Colombia Heads LatAm Market Gains; US Stocks See Best 2-Day Rally Since 2020

The Colcap rose 3.52% on Tuesday, while the S&P 500 had its best two-day surge since April 2020

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By Bloomberg Línea and Bloomberg News
October 04, 2022 | 08:40 PM

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

👑 Colombia leads in Latin America:

Latin America’s stock markets were infected by the good mood of the markets in the United States, with the exception of Argentina’s Merval.

Colombia’s Colcap (COLCAP) has the best day, climbing 3.52%, driven by the energy, finance and utilities sectors. Cementos Argos (PFCEMARG), Bancolombia (BCOLO) and Ecopetrol (ECOPETL) shares led the gains.

The report on the first debate of the tax reform of President Gustavo Petro’s government was due to be filed Tuesday in the economic commissions of Colombia’s Congress. The bill proposes taxing the highest pensions, increasing tax on dividends and oil and crude exports, among other measures.

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The S&P/BVL Peru (SPBLPGPT) also performed well on Tuesday, closing 2.02% higher thanks to gains aming financial, materials and consumer staples shares.

📉 A bad day for the Merval:

Argentina’s Merval index (MERVAL) was the only one in the region to close with losses after closing with one of the highest gains in the region the day before. The index dropped 0.09%, with shares of Sociedad Comercial del Plata (COME), Banco de Valores SA (VALO) and Agrometal SA (AGRO) among the worst performers on Tuesday.

🗽 On Wall Street:

Stocks extended their rebound from deeply oversold levels, with traders weighing whether it would be realistic that central banks moderate their aggressive stance to prevent a hard landing.

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The S&P 500 had its best two-day surge since April 2020. Tesla Inc. climbed even after Elon Musk revived his $44 billion bid for Twitter Inc., which soared 22%. On top of the equity short squeeze, soft economic data gave bulls a glimmer of hope when it comes to policy. US job openings sank to a 14-month low -- which may fit well with a Federal Reserve that’s worried about a hot labor market. The dollar slumped.

The S&P 500 climbed 3.06%, the Dow Jones 2.80% and the Nasdaq Composite 3.34%.

Twitter Inc. (TWTR) shares rose 22% after Elon Musk U-turned on his decision to walk away from the deal to buy the platform, returning to his original offer to buy the company at $54.20 per share.

The debate over peak hawkishness intensified after a dovish surprise from Australia’s central bank and bond buying by the Bank of England. The idea of a Fed pivot, however, has been met with a lot of skepticism in Wall Street -- with top US officials warning that the battle against inflation will require more time.

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So when it comes to the explanation for the rally in stocks, traders generally prefer to stick with the idea that pessimism reached such extreme levels that a bounce would be just a matter of when.

For markets that had been “nearly one-sided,” the liquidation of those positions is a big reason to squeeze in the other direction so vigorously, said Fawad Razaqzada at City Index and Forex.

“While it ‘feels’ like the markets may have bottomed out -- which is certainly a possibility, a small possibility, but a possibility nonetheless -- it is important to not get caught in another bull trap,” Razaqzada noted. “We are still in a bear market, and this could just turn out to be another relief rally.”

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In fact, after raising bearish wagers in one of the longest stretches in years, short sellers are being forced to fold. At the center of the rally are most-shorted stocks, as tracked by Goldman Sachs Group Inc., which jumped over 6.5% Tuesday, handing losses for those who had placed bets against them.

Short squeeze has indeed been big factor behind the rebound in equities, but it’s not like traders are minimizing the potential impact of the recent economic reports on Fed thinking. Tuesday’s jobs data could reinforce the case for officials to get off the “hamster wheel” of 75 basis points sooner rather than later, said Evercore’s Peter Williams.

That doesn’t mean any pivot would be imminent. Markets are still mostly betting on a hike of that magnitude next month.

“In short, we’re starting to see some things the doves can hang their hat on, but I don’t think it will be enough to stop another 75bp move in November,” wrote Neil Dutta, head of economics at Renaissance Macro Research.

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“All eyes on Friday payrolls.”

For her part, Lindsey Bell, chief markets and money strategist at Ally, said the bets are on a “goldilocks” labor-market report that’s “not too hot and not too cold.”

“For the market to continue higher, the jobs data will have to be in-line with, or short of expectations,” she added.

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Elsewhere, oil surged for a second day as OPEC+ said it was considering an output cut of as much as 2 million barrels a day, a million barrels higher than previously anticipated.

On the currency markets, the Bloomberg Dollar Spot Index fell 1%, the euro rose 1.7% to $0.9989, the British pound rose 1.3% to $1.1474, and the Japanese yen rose 0.4% to 144.03 per dollar.

🔑 Key events of the day:

Oil prices rose again on Tuesday after the Organization of Petroleum Exporting Countries (OPEC) said it is considering cutting its production by up to two million barrels per day by November, double what it had previously announced. The move raises fears related to a supply shortage as inventories continue to be tight.

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West Texas Intermediate (WTI) closed at three-week highs, rising $2.89 to $86.52 per barrel for November delivery, and after posting its biggest advance since July on Monday.

Meanwhile, Brent for December settlement gained $2.94 to close the day at $91.80 per barrel.

OPEC’s decision could mark the largest production cut since the beginning of the pandemic. “The potential cut, from 1 million barrels per day to 2 million barrels per day, implies a more aggressive approach and may signal greater concern around demand and the health of the global economy,” said Stacey Morris, head of energy research at Alerian VettaFi.

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🍝 For the dinner table debate:

Photographer: Patrick T. Fallon/Bloombergdfd

Elon Musk proposed to go through with the purchase of Twitter Inc. for the original price agreed with the company, $54.20 per share, according to people familiar with the matter.

Musk made the proposal in a letter to Twitter, according to people who asked not to be identified as they were discussing confidential information.

Shares of the social network soared as much as 18% following the news after trading was briefly suspended.

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Musk had been trying to back out of the deal for months. After signing the contract in April, he began showing signs of buyer’s remorse, saying the company had failed to give accurate information regarding its user base and the prevalence of automated accounts, known as bots.

Musk formally backed out of the deal in July, setting off a trial in Delaware Chancery Court, which was scheduled to begin October 17.

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