Chile’s IPSA Closes LatAm’s Strongest Quarter; US Shares See Worst First Half Since 1970

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

👑 Latin America’s Leader:

Argentina’s Merval (MERVAL) was the only stock exchange in the region to close the day with a positive performance, advancing 0.36%.

The country’s economy reversed the negative trend of March and grew by 5.1% in April in the inter-annual measurement.The official report stated that the wholesale, retail and repairs sector had the highest incidence in the inter-annual variation, followed by the manufacturing industry.

The Merval closed the first half of the year with an increase of 5.93%, while Chile’s IPSA index added almost 15% to end-June, driven by the good performance of commodities in the first six months of the year.

The Chilean stock market is the sixth best performing in the world, according to Bloomberg’s ranking of the main stock market indexes.

📉 A Bad Day:

Fears of a possible recession and the fall in the price of raw materials impacted the day’s performance of the main Latin American stock exchanges, on a day in which practically all of them closed in the red.

Colombia’s stock market had the worst performance among its peers in the region on the last day of the semester.

Colombia’s Colcap (COLCAP) closed the day with a drop of more than 1.7%, with the news of the appointment of José Antonio Campo as Finance Minister of President-elect Gustavo Petro not having a positive effect on the markets.

Although Ocampo is seen as a market-friendly official, investors were already ignoring news of his appointment and external factors ended up weighing more on the mood of the local market.

Fears of a possible recession and the fall in oil prices put downward pressure on the Colombian index.

Brazil’s Ibovespa (IBOV) and Mexico’s S&P BMV/IPC (MEXBOL) also closed with losses.

The Brazilian index was hit by the external scenario and by the fiscal risks that once again came to light, with pressures to reduce fuel prices and with proposals for new subsidies, in an already tight fiscal ceiling.

In the half-yearly balance, the Peruvian stock market (SPBLPGPT) had the worst performance in the region. In the first six months of the year, the Peruvian market was affected by the political uncertainty surrounding Pedro Castillo’s government and the protests that have paralyzed the production of some copper mines.

The Central Reserve Bank even reduced its growth expectations in the face of lower mining activity.

🗽 On Wall Street:

S&P 500 and Nasdaq 100 contracts dipped on Thursday after US shares posted their worst first half since 1970.

The Dow Jones Industrial slipped 0.82%, accumulating a half-year loss of 15.31%, while the Nasdaq Composite (CCMPDL) closed 1.33% lower and closed first-half with a drop of 29.51%.

Treasury yields sank Thursday as softer than expected consumer spending and inflation bolstered the view that sharp Federal Reserve rate hikes will spark recession. The 10-year yield briefly fell below 3% before closing just above.

Crude held losses on economic growth concerns. Bitcoin (XBT), emblematic of depressed sentiment, struggled below the closely-watched $20,000 level after its latest swoon.

Investors appear to be increasingly convinced that the global economy is set for a marked slowdown amid tightening monetary settings in much of the world to get high inflation under control.

“If anyone thinks that equities can rally into the back of the year, they are making the assumption that the Fed is going to let go of its entire focus on price stability and step back from that,” Seema Shah, chief strategist at Principal Global Investors, said on Bloomberg Television. “We have a very different view. We think things are going to get pretty tough.”

The latest US data showed inflation-adjusted personal spending shrank in May for the first time this year. Gains in the prior four months were revised down.

Traders expect another 75-basis-point Fed rate increase in July. Swaps referencing policy meeting dates price in a peak rate near 3.5% in March 2023 and a drop to about 3% by year-end.

🔑 The Day’s Key Events:

Oil prices extended their weekly fall, amid fears of a possible recession and signals regarding the performance of world supply.

On the one hand, OPEC and its allies approved the addition of 648,000 barrels per day in August, which will restore the production that was shut down just over two years ago with the onset of the pandemic.

However, the group of countries has shown difficulties to increase its supply and did not discuss what will happen as of September.

On the other hand, President Joe Biden said he will ask US allies in the Persian Gulf region to increase production when he meets with them during a trip to Saudi Arabia next month, Bloomberg reported.

Despite the pullback, both benchmarks closed with a half-year increase of more than 40%.

Oil prices have risen this year following Russia’s invasion of Ukraine and moves by the United States and its allies to block Moscow’s oil exports.

🍝 For the Dinner Table Debate:

The protests in Ecuador that are almost in their 20th day could be coming to an end, after an agreement between the government of President Guillermo Lasso and Indigenous authorities, despite the fact that the protesters showed reservations regarding the pact.

Both parties, with the mediation of the Catholic Church, agreed to a further reduction in fuel prices, specifically extra gasoline and diesel, which will now cost $2.40 and $1.75 per gallon, respectively.

Before signing the pact, the Indigenous movement’s rank and file pressured its maximum leader, Leonidas Iza, to ask for a review of the agreement, but finally the parties signed the document.

This week, rating agency Moody’s warned that social unrest and political pressure on the government of Guillermo Lasso in Ecuador are factors that are “negative for the sovereign and will curb the benefits of high oil prices”.

However, the rating agency expects that fiscal measures to address socio-political pressure will have a “manageable cost”.

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