarket after second quarter sales outlook fell short of some analysts’ estimates, suggesting rising prices may be curbing enthusiasm for travel. Rivian Automotive Inc. climbed after the electric-vehicle maker reaffirmed its annual production plans.

Investors are tracking efforts in Washington to end a standoff over the US debt ceiling, with President Joe Biden sitting down with House Speaker Kevin McCarthy Tuesday as the two face pressure to forge a deal.

Both men rejected the idea of a short-term debt-limit extension ahead of the meeting. Treasury Secretary Janet Yellen has warned that the debt limit could be breached as soon as June 1.

“The meeting is unlikely to generate major breakthroughs on the debt-ceiling impasse, though it might finally focus more attention on the issue,” Art Hogan, chief market strategist at B. Riley Wealth Management, wrote. “The most likely scenario is Congress will pass an extension until September 30, when the fiscal year ends. This would set up a larger battle on the 2024 budget and the debt ceiling, all at once.”

Stocks adrift

The S&P 500 has been stuck trading between 3,800 and 4,200 this year. Equities could finally break out of that range and move higher if, “data points more convincingly towards a soft landing, there are no more regional bank failures, core inflation drops faster than expected, the Fed confirms the pause and a debt ceiling deal is reached,” said Tom Essaye, founder of The Sevens Report newsletter.

Bears, according to Jonathan Krinsky, chief market technician at BTIG, are looking for the benchmark to fall below 3,800.

“The bullish argument is that the market is so resilient and it can’t crack despite all the widely known problems,” Krinsky wrote. On the other hand, “if the market is so strong, why hasn’t it been able to break out above 4,200 despite spending so much time just below it, a VIX that broke below 16, and many tech names up over 20% YTD? The reason is breadth and credit.”

Credit tightening was apparent in a Fed poll of lending officers Monday. The first quarter survey showed demand for loans weakened, heightening recession worries.

Fed officials, including New York Fed President John Williams, are watching for signs of a credit crunch. Williams said he wasn’t including a rate cut in his forecast for this year at an event Tuesday. He left the door open on the odds of a Fed pause. Swaps suggest traders are expecting at least 50 basis points in cuts by the end of 2023.

Sentiment was also dented by a report showing a steep drop in Chinese imports last month, a sign that the economy’s recovery from Covid lockdown isn’t as strong as many had hoped. Oil traded at $73.47 a barrel.

Traders are awaiting the monthly US inflation report, due Wednesday. Economists expect headline CPI to rise by 5% on a year-on-year basis, showing that price pressures are still uncomfortably high for the Federal Reserve.

Yields on the policy-sensitive two-year rose to 4.0% with the 10-year at 3.5%. An index of dollar strength climbed, gold also gained.

PacWest Bancorp ended the day up 2.3%, leading gains among lending peers in the KBW Regional Banking Index.

The Bloomberg Dollar Spot Index rose 0.1%, the euro fell 0.4% to $1.0963, the British pound was little changed at $1.2620 and the Japanese yen was little changed at 135.22 per dollar.

🍝 For the dinner table debate:

Wendy’s will begin testing a Google Cloud-based artificial intelligence chatbot next month that can take drive-thru orders and talk to customers.

Given that drive-thrus became more popular during the pandemic, and that 80% of Wendy’s customers choose to order through this channel, the company believes that incorporating AI and automation can improve customer service while addressing labor shortages.

Todd Penegor, CEO of Wendy’s, believes the AI-powered chatbot can deliver a faster experience that will differentiate Wendy’s from other fast food chains. Opinions on what AI will mean for workers and businesses vary greatly. Wendy’s declined to comment on how the technology could reduce the need for employees.

Leidys Becerra, a content producer at Bloomberg Línea, and Cristin Flanagan and Peyton Forte of Bloomberg News, contributed to this report.