Argentina’s Merval Plummets to End Upward Streak; NYSE Slips Amid Recession Fears

The Argentine index suffered a sharp drop amid gains across the region, while a drop in corporate investment dragged down US stocks amid fears of a recession

Photographer: Michael Nagle/Bloomberg
By Bloomberg Línea
January 18, 2023 | 09:56 PM

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

👑 Chilean, Brazilian markets lead in LatAM:

Most of Latin America’s stock markets closed in the green on Wednsday, with the exception of Argentina’s Merval, which sharply trimmed its gains from recent days. Chile’s Ipsa (IPSA) and Brazil’s Ibovespa (IBOV) led the session’s gains.

The IPSA closed with a gain of 1.03% supported by the good performance of the materials, communication services and consumer staples sectors. Shares of Cencosud (CENCOSUD), Empresas CMPC (CMPC) y Quinenco SA (QUINENC) drove the rise.

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On the other hand, Brazil’s Ibovespa was the second-highest gainer in the region. The index closed with an increase of 0.71%, supported by the performance of the information technology, industry and finance sectors. The advance of Vale (VALE3) y de bancos como Banco do Brasil (BBAS3) e Itaú (ITUB4) favored the Ibovespa.

Investors also closely followed the Americanas (AMER3) crisis. Judge Flávio Marcelo de Azevedo Horta Fernandes, of the Rio de Janeiro Court of Justice, responded to a request from BTG (BPAC11) and suspended part of the judicial protection granted to Americanas on Friday.

In an injunction on Wednesday, Judge Flávio Fernandes revoked the excerpt of Friday’s decision that obliged Americanas’ creditors to return the money if they had extinguished the company’s debts after the disclosure of the 20-billion-reais shortfall on January 11.

📉 A bad day for Argentina’s Merval:

Argentina’s Merval (MERVAL) plummeted 9.73%, halting an 11-day upward streak.

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Shares of Grupo Supervielle (SUPV), Telecom Argentina (TECO2) and Loma Negra (LOMA) were among the worst performers on Wednesday.

Economy Minister Sergio Massa announced a repurchase of foreign debt for $1 billion, which fueled uncertainty in the market and analysts were quick to question where the dollars for such purchase would come from.

Massa announced the decision to entrust the central bank (BCRA) to carry out the repurchase process on behalf of the Treasury. The objective of the repurchase, according to Massa, is to improve Argentina’s external debt profile in order to lower the country’s risk, which is around 1,880 basis points.

The problem with this, according to analysts consulted by Bloomberg Línea, is that the announcement is being made in a context of low reserves in the BCRA’s coffers. To this must be added a drought which, according to estimates by the Buenos Aires Stock Exchange, would cause a decrease in settlements of up to $14 billion in this year’s harvest.

🗽On Wall Street:

US stocks ended the day just off session lows after weak economic data rekindled concern over the outlook for growth and corporate earnings. Treasuries rallied, while the dollar rebounded on deteriorating risk sentiment.

The S&P 500 fell 1.6%, its worst decline in a month, while the tech-heavy Nasdaq 100 (CCMPDL) snapped a seven-day rally, after reversing gains of more than 1%. Earlier, stocks rallied as Treasury yields fell across the curve on bets weak data would prompt the Federal Reserve to downshift its tightening policy. Two Fed officials, however, repeated calls for more hikes even after further signs the economy was softening and inflation cooling.

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The Dow Jones Industrial Average dropped 1.81%.

Producer prices slid by the most since the start of the pandemic, and retail sales fell by the most in a year, according to reports released Wednesday. Meanwhile, business equipment production slumped, with a decline in factory output wrapping up the weakest quarter for manufacturing since the onset of the pandemic. A consumer losing steam and business investment falling heightened concern the economy may be moving closer to recession.

In corporate news, Microsoft Corp. said it plans to cut 10,000 jobs, taking steps to cope with an increasingly bleak outlook. Bank of America Corp. started telling executives to pause hiring except for the most vital positions. Crypto firm Genesis Global Capital is said to be laying the groundwork for a bankruptcy filing.

