Argentina’s Merval Maintains LatAm Lead; Big Tech Sinks US Stocks

The Merval index extended Monday’s gains as US markets closed lower following negative consumer confidence data on Tuesday

Buenos Aires ofrece alternativas para todos los gustos y presupuestos. Foto: Sarah Pabst/Bloomberg
By Bloomberg Línea and Bloomberg News
June 28, 2022 | 05:45 PM

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

👑 Latin America’s Leader:

Argentina’s Merval index (MERVAL) extended its rebound on Tuesday and closed as the best performing index in Latin America, after breaking a streak of five consecutive downward sessions on Monday.

Shares of Aluar Aluminio (ALUA), Holcim Argentina (HARG) and Banco Macro (BMA) were among the day’s best performers.

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Colombia’s Colcap index (COLCAP) also shrugged off losses in the United States, driven by a rise in Ecopetrol (ECOPETL) shares, after days of losses following the presidential election results.

The stock benefited from the increase in oil prices and after President-elect Gustavo Petro said that his proposal to end oil exploration would take place with a gradual transition.

The trend continued in the Mexican stock market where the S&P BMV/IPC (MEXBOL) ended the day with gains thanks to increases in the raw materials, communication services and non-basic consumer goods sectors.

📉 A Bad Day:

Peru’s stock market was once again the worst performer in Latin America for the second consecutive day, extending the losses with which it began the week.

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The S&P BVL Peru (SPBLPGPT) fell 0.75%, dragged down by the poor performance of the consumer staples, materials and financial sectors.

Shares of Unión de Cervecerías Peruanas (BACKUSI1), Sociedad Minera El Brocal (BROCALC1), and Minas de Buenaventura (BVN) were among the worst performers.

According to a recent Central Reserve Bank report, between January and April, Peru’s metal mining production fell by 1.6%, and in April alone, production fell by 0.8% as a whole due to the lower extraction of most metals, particularly copper and zinc, with copper production down 3.1% year-on-year during that month due to the fall in production reported by Southern Copper and Las Bambas.

Brazil’s Ibovespa (IBOV) also closed lower, affected by the risk aversion generated by the falls in stocks in the United States.

🗽 On Wall Street:

A rout in big tech weighed heavily on stocks, with gains in the broader market sputtering as a report showed Americans grew more downbeat about prospects for the economy.

Traders got another reality check after a worrisome reading on consumer confidence. A gauge of expectations -- which reflects a six-month outlook -- tumbled to an almost decade low. The bleak figures come at a time when analysts remain bullish about corporate earnings, with net-margin estimates for S&P 500 companies at a record high.

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The US equity benchmark erased gains that topped 1% earlier in the day, and hovered near the key Fibonacci 38.2% retracement level of 3,815. Quarterly rebalancing of portfolios also fueled volatility. The Nasdaq Composite (CCMPDL) sank 2.98%, dragged down by giants like Amazon and Tesla. Treasuries and the dollar rose.

For Goldman Sachs Group Inc. strategists, margin forecasts are too optimistic, putting stocks at risk of more losses when analysts downgrade their estimates. Meantime, HSBC Plc’s Max Kettner said equities aren’t still reflecting the impact of a potential recession, with earnings expectations at risk of being revised lower.

“The one thing that we can say with conviction is that high market volatility is likely to persist until there’s clear evidence that inflation is declining and the Fed pivots towards a less hawkish stance, taking the off-ramp away from the recession destination,” said Jason Draho, head of asset allocation for the Americas at UBS Global Wealth Management.

Federal Reserve officials played down the risk that the US economy will tip into a recession, even as they boost rates, with another 75 basis-point hike on the table next month. New York Fed President John Williams and San Francisco’s Mary Daly both acknowledged they had to cool inflation, but insisted that a soft landing was still possible.

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It’s tough to see a high probability of any sustained stock rally in the near term, according to Alifia Doriwala, managing director at RockCreek. She says the market could be in for an even worse third quarter. The S&P 500 has tumbled more than 15% since the end of March.

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“We could see a lot of turbulence during earnings season if companies start revising earnings downward because they are seeing increased margin pressures,” Doriwala told Bloomberg Television.

🔑 The Day’s Key Events:

Oil rose for a third day as global output threats compound already red-hot markets for physical supplies, while the G-7 agreed to look into a price cap for Russian crude.

“Our united response to Putin’s war of aggression has already imposed historic costs on Russia’s economy and made it difficult for it to wage war against Ukraine. By working together to limit the price of Russian oil, we will further strengthen existing sanctions,” US Treasury Secretary Janet Yellen said via a press release.

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Prices also benefited from the easing of restrictions by Covid-19 for tourists arriving in China. The Asian giant has begun to relent on its strict policy against the virus, which could increase demand from the main oil importer.

The news comes at a time when the market remains tight. OPEC+ is more than 500 million barrels behind on its commitment to supply oil to world markets, according to Bloomberg.

🍝 For the Dinner Table Debate:

Finland and Sweden’s applications to join NATO overcame one of their main hurdles after Turkey agreed to go ahead with membership talks, Bloomberg reported.

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Turkey will support inviting the two Nordic countries to the alliance, and details will be discussed at the summit that began in Madrid on Tuesday, Finland said in a statement.

Ankara is satisfied with the two nations’ pledges on its security concerns, said an official quoted by Bloomberg, who declined to be identified when discussing a confidential matter.

However, many steps remain to be taken. The accession must be ratified by the parliaments of NATO allies and have the approval of the alliance’s 30 members.

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