Brazil’s Ibovespa Leads LatAm Market Gains; NYSE Closes Mixed After US Adds Jobs

Argentina’s Merval index snapped a two-week streak of gains, while Wall Street saw a volatile day on Friday after the US economy added 263,000 jobs in November, a higher figure than expected

The Federal Reserve of Chicago chair Charles Evans said Friday that interest rates will have to be raised higher.
By Bloomberg Línea
December 02, 2022 | 08:50 PM

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

👑 Brazil’s Ibovespa leads in Latin America:

In Latin America, Brazil’s Ibovespa (IBOV) rose the most during the day, even registering a weekly gain, closing up 0.90%. This followed a rally in the shares of Natura & Co Holding S.A. (NTCO3), which gained 10.15%, and Meliuz S.A. (CASH3), which gained 6.31%.

Colombia’s Colcap (COLCAP) gained 0.44%.

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Inflation in Colombia is expected to reach an average of 12.3% year-on-year in November, a new record, according to a Citi survey of more than 20 players in the financial and banking sector. In this survey, those consulted expect the average monthly inflation to be 0.57%. The November figure will be published by DANE next Monday.

Meanwhile, Chile’s Ipsa (IPSA) rose 0.30%.

📉 Merval breaks two-week streak:

Argentina’s Merval (MERVAL) corrected the results of the last two weeks and lost 0.53% on Friday, after sustaining a bullish rally on Thursday and touching all-time highs.

Central Puerto S.A. (CEPU) shares fell 4.53% and Banco BBVA Argentina S.A. (BBAR) shares lost 27% on the day.

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Mexico’s S&P/BMV IPC (MEXBOL) fell 0.43%, impacted by the US employment report. The Mexican peso, for example, erased the week’s accumulated gains and was on track to close the week with losses, following the labor market data.

During Friday’s session, the Mexican currency depreciated 1.16% to trade at 19.37 per dollar.

Peru’s S&P/BVL (SPBLPGPT) lost 0.23% after the close on Friday.

🗽 On Wall Street:

Stocks and bonds faced a lot of instability, with a hot jobs report fueling bets the Federal Reserve will keep tightening even if officials downshift the pace of hikes this month.

A surge in Treasury 10-year yields fizzled out, while two-year rates -- which are more sensitive to imminent Fed moves -- remained higher. The S&P 500 almost erased a slide that earlier topped 1%. The dollar wavered.

The Nasdaq (CCMPDL) dropped 0.19%, the S&P 500 0.12%, but the Dow Jones Industrial Average advanced 0.10%.

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Rather than boosting their bets for the Fed’s December meeting, traders increased their wagers on where rates will top out. Swaps showed a peak of 4.98% before a pullback that still left the contract up eight basis points from where it was before the jobs data. The current range is between 3.75% and 4%.

US employers added more jobs than forecast and wages surged by the most in nearly a year. Nonfarm payrolls increased 263,000 in November, while the unemployment rate held at 3.7%. Average hourly earnings rose twice as much as predicted.

“To have 263,000 jobs added even after policy rates have been raised by some 350 basis points is no joke,” said Seema Shah at Principal Asset Management. “The labor market is hot, hot, hot, heaping pressure on the Fed to continue raising policy rates. What is there in this jobs report to convince them not to take policy rates above 5%?”

That’s why the Fed’s “dot plot”, which the central bank uses to signal its outlook for the path of policy, is in focus at the moment. Anna Wong at Bloomberg Economics says officials may have to boost their terminal-rate forecast from what they wrote down in the September, possibly to 5.25%.

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Fed Bank of Chicago President Charles Evans said rates will need to be raised to a higher peak even as the central bank slows the pace of increases. He said policymakers were likely to downshift to 50 basis points, after raising rates by 75 basis points at four straight meeting.

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Evans remarks are the latest from a central bank official, including Powell earlier this week, to suggest a half-point hike when they gather Dec. 13-14.

“In sum, the Fed is far from done – 75 is on the table for the Dec. meeting, although given all the communication around slowing to 50 it will be hard for them to back away at this point. Nevertheless, a long tack for raising rates means a higher terminal rate,” Steven Blitz at TS Lombard said.

For his part, David Russell at TradeStation Group, said: “The Fed also has to think about their credibility. After clearly signaling a turn away from 75 basis points, they’re unlikely to change that two weeks from now. Instead, we’ll probably see more hawkish projections on the dot plot.

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Stock investors’ optimism around a cooling labor market and a Fed pivot is overdone, according to Bank of America Corp. strategists, who recommend selling the rally ahead of a likely surge in job losses next year. Their note was published before Friday’s jobs data.”

“Bears (like us) worry unemployment in 2023 will be as shocking to Main Street consumer sentiment as inflation in 2022,” strategists led by Michael Hartnett wrote in a note showing that global equity funds just had their biggest weekly outflows in three months. “We’re selling risk rallies from here,” he said, reiterating his preference for bonds over equities in the first half of 2023.

On the currency markets, the Bloomberg Dollar Spot Index was little changed, the euro rose 0.1% to $1.0533, the British pound rose 0.3% to $1.2281 and the Japanese yen rose 0.8% to 134.31 per dollar.

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🔑 The day’s key events:

Oil had its biggest weekly gains in a month, as the market awaits the upcoming OPEC+ meeting, where decisions on production policy could be made and after the European Union set a price cap for Russian crude.

However, on the day, WTI crude oil lost 1.53% to $79.98 and Brent crude lost another 1.53% to fall to $85.55 per barrel.

The European Union agreed to impose a price cap on Russian oil at US$60 a barrel, paving the way for a broader Group of Seven agreement, according to a Polish diplomat. “The key point, in our view, is the signal that the G-7 wants to keep Russian oil on the market. The market has come to believe that Russian crude exports will remain more resilient than expected and will not be affected by the price cap,” said Joel Hancock, analyst at Natixis.

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Oil staged a strong rally this week after hitting its lowest level since 2021 last Monday, with demand prospects improving due to China’s policy easing against Covid-19 following protests.

🍝 For the dinner table debate:

The trade of global goods will shrink next year in a slump reminiscent of previous recessions, Oxford Economics said, in a worrying forecast for export-dependent economies in Asia and other regions.

Goods trade will decline 0.2% next year and contractions are likely to start from the last few months of this year, Adam Slater, Oxford’s chief economist, wrote Friday in a report. That’s a substantial downward revision versus June, when Oxford forecast global goods trade would grow 3.4% in 2023.

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The forecast is among the worst trade outlook so far for next year and coincides with a growing number of Asian countries reporting a slowdown in exports. South Korea said Thursday that its exports posted the biggest year-on-year drop in more than two and a half years in November, dragged down by an economic slowdown in China and cooling demand for semiconductors.

China’s exports and imports unexpectedly fell in October and those declines are expected to deepen in November, according to data forecast to be released next week.

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