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Argentina’s MERVAL Leads LatAm Gains; US Stocks Rally As Mood Lifts

The Argentine index climbed 3.69% on Friday and US stocks rallied as traders reduced their wagers on a bigger Federal Reserve hike in July

Traders at the New York Stock Exchange.
By Bloomberg Línea and Bloomberg News
July 15, 2022 | 05:25 pm

A roundup of Friday’s stock market results from across the region

🥇 Argentina, Latin America’s Leader:

Latin American stock markets rebounded at the end of a week marked by volatility generated by fears of a possible recession and the impact of inflation data from the United States.

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Argentina’s Merval (MERVAL) closed the day with the sharpest increase in the region, after a rise of over 3%.However, as the country battles with a cost of living increase that could reach 90% annually, analysts have explained that the gains in the stock market are more related to the increase in the exchange rate.

With the momentum of the main stock market indexes in the United States, the Ibovespa (IBOV) erased the losses registered in the morning and closed higher.Banking stocks, such as Itaú (ITUB4) and Bradesco (BBDC4), were among the best performers in the index, together with Petrobras (PETR4), on a day of oil price recovery.

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The Mexican stock market also rebounded from yesterday’s losses and the S&P BMV/IPC (MEXBOL) closed higher thanks to the performance of the non-basic consumer products, basic consumer goods and industrial sectors.

📉 A Bad Day:

The Chilean stock market reversed the gains it made on Thursday, when it posted the biggest climb, and was the only bourse in the region to close lower on Friday.

The IPSA (IPSA) closed down 0.88%, dragged down by the performance of the industrial, materials and information technology sectors.

Mining companies have been affected by the fall in the price of copper, which traded below $7,000 per ton during the session, although in the end it moderated its losses.

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China, which accounts for half of global copper consumption, is having difficulties in dealing with Covid-19 confinements, while Europe is facing an energy crisis.

Copper has fallen 28% this year, heading for the biggest annual drop since 2008, the height of the financial crisis, according to Bloomberg estimates.

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🗽 On Wall Street:

The stock market snapped back on Friday at the end of a dizzying week as traders reduced their wagers on a bigger Federal Reserve hike in July, while parsing a raft of Wall Street earnings and hoping for signs of capitulation that could set the stage for a more sustained recovery.

American equities halted a five-day slide, with the expiration of about $1.9 trillion in options. Banks led gains after Citigroup Inc.’s blowout results. Swaps are pricing in nearly 75 basis points of Fed tightening this month -- down from a full-point bet earlier in the week -- but still an aggressive boost that leaves investors wondering about the odds of a recession. The dollar and bond yields fell. Oil rose, while ending below $100 a barrel.

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Economic readings were all over the place, but it was a drop in US consumer long-term inflation expectations to a one-year low that effectively captured traders’ attention. The reason is that it may provide some solace to policy makers that price pressures aren’t becoming entrenched.

Another reason for hope is that two Fed officials didn’t sound too keen on a full-point hike in July. Atlanta Fed President Raphael Bostic voiced wariness about a super-sized increase, and St. Louis’s James Bullard said he would defer judgment to the central bank’s meeting. He was quoted earlier this week as saying he favored sticking with a 75-basis-point boost.

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“While a recession is increasingly likely, bulls note that a lot of bad news is already being priced in, and if a recession is shallow, there is upside to markets over the next year,” said Mark Hackett, chief of investment research at Nationwide. “The path to get there may not be pleasant, but if earnings can hold up, there is reason for cautious optimism.”

The S&P 500 climbed 1.92%, the Dow Jones Industrials 2.15% and the Nasdaq Composite (CCMPDL) 1.79%.

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Odds are now close to even that the US will slip into a recession within the next year. The probability of a downturn over the next 12 months stands at 47.5%, up sharply from 30% odds in June, according to the latest Bloomberg monthly survey of economists.

US stocks could see more declines as the risk of a hard economic contraction and a stronger dollar rises in the second half of the year, according to Bank of America Corp. strategists. Equity markets could see “proper capitulation” if second-quarter earnings are worse than expected, Michael Hartnett wrote.

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“The markets today reflect a slowdown or a mild recession already,” said Kara Murphy, chief investment officer at Kestra Holdings. “As soon as we have confirmation that the Fed is winning the war with inflation -- that means we need to see multiple data points suggesting that prices are slowing -- I think that will be a risk-on sign for the market.”

In other corporate news, Wells Fargo & Co. said it will continue to do share repurchases, but it’ll be “prudent,” even as its peers JPMorgan Chase & Co. and Citigroup have both announced plans to pause buybacks. UnitedHealth Group Inc.’s results were lifted by lower costs of care that portend well for other health insurers.

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Bullish positioning on the US dollar has surged to its highest level in seven years while investors have amped up their bearishness on the euro and turned against emerging-market currencies, according to a BofA survey of fund managers.

Elsewhere, copper capped its worst weekly decline in a year, at one point dropping below $7,000 a ton for the first time since 2020 amid deepening recession concerns.

🔑 The Day’s Key Events:

Oil prices added to the optimism generated by the US retail sales report and the two main benchmarks, WTI and Brent, reversed the downward trend seen during the week.

The market was also boosted after President Joe Biden’s trip to Saudi Arabia did not result in any concrete announcement on the increase in oil supply.

However, investors will be watching to see what impact the revival of Libyan exports and production will have.

“The National Oil Corporation (the state-owned company) declares the lifting of force majeure and the end of all closures of all oil fields and ports in Libya,” the company’s new chairman, Farhat bin Qadara, said, Bloomberg reported.

The OPEC member has seen its output fall by about 50% in recent months due to a power struggle within the country.

🍝 For the Dinner Table Debate:

Not everyone is feeling the downturn in startup funding equally, which has been stymied by rising interest rates and the possibility of an economic recession.

Mexican fintech Stori is one such example after it became the country’s latest unicorn.

The company reached a valuation of $1.2 billion after receiving a $150 million Series C extension. Marlene Garayzar, co-founder of Stori, told Bloomberg Línea that the startup received the new resources “in a period in which there is talk of a recession coming and in which access to capital is going to be more and more expensive”.

With this new round, Stori will be part of the Mexican unicorn club made up of Kavak, Clip, Bitso, Konfío, Clara, Merama and newcomer Nowports. Unicorns with Mexican DNA or that started in Mexico as their main market, such as Jokr, Incode and Jeeves, are also considered members of the club.

Of the total number of unicorns in the region, Mexico has 20%. It is the second country in Latin America with the highest number of unicorns, only after Brazil, which has 58%, according to the report Panorama of Venture Capital in Latin America by Endeavor and Glisco Partners.

-- Carlos Rodríguez Salcedo, a content producer for Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report