Brazil’s Ibovespa Leads in LatAm; US Stocks See Year’s Longest Weekly Run

Peru’s was the only Latin American market to post losses on Friday, while US markets gained amid hopes the Fed will moderate its tone

Pedestrians pass in front of the Brasil Bolsa Bacao (B3) stock exchange in Sao Paulo, Brazil. Photographer: Patricia Monteiro/Bloomberg
By Bloomberg Línea and Bloomberg News
August 12, 2022 | 08:35 PM

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

👑 Brazil’s Ibovespa, Latin America’s leader:

The lower risk aversion generated during the week, due to the inflation data in the United States, and the positive response from Wall Street helped Latin American stock markets to close the day with gains.

Gains were highest for Brazil’s Ibovespa (IBOV), which recovered from yesterday’s fall when its performance was affected by the performance of Petrobras (PETR3, PETR4) shares.

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The energy, financials and healthcare sectors were among the session’s biggest risers. In addition to the foreign scenario, investors also kept a close eye on the companies’ balance sheet season.

Magazine Luiza (MGLU3) shares were among the day’s highest gainers, despite reporting that second-quarter net income, announced Thursday afternoon, fell short of analysts’ estimates.

Despite this, the company said it expects sales and market share to be boosted by increased social aid from Auxílio Brasil, the World Cup and 5G operations in Brazil.

Mexico’s stock market also closed the session with gains and the S&P/BMV IPC (MEXBOL) advanced with momentum in the financials, consumer staples and materials sectors.

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📉 A bad day for Peru’s markets:

The S&P/BVL Peru (SPBLPGPT) closed with losses, dragged down mainly by a drop in the financial sector, with shares of Credicorp (BAP), Banco Bbva (BBVAC1) and Volcan Cia Minera (VOLCABC1) were among the biggest losers.

On Thursday afternoon, the Board of Directors of the Central Reserve Bank raised for the thirteenth consecutive time its benchmark interest rate to reach the level of 6.50%.

This is the historical maximum at which the Peruvian interest rate has been, reaching a level not seen since January 2009.

🗽 On Wall Street:

Stocks finished the week on solid footing, with traders assessing whether an inflation slowdown could soon make the Federal Reserve reduce the pace of its most-aggressive tightening campaign in decades and prevent a hard landing.

Defying the crowd of skeptics who dubbed the rebound a bear-market rally or short-covering, the S&P 500 had a fourth straight week of gains, the longest such run since November. The gauge recouped more than 50% of the losses it notched between its January peak and June nadir, and approached its 200-day average -- a line crossed by the Russell 2000 of small caps. The Nasdaq 100 pushed further beyond its technical bull-market threshold, following a surge of over 20% from June lows.

As equities climbed, Wall Street’s fear gauge crumbled. The Cboe Volatility Index slumped back below 20, the average level since its inception. The VIX notched its eighth straight week of declines, the longest losing stretch since 2019. Meantime, the S&P 500′s 14-day relative strength index (RSI) topped 70 -- which is seen by some traders as one indication of an overbought market.

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The S&P 500 climbed 1.73%, closing its fourth consecutive week of gains, the longest since November, while the Dow Jones Industrials moved up 1.27% and the Nasdaq Composite 2.09%.

The next few weeks will be crucial in determining the sustainability of the rally. With the earnings season almost over, economic reports mixed at best and many Fed speakers unwillling to sound too dovish, some analysts see the chances of a breather. To Matt Maley at Miller Tabak, stocks are indeed getting overbought on a very-short-term basis, so a decline or sideways move “would not be the worst development in the world.”

For now, flows have been robust. Global equity funds lured $7.1 billion in the week through Aug. 10, Bank of America Corp. strategists led by Michael Hartnett wrote, citing EPFR Global data. Bond funds had an intake of $11.7 billion, while $4.3 billion was pulled out of cash.

“The music hasn’t stopped,” said Matt Bartolini, State Street Global Advisors’ head of SPDR Americas Research. “The labor market continues to be positive, earnings growth continues to be positive. So largely, if there is a recession, it’s going to be relatively shallow.”

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Lindsey Bell, chief markets and money strategist at Ally, said the market’s about to enter what is often considered a “sketchy period.”

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“Historically, September and October are notoriously volatile, sometimes featuring big stock market drops,” she wrote. “After a more than 10% rally since mid-June, a bearish seasonal trend is good reason to temper expectations. I expect this market to continue to be reactionary and driven by headlines until we have more clarity on where exactly inflation is headed as we approach 2023.”

Data Friday showed US consumer sentiment climbed to a three-month high on firmer expectations about the economy and personal finances. Inflation expectations were mixed, with consumers boosting their longer-term views for prices slightly, while reducing their year-ahead outlook for costs.

Fed Bank of Richmond President Thomas Barkin was the latest official to call for continued rate increases, while acknowledging that this week’s inflation figures were encouraging. His San Francisco counterpart Mary Daly told Bloomberg Television that the slowdown in price pressures may mean it’s appropriate for the central bank to slow the pace of hikes to 50 basis points in September-- but noted the fight against inflation is far from over.

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“The Fed is unlikely to claim victory until inflation reaches target, but recent data support our view that peak Fed hawkishness is behind us,” Bank of America strategists wrote in a note to clients.

On the currency markets, the Bloomberg Dollar Spot Index rose 0.2%, the euro fell 0.6% to $1.0261, the British pound fell 0.6% to $1.2137 and the Japanese yen fell 0.3% to 133.48 per dollar.

🔑 The day’s key events:

Despite a pullback on Friday after the market received news that supply in the Gulf of Mexico will recover faster than expected, oil prices managed to post a weekly gain.

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Investor sentiment was boosted by the International Energy Agency’s report this week, in which it estimated that it expects global oil consumption to rise by 2.1 million barrels per day this year.

The expectation is 2% higher than it had delivered in its previous forecast, as it sees rising natural gas prices and heat waves have led industries to switch their fuel to oil.

“The price movements highlight how tight the market remains and how sensitive it is to rises. A US-Iran deal could change this, but traders are clearly not betting on it, given how the talks have gone so far,” said Craig Erlam, an analyst at Oanda.

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🍝 For the dinner table debate:

Although for years the directors of streaming platforms denied the possibility of advertising coming to their service, in the face of increased competition and the need to increase spending on original productions, the promise they initially sold had to change.

The latest to do so was Disney (DIS), which this week announced that it would raise the prices it offers in the United States and incorporate a cheaper subscription, but with ads.

The decision comes at a time when the industry’s strategy seems to be shifting very subtly from subscriber growth to profit, as Bloomberg Opinion columnist Martin Peers wrote.

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Disney is facing a scenario where while it is growing subscriber numbers, its streaming arm is still not profitable.

The new model is also being presented by Netflix (NFLX), which does battle user loss, and Warner Bros. (WBD), which recently announced it would merge its Discovery+ and HBO Max services. In both cases, they have already announced that they will offer packages with advertising, although Warner has been exploring this model since last year in the United States.

In the words of Geetha Ranganathan, media analyst at Bloomberg Intelligence, “a pure subscription model is unsustainable, especially considering the high costs of content”.

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

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