Brazil Bucks LatAm Market Negativity; US Stocks Fall Ahead of Inflation Data

Brazil’s Ibovespa was the only Latin American index to post gains on Tuesday, while US stocks fell following negative tech-sector financial reports

A visitor walks past an electronic board displaying stock activity at the Brasil Bolsa Balcao (B3) stock exchange in Sao Paulo, Brazil. Photographer: Patricia Monteiro/Bloomberg
By Bloomberg Línea and Bloomberg News
August 09, 2022 | 05:50 PM

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

👑 Brazil’s Ibovespa leads in Latin America:

Brazil’s Ibovespa (IBOV) was the only index in the region to close with gains on Tuesday, climbing 0.23% despite a session characterized by losses. The raw materials, energy and communication services sectors had the strongest performance during the day.

Shares of Qualicorp (QUAL3), Itaú (ITUB4) and Vale (VALE3) posted the strongest gains, along with those of Petrobras (PETR3, PETR4) on a volatile day for oil prices.

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In the week’s domestic agenda, investors are awaiting Wednesday’s publication of the minutes of the central bank’s last meeting, in which interest rates were raised. Inflation data measured by the national CPI for July is also expected.

The Central Bank’s Focus report, released Tuesday morning, showed a reduction in inflation expectations for this year, from 7.15% to 7.11%.

📉 A bad day for the rest of Latin America’s markets

The risk aversion that dictated the sentiment among investors also affected Latin American stock markets, which endured a day dominated by losses.

Argentina’s Merval (MERVAL) had the biggest drop among its peers in the region, amid the poor performance of shares such as Transener (TRAN), Cresud (CRES) and Banco Macro (BMA).

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Argentina’s new Economy Minister Sergio Massa faced his first major test of market confidence in his administration after the government conducted a debt swap on Tuesday.

The swap will help reduce Argentina’s large local debt maturities that expire in the coming months, Bloomberg reported.Declines also occurred in the Mexican stock market.

The S&P/BMV IPC (MEXBOL) retreated in line with the performance of the materials, non-basic consumer products and health sectors.

Shares of Volaris (VOLARA), Gruma (GRUMAB) and Grupo México (GMEXICOB) had the sharpest losses.

🗽 On Wall Street:

Stocks retreated as a downbeat outlook from another giant chipmaker added to recession fears on Tuesday, with many traders unwilling to make any risky bets before Wednesday’s pivotal inflation reading.

A rally in the S&P 500 from its June lows hit a wall amid a fourth straight day of losses. The Nasdaq 100 underperformed as Micron Technology Inc.’s (MU) warning showed more evidence of the collapsing demand for chips.

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The negative report followed Monday’s by Nvidia (NVDA) and rekindled fears of a recession.

All 30 companies in the Philadelphia Semiconductor Index fell. In late trading, Coinbase Global Inc., the largest US cryptocurrency exchange, sank on a disappointing revenue.

The S&P 500 slipped 0.42%, the Dow Jones Industrials 0.18% and the Nasdaq Composite (CCMDPL) 1.19%.

Investors turned more cautious ahead of July’s consumer-price index, which is forecast to cool a bit while still remaining at high levels. The report will come on the heels of recent jobs figures underscoring solid wage growth and US productivity data highlighting another surge in labor costs that could further complicate the Federal Reserve’s efforts to tame inflation.

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“A hotter-than-anticipated CPI report will pressure markets this week. An in-line report could be taken in stride as investors have priced in a 75 basis point move by the Fed” in September, wrote Lindsey Bell, chief markets and money strategist for Ally. “Either way, we still have to get through another jobs report, more inflation data, and Jackson Hole before we get to the Fed’s September meeting. It could be a volatile several weeks ahead.”

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Timing the peak in inflation isn’t easy, especially after June’s CPI print turned out to be hotter than expected, but being right in doing so has brought investors a hefty return.

Those buying the S&P 500 at major inflation peaks going back to 1940 have seen the index post an average rally of 16% in the next 12 months, according to data compiled by Leuthold Group. A big caveat is: the price-to-earnings ratio has averaged 12.7 in prior instances on a normalized basis, compared with above 20 now.

Highly optimistic analyst recommendations are flashing a warning signal for stocks, according to Citigroup Inc. strategists led by Robert Buckland. An index of global sell-side ratings “is back to peak bullishness levels reached in 2000 and 2007, after which global equities halved,” they wrote.

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Strategists from Morgan Stanley and Goldman Sachs Group Inc. have already warned that analysts’ expectations are unrealistic. Meanwhile, JPMorgan Chase & Co.’s Marko Kolanovic, one of Wall Street’s staunchest bulls, said investors should modestly trim stock holdings after equities outpaced other assets amid receding recession fears.

“Near the mid-June lows, we discussed that we would not be selling equities given markets were already pricing in a lot of bad news. However, with the strong equity rebound since then and our view that the near-term upside is capped, the risk/reward appears less favorable,” said Keith Lerner, chief market strategist at Truist Advisory Services.

Among other corporate highlights, the surge in meme shares like Bed Bath & Beyond Inc. and GameStop Corp. sputtered. Novavax Inc. shares plummeted as the drugmaker slashed its revenue forecast on disappointing demand for its Covid-19 vaccine that trailed competitors getting to market. Boeing Co. delivered 23 of its 737 Max jetliners and three freighters in July, down from 51 total commercial aircraft shipments in June.

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On the currency markets, the Bloomberg Dollar Spot Index was little changed, the euro rose 0.1% to $1.0208, the British pound was also little changed, at $1.2073, and the Japanese yen fell 0.1% to 135.13 per dollar

🔑 The day’s key events:

Oil prices had a volatile day again amid fears of a recession and the paralysis of a key pipeline in Europe that refocused attention on supply problems.

Russian crude flows through Ukraine to Hungary, Slovakia and the Czech Republic were halted as sanctions against Moscow prevented payment of a transit fee, Bloomberg reported.

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Russia has previously said that international sanctions have led to slowing natural gas flows to Europe through the Nord Stream pipeline.

“Fears related to macroeconomics outweigh supply-related concerns. Liquidity is low and conviction is anemic,” Rebecca Babin, senior energy trader at CIBC Private Wealth Management, told Bloomberg.

🍝 For the dinner table debate:

Tennis superstar Serena Williams announced her retirement from the professional game on Tuesday, after notching up 23 individual titles in Grand Slam tournaments, to devote herself to growing her family.

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The athlete explained her decision in an article in Vogue magazine in which she said that at 41 years of age “something had to give”, although she did not want to choose between her career and her family.

Williams even said that if she were a man she would not be forced to retire.

“I don’t think it’s fair,” she wrote. “If I were a man, I wouldn’t be writing this because I’d be playing and winning while my wife was doing the physical work of expanding our family. Maybe I’d be more like Tom Brady if I had that opportunity.”

Although she did not announce a timeline for his retirement, she is expected to participate in the US Open later this month. Following her retirement, Williams will also focus on her venture capital firm, which invests primarily in companies started by women and people of color.

In an interview with Bloomberg Línea this week, prior to the announcement of her retirement, she said she was very interested in investing in the region, especially Brazil.

Although Williams’ fund also invests in companies founded by whites, she said women naturally come to Serena Ventures because they feel they have the opportunity to be heard and seen. “Right now, our portfolio is about 68% women or Black people, which is really unheard of in the venture capital world.”

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

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