A roundup of Tuesday’s stock market results from across the region
👑 Brazil leads in Latin America:
Latin America’s stock markets caught the contagion of the US markets’ mood. Brazil’s Ibovespa (IBOV) had the biggest rebound among the region’s main stock market indices, ending the day with a rise of more than 5%.
The gain comes after Sunday’s elections, in which Luiz Inácio Lula da Silva garnered a 5% lead over President Jair Bolsonaro, falling short of the 50% required for a first-round victory, with a runoff scheduled for October 30.
“Bolsonaro’s stronger-than-expected performance may lead him to soften his rhetoric and Luiz Inácio Lula da Silva to adopt a more pro-market agenda in order to woo moderate voters ahead of the second round of voting. Markets are likely to welcome the changes,” said Adriana Dupita of Bloomberg Economics.
The Brazilian index was driven by the performance of stocks in sectors such as energy, non-basic consumer products, utilities and finance.
Argentina’s Merval (MERVAL) closed with an increase of 4.28%.
🗽 On Wall Street:
Stocks kicked off the week with big gains after suffering their worst September in two decades as Treasury yields halted a seemingly endless surge, with weak US manufacturing data soothing concern the Federal Reserve will overtighten monetary policy.
As a sign of exhaustion after the recent washout, about 97% of the S&P 500′s shares flashed green, with the gauge having its best day since July. Aside from being oversold from a technical perspective, extreme pessimism and low fund positioning also fueled a rebound that followed its third-worst performance during the first nine months of a year since 1931.
The S&P 500 closed 2.59% higher on its best day since July, while the Dow Jones climbed 2.66% and the Nasdaq Composite (CCMPDL) 2.27%.
In a bad-news-is-good-news world as far as Fed policy goes, a drop in the Institute for Supply Management’s gauge of factory activity suggested the economy may be faltering, reducing the urgency for more aggressive rate hikes. Fed Bank of New York President John Williams said the central bank still has more work to do to curb inflation, warning the process will take time.
Equities also managed to gain even in the face of Credit Suisse Group AG’s market turmoil and Tesla Inc.’s disappointing deliveries that prompted an 8.6% plunge in the electric-vehicle giant’s shares.
“The market is oversold, and sentiment is extremely negative, so a bounce…even a sharp one…could happen at any time,” wrote Matt Maley, chief market strategist at Miller Tabak + Co. “However, we see lower-lows before the ultimate bottom is reached for this bear market…as the stock market has not fully priced-in a recession.”
As equities snapped back, the Cboe Volatility Index dropped to around 30 after also closing above that threshold every day last week. Nicholas Colas at DataTrek Research said Friday he’d like to see the gauge finishing over that mark for several more days before believing on a “tradeable low.”
Key technicals will likely need to capitulate before the S&P 500 can truly bottom, according to Bank of America Corp.’s Stephen Suttmeier. Although the US equity market typically turns bullish in the fourth quarter of midterm election years, capitulation remains elusive in equity put-call ratios and S&P 500 selling volume.
JPMorgan Chase & Co.’s Marko Kolanovic reiterated that increasingly hawkish central banks and the destruction of the Nord Stream pipelines will likely cause delays in the US equity-market’s recovery, putting the firm’s year-end target for the S&P 500 -- which implies a potential upside of about 30% from Monday’s close -- at risk.
Treasuries surged across the curve, with the five-year yield at one point plummeting over 30 basis points. The 10-year rate sank to 3.65% after recently topping 4% and climbing for nine straight weeks. Swaps tied to Fed policy meeting dates fell sharply for early 2023. The March meeting contract’s rate currently suggests a peak policy rate of 4.46% next year, down from recent highs above 4.60%.
The dollar slipped, yet the latest MLIV Pulse survey showed the greenback is expected to hit new highs over the next month. Gold surged. US coal prices surged past $200 for the first time as a global energy crunch drives up demand for the dirtiest fossil fuel. Oil saw its biggest rally since July as potential OPEC+ output cuts heighten fears of supply tightness on the horizon.
