Chile’s IPSA Bucks LatAm Markets’ Downturn; US Stocks Sink Following Rate Hike

US stocks tumbled following hawkish statements by Fed chairman Jerome Powell, while Chile’s index was the only one in Latin America to close with gains

Jerome Powell, chairman of the US Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, DC, US, on Wednesday, Nov. 2, 2022. Federal Reserve officials delivered their fourth straight 75 basis-point interest rate increase while also signaling their aggressive campaign to curb inflation could be approaching its final phase. Photographer: Al Drago/Bloomberg
By Bloomberg Línea and Bloomberg News
November 02, 2022 | 10:50 PM

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

👑 Chile’s IPSA leads in Latin America:

The majority of Latin America’s markets closed lower on Wednesday, except for Chile’s IPSA (IPSA), which gained 0.02%, buoyed by the shares of Enel Américas (ENELAM), CAP SA (CAP), Cencosud SA (CENCOSUD) and Enel Chile (ENELCHIL).

Guillermo Araya, research manager at Renta4, said that it is most likely that on Thursday the US Federal Reserve’s announcements will be incorporated with a delay, so that a clearer reaction of Chile’s IPSA to the US monetary decision can be seen.

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José Tomás Riveros, senior analyst at Capitaria, commented that Powell’s statements generated renewed pessimism for equities in general, which affects emerging markets negatively. “This will likely have a negative impact for Ipsa. In addition, we could continue to see an appreciation of the dollar globally, a product of the Fed chairman’s comments, which would cause upward pressure for the exchange rate,” he said.

Mexico’s S&P/BMV IPC (MEXBOL) and Brazil’s Ibovespa (IBOV) remained closed for public holidays.

📉 A bad day for Argentina’s Merval:

Argentina’s Merval (MERVAL) and Peru’s S&P/BVL (SPBLPGPT) posted the sharpest losses in the region on Wednesday, the Merval dropping 2.41%, dragged down by declines in the prices of shares of Grupo Financiero Galicia (GGAL), which dropped 3.5%, Loma Negra (LOMA), which dropped 3.4%, and Banco Macro (BMA), which closed 3.1% lower.

Peru’s S&P/BVL dropped 1.08%, with the sharpest losses suffered by the shares of .Minas Buenaventura (BVN), Corporación Aceros Arequipa (CORAREI1) and Credicorp (BAP).

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🗽 On Wall Street:

Stocks sold off as Jerome Powell continued to sound unequivocally hawkish as the Federal Reserve pushed ahead with its most-aggressive tightening campaign since the 1980s to thwart inflation.

The S&P 500 suffered its worst rout on a Fed decision day since January 2021. Stocks came decidedly lower after Powell said the Fed still has “some ways to go” in its policy cycle, adding that it’s premature to think about a pause as rates could peak at higher levels than previously thought. The move wiped out an earlier rally driven by his remarks that a slower pace of hikes could come as soon as December.

The S&P 500 dropped 2.50% as big tech companies’s shares, such as Apple Inc. (AAPL), Meta Platforms Inc. (META) and Microsoft Corp. (MSFT), dropped more than 3%. The Dow Jones Industrial Average slipped 1.55% and the Nasdaq Composite (CCMPDL) 3.36%.

“It’s as if investors came to a haunted house and got candy, but once they unwrapped it, saw it was soggy broccoli,” said Max Gokhman, chief investment officer at AlphaTrAI.

The hint of a potential downshift in tightening saw estimates for the Fed peak in policy rates for 2023 briefly drop below 5% right after the announcement. But by the end of the session, forecasts extended to a new cycle high of around 5.1% for the May meeting.

Megacap tech bore the brunt of the selling, with giants like Apple Inc. and Tesla Inc. tumbling more than 3.5%. In late trading, Qualcomm Inc., the biggest maker of smartphone processors, slumped on a weak forecast. Two-year US yields -- which are more sensitive to imminent Fed moves -- reversed course and pushed higher. The dollar gained.

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“When Powell made his comments regarding nothing pivot-related, or no shot of that, I think that was the ‘dagger’ for the market,” said Alon Rosin, head of institutional equity derivatives at Oppenheimer & Co.

The Federal Open Market Committee said that “ongoing increases” will still likely be needed to bring rates to a level that’s “sufficiently restrictive to return inflation to 2% over time,” in fresh language added to the statement. Officials unanimously decided to lift the target for the benchmark rate by another 75 basis points to a range of 3.75% to 4%, its highest level since 2008.

“This is not an environment in which the Fed will pivot or signal a pivot. To do so would be malpractice, and the Fed knows that,” Ronald Temple, head of US equity at Lazard Asset Management, said.

Data Wednesday showed hiring at US companies rose in October by more than forecast, underscoring resilient labor demand despite the Fed’s efforts to cool the economy. A strong job market has fueled fast wage growth, contributing to rapid inflation and putting pressure on the Fed to aggressively tighten monetary policy.

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The Treasury halted the longest string of cutbacks to its quarterly sales of longer-term debt in about eight years, showcasing the end of a period of historic reduction in the fiscal deficit.

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In corporate news, Boeing’s chief said the planemaker could generate $10 billion in cash annually by mid-decade, once it turns around its operations after years of setbacks and miscues. China has ordered a seven-day lockdown of the area around Foxconn Technology Group’s main plant in Zhengzhou, a move that will severely curtail shipments in and out of the world’s largest iPhone factory.

On the currency markets, the Bloomberg Dollar Spot Index rose 0.3%, the euro fell 0.5% to $0.9830, the British pound fell 0.8% to $1.1395 and the Japanese yen rose 0.3% to 147.77 per dollar.

🔑 The day’s key events:

Oil closed higher on Wednesday. Stockpile shortages pushed prices higher as gasoline inventories fell to the lowest level since November 2014, according to data from the Energy Information Administration.

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West Texas Intermediate (WTI) for December delivery closed at a three-week high of $90 a barrel, while benchmark Brent ended the day settling near $96 a barrel.

Crude oil recently recorded its first monthly rise since May, advancing towards $90 following OPEC’s decision to cut production from November. Prices had fallen from highs hit by the war in Ukraine, as economists forecast a recession for many of the world’s economies as central banks raise rates to combat inflation.

🍝 For the dinner table debate:

Latin America and the Caribbean are the regions most susceptible to a recession in the United States, says Fitch Ratings in a new report, reflecting the region’s geographic proximity and diverse transmission channels, which link them to economic cycles and policy decisions in that country.

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Fitch cut its US growth forecast for 2023 to 0.5% in its most recent report and foresees a mild recession in the US starting in the second quarter of 2013, which may impact the region, albeit differently in each country.

The decline in US external demand, for example, mainly affects Mexico due to its dependence on exports and its geographic proximity. While South American economies, which have limited trade links with the U.S., would be affected indirectly through the impact on world trade and commodity prices.

On the other hand, weakening household incomes and employment in the US could jeopardize the ability of migrants to send remittances home and discourage tourism.

Leidys Becerra, a content producers at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.