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Chile’s IPSA Achieves LatAm’s Only Gains; US Markets Close Almost Flat

Colombia’s COLCAP index suffered Wednesday’s steepest decline as US markets’ movement was minimal

Buildings stand in the skyline of downtown Santiago, Chile, on Wednesday, Dec. 3, 2014. Chilean unemployment unexpectedly fell in the three months through October, the first month of a quarter that Finance Minister Alberto Arenas forecasts will see a "small and moderate reactivation" in the economy. Photographer: Ronald Patrick/Bloomberg
By Bloomberg Línea and Bloomberg News
June 29, 2022 | 05:45 pm

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

👑 Latin America’s Leader:

Chile’s was the only Latin American stock market to close with gains on Wednesday, after a volatile day in which it managed to rebound only in the last minutes of trading.

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The IPSA index (IPSA) advanced 0.10% thanks to the rise in shares of the energy, non-basic consumer products and finance sectors.

The volatility in the Chilean market was not only in line with the performance in the United States, but also with investors’ uncertainty about the future of the draft Constitution.

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The work of the Constitutional Convention in drawing up the draft document was completed on Tuesday, with the proposed Constitution comprising 388 articles, and which will be presented to President Gabriel Boric on July 4, before being put to an obligatory public vote on September 4.

📉 A Bad Day:

Volatility on the US markets had a negative impact on the rest of Latin America’s stock markets, with the mood across the region affected by the fall in the prices of raw materials such as oil and copper.

The Colombian stock market had the worst performance in Latin America, despite the rebound it saw on Tuesday, amid volatility following the election of left-wing Gustavo Petro as president.

Colombia’s COLCAP index (COLCAP) was battered by the poor performance of the shares in the financial, public and energy sectors, while Brazil’s Ibovespa (IBOV) closed with losses following the fall of Vale (VALE3) and Bradesco (BBDC4) shares on the São Paulo Stock Exchange.

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Something similar happened on the Mexican stock exchange, where the S&P BMV/IPC index (MEXBOL) was dragged down shares in the health, consumer staples and industrial sectors.

🗽 On Wall Street:

US markets had a hard time finding direction on Wednesday, with traders assessing comments from central bank chiefs about the outlook for the economy and interest rates.

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The S&P 500 closed little changed and slightly above the Fibonacci 38.2% retracement level of about 3,815 that investors have been closely watching. Quarterly rebalancing of portfolios contributed to the market choppiness. Treasuries and the dollar advanced.

The Dow Jones Industrial gained 0.27% and the Nasdaq Composite (CCMPDL) slipped 0.03%.

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Federal Reserve Chair Jerome Powell said the US is in “strong shape” and “well positioned to withstand tighter monetary policy.” He reiterated the commitment to bring inflation down, adding that the process is likely to cause some “pain.” Powell spoke on a panel with European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey.

Volatility gripped markets this year on concern that a hawkish Fed could tip the economy into a recession. The S&P 500 is on course for its worst quarter since March 2020 amid a surge in Treasury yields. The US central bank was in denial about inflation and moved too slowly in trying to quell rising prices. That has put it on a trajectory to create a recession, if it hasn’t already done so, according to Rob Arnott at Research Affiliates.

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“The froth certainly appears to have been taken out of the financial markets by this year’s stock-and-bond pullback,” said James Solloway, chief market strategist at SEI. “That’s the good news. The bad news is that an economic recession and a corresponding decline in earnings might not yet be fully priced into markets.”

The bond market shifted to price in a half-point rate cut in the Fed’s benchmark rate at some point in 2023, as traders upped their bets on a recession eventually halting the central bank’s aggressive tightening campaign.

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Fed Bank of Cleveland President Loretta Mester said officials must not be complacent about increases in long-term inflation expectations and should act forcefully to curb price pressures. US consumer spending  expanded in first quarter at the softest pace of the pandemic recovery, marking a surprise sharp downward revision that suggests an economy on weaker footing than previously thought.

Chief financial officers are growing increasingly downbeat about the economy this year, with a measure of sentiment falling to the lowest in nearly a decade. Respondents reduced their expectations for growth, according to the latest quarterly results of The CFO Survey, a collaboration between Duke University’s Fuqua School of Business and the Fed Banks of Richmond and Atlanta.

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“As pre-earnings announcements and analyst revisions hit the tapes, we should have a sense of whether the business side of the equation agrees with what consumers are saying,” said Quincy Krosby, chief equity strategist at LPL Financial.

In corporate news, Peloton Interactive Inc. sank after UBS reaffirmed its sell rating on the at-home fitness company, citing negative user trends. Carnival Corp. slumped as Morgan Stanley analysts warned that the cruise vacation firm’s shares are at risk of losing all of their value in the event of another demand shock. Bed Bath & Beyond Inc. plunged as the home-goods retailer reported disappointing results.

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🔑 The Day’s Key Events:

Oil prices retreated after a streak of three consecutive days of gains. The two main benchmarks, WTI and Brent, declined following the US Energy Information Administration’s inventories report.

Inventories fell as refiners increased run rates, while gasoline demand on a four-week moving average fell to the lowest seasonal level since 2014, Bloomberg reported.

The latter could be an indicator that consumers are starting to feel higher prices and that demand could be affected going forward.

The drop in prices comes at a time when the market remains tight. Libya suspended shipments from two key eastern ports, while Iranian media said talks to revive a nuclear deal that could boost the country’s supply ended Wednesday with little effect, Bloomberg reported.

In addition, protests continue to affect Ecuador, with an estimated 1.2 million barrels of production stopped in the first 14 days of the stoppage.

Petroecuador activated its “force majeure” clause due to the impossibility of continuing to export Crude Oriente. By applying the force majeure clause, the public company will not be sanctioned for not complying with the contracts it had signed with third parties for the delivery of crude oil at the beginning of July.

🍝 For the Dinner Table Debate:

Financial inclusion improved in Latin America during the pandemic, as social distancing and quarantines were the main tools used by governments to deal with the virus, which prevented cash payments from being made.

According to the Global Findex report, published by the World Bank, two-thirds of adults worldwide now make or receive a transaction digitally.

Latin America and the Caribbean was one of the regions that saw one of the biggest gains in the developing world: the proportion of adults who have an account rose 18 percentage points compared to the 2017 measurement, the last one that was conducted.

Specifically, 73% of adults had a bank account in 2021 and, in addition, 40% paid a merchant digitally. Fourteen percent of adults did this for the first time during the pandemic.The countries in the region where more adults have an account are Venezuela, Jamaica and Brazil.

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