Despite the rebound in risk assets, markets are bracing for more turbulence as a crucial reading on the still-tight US labor market is set to give traders a chance to reassess the Fed’s commitment to its aggressive path of rate hikes.
The Fed should consider stopping its tightening campaign after one more rate hike in November, according to Ed Yardeni, who coined terms like “Fed Model” and “bond vigilantes.” The stress in financial markets from big rate increases, a surging dollar and quantitative tightening has reached the point that officials should make financial stability the top priority, he added.
“Investors are starting to doubt central banks globally will remain aggressive with fighting inflation as financial stability risks are growing,” said Ed Moya, senior market analyst at Oanda. “It is too early to call for a Fed pivot, but it seems the action in Treasury markets suggests traders are growing confident that the global growth slowdown is starting to drag down pricing pressures.”
Brazilian assets soar
Elsewhere, Brazilian assets soared after President Jair Bolsonaro secured his way to a runoff election against Luiz Inacio Lula da Silva as investors cheered on the incumbent’s better-than-expected showing and bet his leftist challenger will be forced to moderate his stances in the second stretch of the race.
The real was the best-performing among the world’s major currencies Monday, while the Ibovespa gauge of stocks climbed 5.5% -- its biggest gain since April 2020.
After two consecutive months of declines, Bitcoin advocates are hoping that the largest cryptocurrency reverts to form in October, which has typically been one of its best months for gains. The virtual currency tends to rise roughly 25% in October and has, since 2015, advanced more than 85% of the time during it, according to Bespoke Investment Group.
Las bolsas de Estados Unidos comenzaron esta semana al alza con ganancias superiores al 2%, luego de que el viernes cerraran su peor septiembre en 20 años. Los débiles datos de la industria manufacturera calmaron la preocupación por el endurecimiento de la política monetaria de la Reserva Federal.
“El mercado está sobrevendido y el sentimiento es extremadamente negativo, por lo que un rebote, incluso uno fuerte, podría ocurrir en cualquier momento”, escribió Matt Maley, estratega jefe de mercado de Miller Tabak + Co. “Sin embargo, vemos mínimos más bajos antes de que se alcance el fondo definitivo de este mercado bajista ya que el mercado de valores no ha descontado totalmente una recesión”, señaló el analista.
On the currency markets, the Bloomberg Dollar Spot Index fell 0.5%, the euro rose 0.3% to $0.9828, the British pound rose 1.4% to $1.1325, and the Japanese yen was little changed at 144.67 per dollar.
🔑 The day’s key events:
Oil also had a rebounding day on Monday. WTI rose more than 5%, its biggest increase since July. Possible production cuts by the Organization of the Petroleum Exporting Countries (OPEC) are raising fears related to a supply shortage.
Members of the organization are expected to meet this Wednesday, in what would be their first face-to-face meeting since March 2020, and announce a decision regarding cutting production by more than one million barrels per day by November.
“It’s surprising to the market that OPEC is talking about cuts of 1 million barrels a day when inventories remain quite tight and the fact that they have also missed their own production targets,” said Rob Haworth, investment strategist at US Bank Wealth Management.
WTI for November delivery rose $4.14 to $83.63 a barrel, while Brent for December settlement gained $3.72 to end trading at $88.87 a barrel.
🍝 For the dinner table debate:
Regardless of the outcome of the second round of Brazil’s presidential election, scheduled for October 30, President Jair Bolsonaro’s influence on the country’s politics will remain strong in the future, after many of his allies won key congressional and local government elections.
Around 60% of the members of the lower house are now from right-wing and centrist parties that support the president. Bolsonaro also got several former members of his cabinet elected to the Senate. This guarantees him great influence in Congress after a better-than-expected performance in Sunday’s election.
Even if his challenger, former President Luiz Inácio Lula da Silva, wins the runoff, Bolsonaro and Bolsonarismo could make it difficult for the next government to pass reforms or appoint members of Brazil’s powerful Supreme Court.
Analysts are now awaiting the results of the second round, which could mean a change in the relations of Latin America’s main economic power with the rest of the region.
-- Leidys Becerra, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.