Colombia Heads LatAm Market Gains; S&P 500 Sinks to Near 2-Year Low

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

👑 Colombia’s Colcap leads in Latin America:

Colombia’s Colcap index (COLCAP) chalked up its second day of gains on Thursday, closing its second consecutive day of gains, with shares of Terpel (TERPEL), Grupo ISA (ISA) and Grupo Energía Bogotá (GEB) leading the advances, as well as those of Ecopetrol (ECOPETL).

The state oil company’s president, Felipe Bayón, said on Thursday that the government’s tax reform could be very harmful for the company, and therefore presented an alternative that would allow the industry to contribute fiscally without having a very significant impact on its accounts.

During the day, investors weighed the decision of Colombia’s central bank to increase the interest rate by 100 basis points. The reference rate went from 9% to 10% in an attempt to stop the price escalation that has occurred since 2021.

The bank’s board estimated that the pace of economic activity remained dynamic in the second quarter. On this basis, the technical team increased the GDP growth forecast for 2022 from 6.9% to 7.8%.

📉 A bad day for Chile’s IPSA:

Risk aversion continued to affect the markets however, and Chile’s IPSA index (IPSA) closed lower for the second straight day, with shares of SQM/B (SQM/B), Enel Chile (ENELCHIL) and Vapores (VAPORES) among those with the sharpest declines.

A report by Banchile Inversiones and picked up by local media lowered the forecast for the IPSA’s progress, with more interest-rate hikes to come and a fall in copper prices.

Brazil’s Ibovespa (IBOV) also closed lower, affected by the fall in Petrobras (PETR3; PETR4) shares as oil prices fell. The markets in Brazil are also anticipating Sunday’s election, in which President Bolsonaro is looking to return to office against his rival and former president Luiz Inácio Lula da Silva, who leads in opinion polls.

Mexico’s S&P/BMV IPC (MEXBOL) also closed lower, dragged down by the shares of Volaris (VOLARA), Gruma (GRUMAB) and Grupo Aeroportuario del Pacífico (GAPB).

“We continue to urge caution, as a sustained recovery in the markets will not happen while the Federal Reserve continues its restrictive monetary policy, Actinver analysts wrote in a note.

Mexico’s central bank (Banco de México) on Thursday followed in the Fed’s footsteps and raised its interest rate by 75 basis points to 9.25%, its highest level since January 2008 and since records began.

🗽 On Wall Street:.

US stocks plunged to the lowest since November 2020 as another group of Federal Reserve officials struck a hawkish tone, and turmoil in Europe continued to fray investor nerves.

The S&P 500 fell as much as 2.9% during Thursday’s session but trimmed losses as markets closed. Its decline wipes out an ill-timed attempt Wednesday to rebound from a six-day slide.

The tech-heavy Nasdaq 100 dropped nearly 4% during the session after St. Louis Fed President James Bullard said investors have now understood that they can’t escape additional rate hikes in coming months. The index was dragged down by Apple Inc., which fell as much as 6.1% after a rare analyst downgrade from Bank of America warning of weaker consumer demand for its popular devices.

The Dow Jones Industrial Average dropped 1.54% and the Nasdaq Composite (CCMPDL) slid 2.84%.

Signs of stress emerged in the interest-rate swaps market and a leveraged-buyout deal was shelved. US Treasuries pared earlier losses, with the 10-year yield hovering around 3.76%.

In Europe, UK gilt yields rose after Prime Minister Liz Truss’s defense of unfunded tax cuts that sent markets into turmoil failed to persuade investors. German inflation topped 10% and the country agreed to energy caps that could add to inflationary pressures.

Investors are grappling with threats posed by discordant moves from central banks over the past few days, with Fed officials adamant on further monetary tightening, the Bank of England unveiling a plan to support government debt and authorities in Asia trying to prop up weakening currencies.

“I was actually really surprised by the impact that the Bank of England had on the global market,” said Fiona Cincotta, senior financial markets analyst at City Index. “Yet, it was short-lived, the relief rally. We sort of pushed past that quite quickly and it seems to be back to that narrative of inflation fears, higher-interest-rate fears.”

Fed officials haven’t shied away from warning that more rate-hike pain is yet to come, with Cleveland Fed President Loretta Mester echoing the rhetoric that her colleagues reinforced this week. San Francisco Fed President Mary Daly, after US markets closed, said the central bank should curb inflation in a manner that avoids a difficult downturn.

Better-than-expected 2Q core PCE and personal consumption numbers on Thursday also paved the path for the Fed to stay aggressive. Weekly jobless claims fell to the lowest since April, showing a persistently tight labor market.

Recession concerns persisted as a gap in the government’s two primary measures of US economic activity during the first half of 2022 narrowed. The National Bureau of Economic Research’s Business Cycle Dating Committee uses this metric and other variables to make any recession call.

“The market is now coming to terms with the idea that a recession is almost a given at this point and it’s really making adjustments for that,” said Shawn Snyder, head of investment strategy at Citi US Wealth Management.

Separately, the European Commission announced an eighth package of sanctions that would include a price cap on Russia’s oil exports as Russia vowed to go ahead with the annexation of the parts of Ukraine that its troops currently control after UN-condemned votes, putting the Kremlin on a fresh collision course with the US and its allies.

On the currency markets, the Bloomberg Dollar Spot Index fell 0.3%, the euro rose 0.7% to $0.9801, the British pound rose 1.7% to $1.1077, and the Japanese yen fell 0.2% to 144.44 per dollar.

🔑 Key events of the day:

Fears of a slowdown again weighed on oil prices which also retreated after Wednesday’s session had advanced more than 3%.

A drop in economic growth would impact oil demand, even though the market found support with reports that OPEC+ is discussing the possibility of cutting crude production when it meets next week.

“The turmoil in equity markets is dragging down crude oil’s returns as risk appetite fades rapidly. The deteriorating outlook for crude demand will not allow oil to move higher until energy traders are confident that OPEC+ will cut production at the Oct. 5 meeting,” added Edward Moya, analyst at Oanda.

Although both benchmarks are on track for a weekly gain, prices will end with their first quarterly loss in more than two years. The strength of the dollar during the month, which has touched record highs, has made commodities priced in that currency less attractive.

🍝 For the dinner table debate:

SoftBank on Thursday laid off 10 people - around 18% - from its Vision Fund team in Latin America, a person familiar with the matter who preferred not to be identified because the discussions are private told Bloomberg Línea.

Globally there were about 150 people affected at Vision Fund, just under 30% of the team, according to the source. The decision comes after the Japanese conglomerate’s founder, Masayoshi Son, announced a record loss of $23 billion in its latest report.

SoftBank has just over 80 companies in its portfolio in Latin America, such as unicorns Rappi, Creditas, Kavak, Vtex, Olist and MadeiraMadeira, and is expected to announce new investments soon, as Rodrigo Costa, a partner at SoftBank Investment Advisers said during an event organized by law firm Demarest Advogados last week.

SoftBank staff said they would not comment on the layoffs when approached by Bloomberg Línea.

-- Carlos Rodríguez Salcedo, a content producer at Bloomberg Línea, and Isabelle Lee and Vildana Hajric of Bloomberg News, contributed to this report.