A roundup of Wednesday’s stock market results from across the Americas
🌎 Argentina’s Merval maintains its upward trend:
The majority of Latin America’s stock markets closed higher on Wednesday, with the exception of Peru’s S&P/BVL index (SPBLPGPT), which slid 1.73%, dragged down by the poor performance of the shares of Aenza (AENZAC1), Southern Copper Corp (SCCO) and Corporación Aceros Arequipa (CORAREI1).
Argentina’s Merval index (MERVAL) led the gains for a second straight day, climbing 0.88% and buoyed by the shares of Mirgor (MIRG), Telecom Argentina (TECO2) and Sociedad Comercial del Plata (COME).
Two of the world’s leading lithium companies agreed a “merger of equals” to create a new company with a valuation of $10.6 billion, US-based Livent (LTHM) and Australia’s Allkem, the only two companies producing lithium carbonate in Argentina.
“A leading global producer of lithium chemicals is created, with combined pro forma 2022 revenues of approximately $1.9 billion and adjusted EBITDA of approximately $1.2 billion,” the companies said in announcing the deal.
🗽On Wall Street:
US stocks posted modest gains in a listless session, while Treasuries rose after a report showed inflation moderated slightly in April and swaps traders upped bets the Federal Reserve will cut rates this year.
The S&P 500 wavered between gains and losses before ending Wednesday’s session up 0.4%. The tech-heavy Nasdaq 100 posted a 1.1% gain, the highest close for the gauge since Aug. 18. So-called Faang names, Amazon.com Inc., Apple Inc. and Microsoft Corp., bolstered the benchmarks. Walt Disney Inc. shares slid 3.1% in afterhours trading on faster-than-expected streaming losses.
The Dow Jones Industrial Average dropped 0,09%. Shares of Walt Disney Inc. (DIS) slid 3.1% in after-hours trading as the company reported worse than expected results.
US consumer prices rose 0.4% in April with headline CPI up 4.9% on a year-on-year basis, its first reading below 5% in two years. That’s still well above the 2% level targeted by the Fed as central bank officials juggle the need to curb rampant inflation against a potential recession and banking sector angst.
Policy-sensitive two-year Treasury yields fell to 3.91% while rates on the 10-year tenor were 3.44%. Swaps contracts indicate traders are pricing in roughly 75 basis points of interest rate cuts this year.
“Yields are down, tech stocks rally,” Liz Young, head of investment strategy at SoFi, by phone. “CPI came in favorably in the sense that it’s finally below 5%. We seem to be moving in the right direction on some of the core pieces, particularly some of the services pieces. That is promising because that’s been the part that really still concerns most of us. However, it’s still at 4.9% and core is still at 5.5% — that didn’t come down at all year over year.”
“This is not something where I think stocks should cheer it to a level that seems like we’re out of the woods. We’re certainly not,” she added.
While traders are pricing in a pause at the next central bank meeting and rate cuts starting as soon as July, it’s not a given. “There’s a lot of looking through rose-colored glasses to all sorts of outcomes that are going to lead the Fed to be able to cut rates. But they’re just forecasts, they haven’t happened yet,” said David Donabedian, chief investment officer of CIBC Private Wealth US.
“If you took a snapshot of the economic and inflation data today and used that as your only guide, that would point you to no rate cuts at all this year,” Donabedian said. “The market is latching onto the-Fed-will-be-our-friend kind of a view.”
An index of the dollar weakened against a basket of its G-10 peers. In commodities, spot gold edged lower and oil fell after US government data showed crude inventories rose last week.
Investors remain on guard to risks from the standoff in US debt talks, with some of Wall Street’s most experienced traders warning of “unthinkable” long-term damage from a default.
President Joe Biden and congressional Republicans made little tangible progress toward averting a first-ever US default. “If we default on our debt, the whole world is in trouble,” Biden said in remarks Wednesday. The president and House Speaker Kevin McCarthy plan to hold another meeting on Friday.
The cost of insuring America’s debt against default now eclipses that of some emerging markets and even junk-rated nations. Mounting investor anxiety about the prospect of a default has made it more expensive to insure Treasuries than the bonds of — among others — Greece, Mexico and Brazil, which have defaulted multiple times and have credit ratings many rungs below that of the US.
Traders will be turning their gaze to Thursday’s producer prices report next. In March, the measure of wholesale prices fell by the most since the start of the pandemic. Economists surveyed by Bloomberg are expecting the headline number to rise 0.3%.
“Inflation came in a bit weaker and that explains why all asset classes are rallying,” Priya Misra, global head of rates strategy at TD Securities, said regarding the day’s inflation data. “Market may be too optimistic and put too much weight on the weakness in some series that are inherently volatile, such as hotels. We need more CPI prints to clarify that inflation is definitely declining.”
For his part, John Leiper, chief investment officer at Titan Asset Management, said: “there’s definitely some relief that it’s not hotter than expected, and it bolsters the case for a Fed pause. Over the next few months, we’ll get the base effect rolling off, which may help further. Bigger picture, the market is hyper-fixated on the pause but a pause is still restrictive, and we still have QT. If we see the economic data continue to decline, which I think we will, then I don’t see this as good for risk assets given current valuations”.
On the currency markets, the Bloomberg Dollar Spot Index fell 0.3%, the euro rose 0.2% to $1.0983, the British pound was little changed at $1.2626 and the Japanese yen rose 0.7% to 134.34 per dollar.
🍝 For the dinner table debate:
Lionel Messi, The star and captain of Argentina’s national team, has reportedly received an offer from Saudi Arabia’s Al Hilal club for some 400 million euros per year, according to French media reports.
Agence France-Presse (AFP) reported that sources close to the negotiations affirmed that the player has already agreed a contract to play for the team managed by another Argentine, Ramón Díaz and rival of Cristiano Ronaldo’s Al-Nassr.
According to the French news agency, an anonymous source with direct knowledge of the matter claimed that the matter was already closed, and that Messi will play in Saudi Arabia next season.
The source described the contract as “exceptional” and “huge”.
Leidys Becerra, a content producer at Bloomberg Línea, and Emily Graffeo and Vildana Hajric of Bloomberg News, contributed to this report.