“While risk assets have had a positive start to 2023, with investors encouraged by signs of fading inflation and a swift reopening in China, it remains possible that the rally is a ‘head fake,’ and that economic data will ultimately disappoint,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote. “The lagged effect of higher rates could represent a greater drag on growth than expected.”

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Treasuries rose across the curve, with the 10-year yield dropping 18 basis points to 3.37% in afternoon trading. Money markets boosted bets on policy easing, betting the Fed rate will peak just below 4.9%, compared with the current band of 4.25% to 4.5%.

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While markets price in a step down in the rate-hiking cycle, two closely followed Fed hawks repeated calls for more increases. St. Louis Fed President James Bullard said policy is “almost” in restrictive territory but not quite.

Policy has to stay on the “tighter side in 2023,” Bullard said in an online Wall Street Journal interview, noting that he penciled in a forecast for a rate range of 5.25% to 5.5% by the end of this year in the Fed’s dot plot of projections.

Cleveland Fed President Loretta Mester said in an interview with The Associated Press published Wednesday that the Fed needs “keep going” but didn’t say how big a rate increase she favored when officials meet Jan. 31-Feb. 1. Philadelphia Fed chief Patrick Harker repeated his view of lifting interest rates in quarter-point increments “going forward.”

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The survey in the latest Fed’s Beige Book indicated the pace of price increases had slowed in many districts and price growth was expected to moderate further in the year ahead.

“We expect 2023 to slowly see a shift of the market worrying about inflation to worrying about the economy, which is more of a ‘hard landing’ narrative,” said Jonathan Krinsky, chief market technician for BTIG. “Should we close lower today, and should tech/growth underperform despite the meaningful move lower in nominal and real rates, we could be in the early innings of the handoff from the Fed to the economy.”

Read: Heavily Cut Estimates Don’t Reflect Full Gloom: Earnings Watch

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The yen dropped as much as 2.6% against the dollar after the Bank of Japan doubled down on defending their stimulus, defying intense market speculation. The currency later traded down 0.5%.

The Bloomberg Dollar Spot Index rose 0.2%, the euro was little changed at $1.0790, the British pound rose 0.4% to $1.2338 and the Japanese yen fell 0.6% to 128.88 per dollar.

🔑 The day’s key events:

Oil prices fell on Wednesday for the first time in almost two weeks after U.S. data stoked fears of an economic recession and triggered a massive sell-off on Wall Street. Early in the session crude oil prices rose on the back of reports of Chinese demand, but fell sharply as the dollar rallied and equities fell.

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West Texas Intermediate (WTI) hit the highest intraday price since early December only to reverse course with a nearly 1% drop. WTI for February delivery fell to S$79.48 a barrel in New York; while Brent crude for March c to $84.98 a barrel.

“Oil’s rally couldn’t last after energy traders saw broad weakness in much of the U.S. economy,” said Edward Moya, senior market analyst at OANDA. “Concerns are growing about crude demand as consumption is much weaker than expected and the manufacturing sector is sinking,” he said.

🍝 For the dinner table debate:

Microsoft Corp. (MSFT) said it plans to cut 10,000 jobs this year, 5% of its total workforce, as it seeks to deal with a gloomy forecast that has hit the world’s largest technology companies.

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The company will see a $1.2 billion layout in the second quarter as a result of the decision, according to a blog post. The layoffs come at a time when Microsoft says it sees caution from customers amid a recession in different parts of the world. The company will report its fourth-quarter results on January 24.

The company’s CEO, Satya Nadella, said the company is seeing “customers optimizing their digital spending to do more with less.”

While peers such as Amazon Inc, (AMZN) Meta Platforms Inc (META) and Salesforce Inc (CRM) have announced thousands of job cuts in recent months, Microsoft had so far taken smaller steps to try to cope with the shaky global economic outlook and the possibility of a prolonged slowdown in demand for software and services.

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