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Colcap Posts LatAm’s Only Decline, S&P 500 Seals Biggest Monthly Gain Since 2020

US stock markets shook off previous poor economic data and closed the month on the upside. In Latin America, Argentina’s Merval had the strongest monthly performance among its peers

Measured in local pesos, Argentina's Merval gained almost 40% on a monthly basis.
By Carlos Rodríguez Salcedo (EN) and Bloomberg News
July 29, 2022 | 08:14 pm

This is a roundup of Friday’s stock market results from across the region.

🥇 The leader:

The Argentine stock market outperformed Latin America, despite the current FX crisis and the economic turmoil in the country.

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Measured in local pesos, Merval (MERVAL) gained almost 40% on a monthly basis. Analysts insist that, beyond structural reasons, the upward trend reflects the effect of exchange rates on the Buenos Aires stock exchange, especially the ‘Contado con Liquidación’, used by companies to buy and sell shares or debt securities to obtain dollars, and which has appreciated by almost 15% so far this month.

However, on the last business day of July, the Argentine stock market closed in the red. All of this while President Alberto Fernández reshuffled his cabinet and appointed Congressman Sergio Massa as a “super-minister” to take charge of the Ministries of Economy, Productive Development, and Agriculture. Silvina Batakis lasted a little more than 20 days as Minister of Economy.

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Markets reacted favorably to the news, mainly in the case of USD indexed assets. “These rises did not reflect in pesos due to the pressure exerted by the exchange rate on them, said Priscila Bruno, an analyst at Rava Bursátil. “This was reflected in the leading panel with assets that closed with generalized losses.”

Ibovespa (IBOV), the region’s largest stock exchange by market capitalization, posted gains accumulating a monthly increase of almost 5%.

Petrobras (PETR3, PETR4) shares stood out at the end of the month’s last session, after it announced a dividend payment thanks to higher oil prices which boosted the company in the second quarter.

The Mexican stock market also closed the month with gains as the S&P BMV IPC (MEXBOL) rose by more than 1% during the month, the lowest increase among Latin American peers.

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🗽 On Wall Street:

The stock market wrapped up a chaotic week, with solid earnings from tech megacaps bringing solace to traders worried about the many cross-currents rattling economies around the globe.

After a horrific first half, the S&P 500 had its best month since November 2020 and Nasdaq 100 had its strongest performance since April of that same year. Tech led gains Friday, with Amazon.com Inc. (AMZN) and Apple Inc. (AAPL) soaring as higher revenues from the pair of iconic powerhouses countered fears about a profit slowdown at time when the industry is rethinking its staffing needs.

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Despite worrisome signals from economic proxies like Walmart Inc. (WMT) and United Parcel Service Inc. (UPS), the earnings season as a whole has turned out to be brighter than expected, with about 75% of the S&P 500 firms that have reported results beating analyst estimates. That’s fueling speculation that Corporate America will be able to weather the perfect storm of hot inflation, jumbo-sized rate hikes and dwindling growth.

Bloomberg Intelligence’s fair-value model suggests a modest recession may have been priced in following this year’s stock selloff. That means a price recovery could emerge with an earnings trough in the second half of 2022.

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“The fact that earnings are not as bad as feared is a very constructive thing for the markets,” said Anastasia Amoroso, chief investment strategist at iCapital. “The fact that we have priced in a whole lot of slowdown already, that too has just de-risked the landscape. So I think what can happen for the next couple of weeks is that the technical momentum really keeps moving stocks higher, while we wait for the next Fed move or the next inflation print.”

Despite the big rebound in stocks this month, several market watchers are still skeptical about a sustained rally due to the many economic challenges and the fact that the market hasn’t gotten cheap enough to call it a bottom.

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“This is a rally within a bear market rather than the start of a new bull market,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “We would expect a lower P/E ratio if we were at the bottom of the market. While the equity market has partially recovered, we expect it will retest the lows we saw in June.”

