A roundup of Tuesday’s stock market results from across the Americas
👑 Brazil’s leads Latin American gains:
Latin American stock markets closed higher on Tuesday for the second consecutive day, further trimming the previous week’s losses. Brazil’s Ibovespa (IBOV), Argentina’s Merval (MERVAL) and Chile’s Ipsa (IPSA) led the session’s gains.
The Brazilian stock market closed with a gain of 2.03%, driven by the performance of the non-basic consumer products, health and information technology sectors. Risk appetite returned to the market with the change in the transitional constitutional amendment for a spending cap waiver (known as the PEC) announced on Tuesday.
The team of the next government, headed by the future Finance Minister, Fernando Haddad, agreed to reduce from two years to one, in 2023, the validity of the new fiscal rules, which leave room for expenditures of 145 billion reais ($27.8 billion) outside the ceiling.
The new version of the PEC must be voted this Tuesday in the Chamber and, due to the change of text, in the Senate. The proposal also provides room for investments of R$23 billion in case of excess federal revenues. The reduction in the duration of the measure, defended by the deputies, softens the fiscal impact of the Transition PEC, given that the next government will have to discuss the issue with Congress next year, in addition to probably being forced to seek a lasting alternative to the spending cap rule.
Argentina’s Merval closed 1.99% higher on Tuesday.
Argentine stocks seem to be infected by the world championship achieved by the national soccer team in Qatar this Sunday.
“Although the international market is neutral, Argentine equities are firm, continuing with the same tone as yesterday,” Francisco Mattig, economist and Portfolio Manager at Consultatio Financial Services, told Bloomberg Línea, and explained that it is in line “with what is happening in Brazil, given that the indices usually have a fairly high correlation with each other”.
Financial analyst Gustavo Neffa, also associated it to “the recovery of Brazilian equity, with fund managers investing in emerging markets, and this also drags Argentina”.
According to Mattig, Brazil’s situation responds to the agreement reached in Congress with the incoming government “on the budget and some technicalities on the level of spending”. “Anyway, there is something idiosyncratic, because both yesterday and today Argentine bonds were green, while rates in the world were rising”, said Mattig. Neffa added: “There is some joy because of the World Cup, there is no doubt about it, it had started yesterday in a bad round for the world and good for Argentina, and today it is even better”.
🗽On Wall Street:
US stocks oscillated between gains and losses throughout a volatile session on Tuesday, with technology shares still under pressure after last week’s hawkish central bank turn. Treasuries slumped, with the global bond market digesting the Bank of Japan’s sudden increase in its yield trading band.
The S&P 500 ended the session with a modest gain, snapping a four-day losing streak. The tech-heavy Nasdaq 100 fell for the fifth day, its longest stretch of declines since October, as investors continue to digest the threat of higher interest rates well into 2023. With few macro catalysts before the end of the year, swings are liable to pick up, as stocks witnessed on Tuesday.
The S&P 500 added 0.10%, the Nasdaq Composite (CCMPDL) gained a modest 0.01% and the Dow Jones Industrial Average closed 0.28% higher on Tuesday.
FedEx Corp. and Nike Inc. reported earnings after the markets closed. FedEx posted fiscal second-quarter earnings that beat analysts’ estimates, buoyed by price increases and cost cuts that helped make up for a decline in package volume. While Nike Inc. reported another quarter of inventory buildup, its quarterly sales and gross margin exceeded Wall Street’s estimates. Shares of both firms rose post-market.
Treasuries broadly held losses, with the 10-year rate climbing to around 3.69%. Yields rose after a hawkish move from the Bank of Japan sent the yen soaring more than 4% against the dollar at one point. Analysts reckon more losses lie ahead as Japanese investors — major players in US and European debt — have incentive now to bring money home.
Until now, the BoJ has been an outlier among central banks, most of which have rapidly tightened policy. The Japanese monetary authority adjusted its yield curve control program to allow 10-year borrowing costs to rise to around 0.5%, versus the previous 0.25% upper limit, bucking forecasts for no change at its policy meeting.
“Tighter BoJ policy would remove one of the last global anchors that’s helped to keep borrowing costs at low levels more broadly,” Deutsche Bank analysts told clients, noting the BoJ move had come as markets were “already reeling” from the European Central Bank and Federal Reserve’s hawkishness last week.
Many economists now expect the BOJ to raise interest rates next year, joining the Fed, the ECB and others after a decade of extraordinary stimulus.
However, Evercore ISI’s Krishna Guha and Peter Williams said elevated FX hedging costs mean Japanese investors have already stopped being net buyers of US government debt. The BoJ as the biggest holders of Japanese government bonds would take most of the loss from duration risk on its own balance sheet, they wrote in a note.
“In other words, this is a disruptive jolt but not a cataclysmic event for global markets,” they said. “The BoJ may be demonstrating that it is actually possible to exit yield curve control in phases in a manageable way, though one that still has material implications for markets.”
Meanwhile, data showed new US home construction continued to decline in November and permits plunged, an indication that Fed tightening is serving its purpose. However, closing prices climbed in the third quarter, and the Fed will continue to raise rates if housing remains costly, which could be detrimental for risk assets in the long run.
On the currency markets, Bloomberg Dollar Spot Index fell 0.7%, the euro was little changed at $1.0615, the British pound rose 0.2% to $1.2171, and the Japanese yen rose 3.8% to 131.75 per dollar.
🔑 The day’s key events:
Oil closed higher on Tuesday. The day was marked by the decrease in liquidity on the eve of the Christmas holidays, supported by the weakness of the dollar, which makes commodities priced in that currency more attractive, and a possible boost in energy demand after China abandoned its Covid Zero policy and reactivated its economy, which encourages hopes of higher consumption in the long term.
West Texas Intermediate for February delivery settled at $76.23; while the January contract, which expires on Tuesday, rose to $76.09. On the other hand, Brent for February delivery settled at $79.90 a barrel.
Continued supply disruptions in the US are also favoring oil. According to Bloomberg reports, TC Energy has delayed the planned restart of the Keystone pipeline by a week, and is now targeting December 28 or 29, according to people familiar with the matter.
Despite the gains, crude remains on track to post its second monthly loss, with a persistent lack of liquidity leaving prices prone to large swings.
🍝 For the dinner table debate:
Twitter Inc. (TWTR) will restrict voting on major policy decisions to paid Twitter Blue subscribers, company owner Elon Musk said in one of his first tweets following a poll calling for his resignation.
In response to a Blue member calling himself Unfiltered Boss, Musk agreed with the suggestion that only subscribers should have a say in future policy and said, “Twitter will make that change.”
A day earlier, the billionaire boss of the social media network pledged to put all future policy decisions to a vote and offered Twitter users a choice on leadership, asking whether he should step down.
More than 10 million votes, or 57.5% of the total, were in favor of Musk stepping down from his role at the helm of Twitter. In calling for the vote, Musk pledged to abide by the result, but nearly a day later he had tweeted more than 10 times without directly referring to the outcome. Musk responded to a tweet suggesting the poll may have been manipulated by bots with a single word: “interesting.”
Leidys Becerra, a content producer at Bloomberg Línea, and Peyton Forte and Sujata Rao of Bloomberg News, contributed to this report.