Argentina’s Stocks Rally Continues; NYSE Closes Mixed Ahead of Jobs Data

Argentina’s Merval index closed 1.23% higher, while Wall Street saw a mixed session, with only the Nasdaq closing higher

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, US. Photographer: Michael Nagle/Bloomberg
By Bloomberg Línea
December 01, 2022 | 09:25 PM

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

👑 Argentina’s Merval extends upward streak:

Argentina’s Merval (MERVAL) continued its rally on Thursday, gaining 1.23% to surpass the 170,000 mark, with shares in the energy sector seeing the biggest gains, and shares of Telecom Argentina S.A. (TECO2) and Cresud S.A. (CRES) also standing out for their positive performance.

In the midst of a high inflation scenario, a private sector report in Argentina pointed out on Thursday that 71% of people in the country claim to be using less and less cash. According to the report, the percentages for Brazil and Mexico are 75% and 66%, respectively.

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Peru’s S&P/BVL (SPBLPGPT) advanced 0.07%.

📉 A bad day for Brazil’s Ibovespa:

Brazil’s Ibovespa (IBOV) dropped 1.39% on Thursday, dragged down by stocks linked to the consumer staples and information technology sectors.

Petrobras (PETR4) shares fell after the oil company presented its 2023-2027 strategic plan, amid fear that the project may fall short with the arrival in office of President-elect Luiz Inácio Lula da Silva on January 1, with the announcement during the presentation of the plan that it could be revised with the change of government.

Colombia’s Colcap (COLCAP) fell 0.58%, mainly explained by the fall of BanColombia S.A. (BCOLO) shares, which fell 4%.

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On Thursday, the productivity index with which the minimum wage increase for 2023 will be negotiated was published in Colombia, which was set at 1.24%, marking a starting line for both labor unions and employers to begin to propose a concrete increase figure for the discussions.

Mexico’s S&P/BMV IPC (MEXBOL) fell 0.44% and Chile’s Ipsa (IPSA) lost 0.15% on the first trading day of December.

🗽 On Wall Street:

Stocks saw a lot of instability near a key technical level, with traders awaiting the all-important jobs report for clues on the Federal Reserve’s next policy steps. The dollar fell with bond yields.

A fight took place around the S&P 500′s 200-day moving average -- an indicator seen by some analysts as portending the continuation of a move when breached. The equity gauge struggled for direction after crossing that mark in a rally driven by Jerome Powell’s signals of a downshift in the pace of hikes. Amid all the choppiness, the Cboe Volatility Index fell below 20, the lowest since August.

The Dow Jones Industrial Average dropped 0.56% and the S&P 500 0.09%, but the Nasdaq Composite (CCMPDL) advanced 0.13%.

“The shallower the pullback, the better the odds of the market moving further higher,” said Fawad Razaqzada, market analyst at City Index and Forex.com. “The bears, meanwhile, will need to defend this bearish trend line and push the market back below the 200 day, if they want to keep this year’s bearish trend intact now that we are heading into the final month of the year.”

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Equities closed almost flat after slumping on data showing American manufacturing contracted in November for the first time since May 2020. The report added to concern that Fed hikes will raise the odds of a recession and tempered optimism with news that a gauge of consumer prices had the second-smallest increase this year.

The Bloomberg Dollar Spot Index sank to its lowest since June. The Treasury rally gathered steam amid a pullback in expectations for Fed tightening. Bets on where the central bank rate will peak have now dropped below 4.9%, according to swap markets. The current benchmark sits in a range between 3.75% and 4%.

Fed Bank of New York President John Williams said further hikes are needed to curb inflation. The central bank’s Vice Chair for Supervision Michael Barr said officials have more work to do in tightening monetary policy, though they could slow the pace of rate increases later this month.

The Fed Bank of Chicago appointed Austan Goolsbee, an economist and former adviser to President Barack Obama, as its new chief to replace Charles Evans, who retires in January. In an Oct. 31 Bloomberg Radio interview, Goolsbee said a peak for the benchmark federal funds rate around 5% “kind of makes sense to me.”