Donabedian says optimism about the Fed potentially ending its tightening cycle earlier than expected is “more hope than reality”. He sees further rate hikes and says there’s still a lot of work ahead to bring down inflation while adding that “a slowing job market is on the way.”

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Two key US price gauges posted larger-than-forecast increases, with the personal consumption expenditures index -- which forms the basis for the Federal Reserve’s inflation target -- climbing at the fastest pace since 2005. Consumers’ long-term inflation expectations also remained elevated.

Swaps showed traders increased bets on a 75-basis-point hike in September, though they continued to wager that a 50-basis-point hike was the most likely outcome.

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Fed Bank of Atlanta President Raphael Bostic noted the US economy was “a ways” from entering a recession and officials have further to go in raising rates to get prices under control. Fed Governor Christopher Waller pushed back against economists Olivier Blanchard and Lawrence Summers, who said the central bank’s assertion that it can cool off labor demand without much impact on the unemployment rate “flies in the face” of evidence.

In other corporate news, Intel Corp. (INTC), the biggest maker of computer processors, slashed forecasts for the year. Roku Inc. (ROKU), the maker of streaming-TV devices, said advertisers are pulling back on spending due to economic concerns. Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) posted their highest-ever profits, reaping the rewards from surging commodity prices. Procter & Gamble Co.’s forecasts growth lagged estimates.

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🔑 The Day’s Key Events:

A surge in risk appetite boosted cryptocurrencies in a year characterized by losses. The top two digital tokens by market capitalization, Ether and Bitcoin, are on track to close their best month since September 2021.

At 16:29 New York time, Bitcoin (BTC) was up 27% on the month, while Ether (XET) increased its price by 70%. For the latter, it has benefited from the blockchain on which it operates, Ethereum, transitioning to a more energy-efficient system.

“Signs the Fed may be nearing the end of their hiking cycle have lifted all risk assets, and crypto has also benefited,” said Cici Lu, chief executive officer at consulting firm Venn Link Partners. “Liquidation of leveraged positions seems to be over,” she added, and “markets may have found the bottom.”

Despite the monthly rally, dips in cryptocurrency prices returned on Friday after the Federal Reserve’s preferred inflation benchmark posted higher-than-expected increases.

The Department of Commerce’s Personal Consumption Expenditures (PCE ) price index, rose by 1% month-on-month in June, the fastest pace since 2005, Bloomberg reported.

📉 At the end of a bad month:

Colombia’s Colcap (COLCAP) was the only LatAm exchange to close the month with losses, dipping more than 2%. This marks the second consecutive monthly decline for the first time since 2021.

The Colcap has been affected by global risk aversion, following signs of a possible recession in the U.S., and a tightening policy by the US Federal Reserve.

Sharon Vargas, analyst at Itaú Comisionista de Bolsa, explained that the fall is mainly due to the fact that the market was waiting for relevant events that took place during the month, such as the Fed meeting and this week’s GDP news, which offered key data for future plans.

According to Vargas, this scenario led to a low appetite for risk on the part of investors, who opted for safe-haven assets. This was seen in the low movement of traded volumes, which was reflected in the index’s performance, he added.

There’s also uncertainty in Colombia due to the new government and the appointment of Gustavo Petro’s team.

🍝 For the dinner table debate:

The five top European football leagues attract the world’s top talent. And no other region, apart from Europe itself, contributes as many players as South America.

Footballers from South America master the European leagues thanks to the performance of more than 200 players in the English Premier League, Spain’s La Liga, Germany’s Bundesliga, Italy’s Seria A and France’s Ligue 1.

Brazilians account for the largest proportion, with 92 of the 218 South American players registered before July 18 in the five major leagues, according to a Football Benchmark report.

Argentina, Uruguay and Colombia follow Brazil in the ranking, while Bolivia does not have a single representative player in Europe’s top leagues.

The largest amount of South American players are in La Liga, with a total of 70, although the Premier League has the highest market value. In total, the 218 South American in those leagues players have a combined valuation of 3,759 million.