Brazil’s Ibovespa Posts LatAm’s Deepest Losses; Rate-Hike Fears Push US Stocks Lower

All of Latin America’s stock markets closed lower on Wednesday, while US markets also dropped as investors digest retail sales data and foresee further rate hikes by the Federal Reserve

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By Bloomberg Línea and Bloomberg News
November 16, 2022 | 09:45 PM

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A roundup of Wednesday’s stock markets results from across the region

📉 A bad day for Latin American markets:

All Latin American stock exchanges fell on Wednesday, with the Ibovespa (IBOV) posting the sharpest losses during the day following the risk aversion sentiment seen in the U.S. stock exchanges.

The declines of shares of Hapvida Participacoes (HAPV3), Americanas (AMER3), and Minerva SA (BEEF3) weighed the most on the main São Paulo Stock Exchange index, which fell 2.58%. Investors’ attention is focused on the country’s fiscal policy with the meeting between President-elect Luiz Inácio Lula da Silva and the President of the Senate, Rodrigo Pacheco, in Egypt to define details of the so-called Transition PEC (Proposal for the Reform of the Constitution).

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The expectation was that the proposal would be announced Wednesday and that the text will eliminate the Bolsa Família from the spending ceiling. The move is viewed with concern by the financial market, as it signals that a new fiscal framework may not be in place until the end of the next administration.

After winning the election last month, Lula reaffirmed his plans to increase social spending, and his transition team includes important names from the past government of Dilma Rousseff, who was leading the country when the economy went into recession. That was enough for Citigroup (C) to recommend its clients reduce exposure to Brazil, and local assets led global declines last week.

“There’s a lot at stake with respect to fiscal uncertainty, ministerial appointments and key positions in the economic team,” said Joel Virgen Rojano, head of Latin America strategy at TDSecurities. “All of this for now is a big question mark and markets are getting impatient.”

In addition to the Brazilian bourse, the S&P/BVL Peru (SPBLPGPT) and Argentina’s Merval (MERVAL) also led the region’s losses this session.

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The Peruvian stock market fell 0.73%, dragged down by the performance of the financial and materials sectors. The shares of Cementos Pacasmayo (CPACASC1), Intercorp Financial Services (IFS), y Empresa Agroindustrial Pomalca (POMALCC1) were among the worst performers of the session. The Merval fell 0.68%. The tumbling shares of YYPF SA (YPFD), Central Puerto (CEPU) and Cresud (CRES) impacted the performance of the Argentine index.

🗽 On Wall Street:

US stocks dropped on Wednesday after strong retail sales data and comments from at least two Federal Reserve speakers recast bets that the central bank’s policy tightening regime is nearing an end.

The S&P 500 and the Nasdaq 100 fell after a report showed retail sales posted the biggest increase in eight months in October, outpacing estimates and indicating the economy can withstand additional Fed hikes. Target Corp.’s disappointing earnings also weighed on sentiment.

The S&P 500 fell 0.83%, the Nasdaq Composite (CCMPDL) 1.54% and the Dow Jones Industrial Average 0.12%.

The indexes trimmed their losses after 4 p.m. in New York, when a fresh batch of earnings trickled in. Nvidia Corp. posted quarterly sales that topped analysts’ estimates while Cisco Systems Inc. gave a bullish revenue forecast.

A closely watched part of the US yield curve reached new extremes of inversion, signaling concerns that restrictive Fed policy will sap the economy.

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Wednesday’s market pullback came after a hefty rally stoked by softer-than-expected US inflation data that fanned hopes the Fed may be able to slow its tempo of interest-rate hikes. While a slew of Fed officials in recent days have backed these expectations, they have also emphasized the need to keep hiking into next year.

On Wednesday, New York Fed President John Williams bruised sentiment after he said the central bank should avoid incorporating financial stability risks into its considerations. San Francisco Fed President Mary Daly, meanwhile, stressed that a pause is “off the table.”

Goldman Sachs Group Inc. now expects the Fed to boost its key rate to a range of 5% to 5.25%, up from the previous call of 4.75% to 5%.L

“The market is just trying to grasp for news and it’s prone to overcompensate for the news, whether it’s good news or bad news,” Sandi Bragar, chief client officer at Aspiriant, said by phone. “We’re just at that point in the cycle where we think there’s still the high likelihood for potential downward trajectory of stocks as we head into 2023.”

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The stronger retail numbers give the Fed more room to be aggressive, as officials have consistently communicated, Oksana Aronov, alternative fixed income head of markets strategy at JPMorgan Asset Management, said on Bloomberg TV. The disparate economic data that has hit the markets in recent weeks complicates the central bank’s mandate, she said.

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Earlier in the day, comments from US President Joe Biden that Ukrainian air defenses, rather than by Russia, had likely caused Tuesday’s explosion in Poland soothed fears of an escalation in military conflict. While the White House backed Poland’s call on the matter, it emphasized that Russia was ultimately to blame.

Elsewhere, European Central Bank policy makers may slow down their tempo of rate hikes, with only a 50 basis-point increase next month, according to people with knowledge of the matter.

On the currency markets, the Bloomberg Dollar Spot Index was little changed, the euro rose 0.5% to $1.0396, the British pound rose 0.4% to $1.1916, and the Japanese yen fell 0.1% to 139.44 per dollar.

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🔑 The day’s key events:

Oil prices fell on Wednesday after the Druzhba pipeline, Europe’s largest crude oil pipeline, resumed operations following a power outage and tensions over the missile that hit Poland subsided, bringing demand concerns back to the forefront.

West Texas Intermediate (WTI) for December delivery fell 1.53% and settled above US$85 after a volatile session in which futures oscillated in a US$3 range, while Brent for January settlement gave up 1.34% and settled at US$92.60 a barrel.

Fears of a global economic slowdown continue to weigh on demand prospects, offsetting, for now, the risk posed by low fuel inventories. The International Energy Agency said this week that oil stocks in developed countries are at the lowest level since 2004. In addition, a U.S. government report today showed large crude withdrawals and small buildups in fuel inventories.

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On the other hand, investors are waiting to see the impact on global balance sheets of the sanctions on Russian oil that will take effect early next month.

🍝 For the dinner table debate:

Elon Musk sent an email to Twitter Inc. staff (TWTR) asking them to commit to staying at the company by working long hours at high levels of intensity or accept severance pay.

Staff must complete a form by Thursday at 5 p.m. New York time or accept three months’ severance. “For Twitter to succeed we will have to work very hard,” Musk said in the mailing, seen by Bloomberg.

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“Exceptional performance alone is enough to get approval,” an excerpt from the mailer reads.

A Twitter representative did not immediately respond to a request for comment. The document was previously reported by the Washington Post.

Musk said in the mailer that Twitter will be more dominated by engineers in the future, making up the majority of remaining employees and having the most influence in the company, which he called a “software and server company” at its heart. The design and product management functions “will still be very important and will report to me,” he said.

Leidys Becerra, a content producer at Bloomberg Línea, and Elaine Chen and Isabelle Lee of Bloomberg News, contributed to this report.