Argentine, Mexican Markets Close Higher; NYSE Falls as Debt Impasse Continues

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

🌎 Mexico’s stock market leads LatAm gains:

Latin America’s stock markets closed mixed again on Wednesday, with Colombia’s Colcap index (COLCAP) closing with the sharpest fall, of 1.06%, while Brazil’s Ibovespa (IBOVESPA) dropped 1.03%.

Lima’s index (SPBLPGPT) dropped 0.88%, but Argentina’s Merval (MERVAL) climbed, boosted by the shares of Transportadora de Gas del Sur (TGSU2), Grupo Financiero Galicia (GGAL), and Edenor S.A. (EDN).

Mexico’s Mexbol (MEXBOL) also gained, boosted by the shares of Grupo México (GMEXICOB), which rose 8.03%; Industrias Peñoles (PENOLES), Grupo Financiero Banorte (GFNORTEO) and Gentera SAB (GENTERA*).

Grupo México’s shares gained after Citigroup said it would desist from the sale of Banamex to the company owned by magnate Germán Larrea, given that analysts considered that the company would save “a lot of money” by abandoning the deal that had been in discussions for months, and Citi will instead launch an IPO in 2025.

VIEW +

Citi Backed Out of Banamex Sale Over Grupo México’s Demands for Greater Guarantees

Mexico’s President Andrés Manuel López Obrador revealed the reason behind the US bank’s U-turn, and says his government will explore the possibility of buying Banamex

🗽On Wall Street:

US stocks and bonds fell on Wednesday as traders weighed the possibility of a US recession from either a US debt default or higher interest rates from the Federal Reserve.

The S&P 500 fell 0.7%, led by losses in financials and real estate, as negotiations over the US debt ceiling stretched into another day and minutes from the Fed showed policymakers split on the path for US interest rates.

The shares listed on the Dow Jones Industrial Average, which dropped 0.77%, that suffered the biggest losses Wednesday were 3M (MMM), which dropped 3.68%, and Boeing (BA), down 1.64% at closing.

Risk sentiment got a boost afterhours when Nvidia Corp., the world’s most valuable chipmaker, reported that booming demand for artificial intelligence processors buoyed its sales forecast well beyond Wall Street expectations. Its shares surged more than 25% in late trading, lifting the biggest exchange-traded fund tracking the Nasdaq 100 Index by more than 1.5%.

The losses in the cash mraket came after stocks in Europe and Asia retreated. The Stoxx 600 slid the most in two months as UK inflation came in higher than expected. And in Asia, China’s benchmark CSI 300 erased all its gains for the year as developers’ debt woes and a new wave of Covid added to worries over growth.

Luxury stocks including LVMH and Gucci owner Kering SA extended losses. Chipmaker Analog Devices Inc. slid after a weak outlook on economic uncertainty. And Citigroup Inc. fell after abandoning plans to sell its Mexican unit Banamex.

Yields on short-dated Treasuries continued to push higher, with investors demanding a higher premium on US debt with the highest risk of default. Treasury Secretary Janet Yellen said the US was likely to start missing debt payments as soon as June 1. As such, the yield on securities maturing June 6 pushed above 6.6% on Wednesday while those maturing May 30 are yielding around 3%.

“I’m starting to get the feeling that the Republicans don’t believe in Yellen’s ‘X-date’ and think they have the upper hand,” said Benjamin Dietrich, a portfolio manager at Lazard Asset Management LLC. “I think the risk is for no short-term solution and the S&P breaking lower. Also, the China surprise index collapse should be bad for risk sentiment.”

Despite the threat lawmakers will fail to raise the debt ceiling in time to avoid a financial crisis, bond traders stepped up wagers on a July rate hike following the release of minutes from the Fed’s FOMC meeting in May. Fed policymakers have been walking a fine line, trying not to tip the economy into a recession with its rate hikes in order to clamp down inflation. However, economists project a recession will occur regardless if a US debt deal contains deep spending cuts or there is a default.

“We are pessimistic on the economic outlook,” said Michael Krautzberger, head of EMEA fundamental fixed income at BlackRock International. “The potential volatility coming from the debt ceiling discussion as we approach the deadline is one of those reasons. We don’t expect a technical default but we do expect a last minute deal.”

JPMorgan Chase & Co. Chief Economist Michael Feroli said the odds of US debt talks going past June 1 are 25% and rising. However, Nomura’s Charlie McElligott said he believes a “positive outcome” is getting closer, with traders selling in waves of profit-taking ahead of the Treasury secretary’s deadline.

“Any relief rally on a debt-ceiling ‘deal’ headline into the start of next week then has the potential to act as a local top for stocks for a bit, with most of the ‘wall of worry’ blood already squeezed from the stone,” McElligott said.

The Bloomberg Dollar Spot Index rose 0.2%, the euro fell 0.2% to $1.0751, the British pound fell 0.4% to $1.2363 and the Japanese yen fell 0.5% to 139.32 per dollar.

🍝 For the dinner table debate:

Latin American investors continue to look for opportunities to invest outside the region, in search of attractive destinations for the returns they are targeting.

The Global LATAM 2022 report from ICEX-Invest in Spain in collaboration with the Ibero-American General Secretariat (SEGIB), revealed that last year international investment from Latin America reached record levels in 2022, exceeding US$73,449 million, 75% higher than the figure recorded a year earlier.

One of the key points of this report is that Brazil, Mexico and Chile continue to account for a large part of outbound investment from the region, concentrating close to 80% of foreign direct investment (FDI) going to countries outside Latin America since the beginning of the pandemic.

VIEW +

Latin American Foreign Investment Hit Record High In 2022, With Spain Biggest Recipient

Spain continues to be one of the main recipients of foreign investment by Latin American companies, and which totaled $73 billion in 2022

The executive director of ICEX-Invest in Spain, Elisa García Grande, explained to Bloomberg Línea that much of the outward investment that has increased from Latin America is due in particular to a reinvestment of dividends, which is strengthening the commitment to countries and sectors in which they already have a presence without increasing exposure to new technologies and without opening new markets.

Among other points, the Global LATAM 2022 report highlights that the accumulated Latin American investment in Spain since 1993, when the historical series began, already amounts to €68,361 million, which represents 11% of all foreign investment received by the Iberian country in the period.

Paola Villar S., a content producer at Bloomberg Línea, and Carly Wanna and Vildana Hajric of Bloomberg News, contributed to this story.