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The remarkably resilient US jobs market is beginning to cool, but Friday’s employment report will fall far short of the turning point Fed officials are seeking in their battle to beat back inflation. There are signs labor demand is ebbing, but a bigger slowdown is needed to bring that demand more in line with labor supply in order to contain wage growth.

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The median projection in a Bloomberg survey of economists calls for payrolls to rise 200,000 in November and hourly earnings to climb 4.6% from a year ago.

Worries about how far central bankers will go to rein in inflation have kept investors on edge, and equities volatile. JPMorgan Chase & Co.’s Dubravko Lakos-Bujas said sharp declines await US stocks in the first half of 2023 against the backdrop of a mild recession and Fed hikes.

The prediction adds to calls from strategists at Goldman Sachs Group Inc. and Deutsche Bank AG that American equities are in for a wild ride next year.

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“The next mountain needing to be conquered, and will be the 2023 focus I believe, is the economic consequences to such a sharp rise in interest rates, the higher cost of capital that both businesses and households have to deal with and the recession it creates,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.

“We do not think the macroeconomic conditions for a sustained market rally are yet in place,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, who sees the cumulative impact of hikes weighing on economic growth and corporate profits.

From a technical standpoint, however, history offers encouraging signs for US stocks once they break above a longer-term trend line after spending months below it.

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In the previous 13 times the S&P 500 was beneath the 200-day moving average for more than six months and then closed above it, the index posted an average return of 12% over the next six months and 19% a year later, according to Ryan Detrick, chief market strategist at Carson Group.

Jonathan Krinsky at BTIG notes that while a big rally got the US equity gauge through its 200-day moving average, it also took it right to the downtrend line from the January highs.

“The slope of the 200-DMA is often more important than whether price is above or below it,” he added. “Consider in 2002, there were several rally attempts that did get above the declining 200-DMA, only to fail and roll over to new lows.”

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On the currency markets, the Bloomberg Dollar Spot Index fell 1%, the euro rose 1.1% to $1.0523, the British pound rose 1.5% to $1.2243, and the Japanese yen rose 2% to 135.35 per dollar.

🔑 The day’s key events:

Oil increased its gains this week driven by China’s progress in easing measures against Covid-19, which could increase demand for crude from the Asian giant.

WTI crude rose 0.83% to $81.22 and Brent crude gained a brief 0.06% to touch $87.02 per barrel.

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“Crude is taking advantage of tailwinds from a change in sentiment regarding China’s Covid policy, the weaker dollar and the rally in risk assets,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.

In addition, following Wednesday’s US crude stockpile data, the biggest drop in inventories since June 2019, the Biden administration signaled it would be considering a pause in sales of its strategic reserves in order to replenish emergency stockpiles.

🍝 For the dinner table debate:

Blackstone Inc.’s (BX) $69 billion real estate fund for wealthy individuals said it will limit redemption requests, one of the most dramatic signs of a pullback in one of the firm’s key earnings drivers and a chilling indicator for the real estate industry.

Blackstone Real Estate Income Trust Inc. (BREIT) has faced withdrawal requests exceeding its quarterly limit, a major test for one of the private equity firm’s most ambitious efforts to reach out to individual investors. The news, contained in a letter Thursday, sent Blackstone shares down as much as 10%, the biggest drop since March.

“Our business is about performance, not cash flows, and performance is rock solid,” a Blackstone spokesman said, adding that BREIT’s focus on rental housing and logistics in the Sun Belt leaves it well positioned for the future. This year, the fund has invested more than $20 billion in swaps through November to counter rising rates.

The fund became a real estate giant since its inception in 2017, acquiring apartments, suburban homes and dormitories and growing rapidly in an era of ultra-low interest rates as investors chased yield. Now, rising borrowing costs and a cooling economy are rapidly changing the landscape for the fund, prompting BREIT to warn that it could limit or suspend repurchase requests in the future.

Sebastián Osorio Idárraga, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.