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Energy, Mining Stocks Boost Colombia’s COLCAP; S&P 500 Falls Ahead of Fed Hike

Colombia’s stock market led the gains in Latin America, while the S&P 500 falls despite surprisingly solid employment data

Inicia el segundo semestre del año
By Bloomberg Línea and Bloomberg News
August 05, 2022 | 06:45 pm

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

👑 Colombia’s COLCAP, leader in Latin America:

The Colombian stock market extended Thursday’s gains and was the best performing market among its Latin American peers on the last day of the week.

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The Colcap (COLCAP) climbed on Friday buoyed by shares of Grupo Energia Bogota (GEB), Mineros (MINEROS) and Bancolombia’s preferred stock. Ecopetrol (ECOPETL), the share with the highest trading volume, also closed higher.

During the week, BTG Pactual analyst Fernán González raised his recommendation on GEB shares to buy, according to Bloomberg.

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Investors are now waiting for next week when the new government’s decisions will begin to materialize, following Gustavo Petro’s presidential inauguration on Sunday.

Brazil’s Ibovespa (IBOV) also closed the week with gains.

📉 A bad day for Mexico’s BMV:

Mirroring the performance of the US markets, the Mexican stock market closed the week with losses, adding two consecutive days of declines, with the S&P/BMV IPC (MEXBOL) ended the day with a 0.41% decline, dragged down by the performance of the health, communication services and finance sectors.

Genomma Lab (LABB), Gruma (GRUMAB), Industrias Peñoles and Grupo Financiero Inbursa (GFINBURO) shares were among the biggest losers.

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A BX+ analyst report had already predicted that the major catalyst for the session would be “the assimilation of the strong U.S. employment data, which reflected greater resilience in the economy and solidified the expectation of aggressive monetary tightening.

Analysts at Actinver added in a note that with the “elevated job creation data the Fed has little argument for slowing the pace of rate hikes”.

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🗽 On Wall Street:

US stocks notched a weekly gain after a surprisingly strong jobs report alleviated recession fears but cleared the path for the Federal Reserve to raise rates sharply at its next meeting.

The S&P 500 suffered a decline on Friday after falling as much as 1.1% during the session. But the index and the Nasdaq 100 wrapped up their third straight week of gains, the longest rising streak since April for both. Treasuries sank, with the 10-year yield around 2.83% after climbing nearly 26 basis points since Monday.

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The S&P 500 dropped 0.16%, the Nasdaq Composite (CCMDPL) 0.50%, but the Dow Jones Industrial advanced 0.23%.

The strong jobs report validated the Fed’s view of a resilient economy that can withstand additional interest-rate hikes. Traders have now recalibrated expectations for Fed policy, with a hike of three-quarters of a percentage point the more likely scenario at the September meeting as the central bank battles inflation.

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A handful of Fed officials this week reiterated the central bank’s resolve to bring down high prices. Among them is Fed St Louis President James Bullard, who has said he favors a strategy of front-loading big interest-rate hikes. That stance has likely strengthened after Friday’s job report, ruling out the possibility of a dovish pivot that Fed Chair Jerome Powell hinted at last week.

“This jobs report is consistent with an inflationary boom,” said Neil Dutta, head of economics at Renaissance Macro Research. “The Fed has a lot more work to do and in an odd way, that the Fed needs to get more aggressive in pushing up rates, makes the hard-landing scenario more likely.”

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“For the Fed, this report confirms the need to continue tightening and also endorses much of this week’s Fedspeak that sought to jawbone rate expectations. For markets, the report may pose a challenge for rate-sensitive equities like tech which had recently been leading in terms of sector performance,” Eric Theoret, global macro strategist at Manulife Investment Management, told Bloomberg.

Corporate earnings, combined with thin liquidity that’s common in the summer, took the stock market on a ride this week. Many firms beat expectations and proved they could handle high inflation and a gloomy economic outlook. But investors have resumed shunning global stocks in favor of bonds, according to Bank of America Corp. strategists, who say it’s time to step back from US equities after July’s rally.

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US-China tension also remained among the uncertainties clouding the outlook. China announced it would halt cooperation with the US in a number of areas -- including working-level talks on climate change and defense -- after US House Speaker Nancy Pelosi’s trip to Taiwan this week. China also sent warships across the Taiwan Strait’s median line, a day after likely firing missiles over the island.

Gold fell and Bitcoin gained on Friday. West Texas Intermediate suffered its biggest weekly decline since April.

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🔑 The day’s key events:

It would appear that the good news on inflation is starting to come. On Thursday night, during Tesla’s (TSLA) annual meeting, Elon Musk warned that the prices of raw materials and the components they use have already begun to fall.

Although the entrepreneur with the world’s largest fortune warned that he still sees a recession in the United States, he assured that “the trend in prices is downward, which suggests that we have already passed the peak of inflation,” as reported by Bloomberg.

Musk said component prices will trend lower over the next six months. “I think inflation is going to fall rapidly” at some point in the future, he added.

Adding to Musk’s optimism were figures presented today by the FAO. The food price index it compiles recorded its biggest drop since 2008 and completed its fourth consecutive monthly retreat.

However, “many uncertainties remain, such as high fertilizer prices, which may affect future production prospects and farmers’ livelihoods,” said FAO chief economist Maximo Torero.

🍝 For the dinner table debate:

Amazon (AMZN) continues to expand its empire beyond e-commerce sales, and after announcing two weeks ago the purchase of healthcare firm One Medical, today it announced the acquisition of IRobot Corp (IRBT).

The company is the maker of the popular Roomba robot vacuum cleaners and the transaction will be sealed at $1.65 billion. According to a statement, the company will pay $61 per share of the manufacturer’s stock, which represents a 22% premium over the last closing price.

According to Bloomberg’s calculations, this is the fourth largest acquisition ever made by the company founded by billionaire Jeff Bezos. It trails only the purchase of Whole Foods ($13.7 billion), movie studio MGM ($8.5 billion) and 1Life Healthcare ($3.49 billion).

Seeking to dispel concerns that Amazon would use the deal to drive rivals out of iRobot, an Amazon spokesman said Friday that the company would continue to supply retailers with iRobot products and sell competing devices on the company’s retail websites, Bloomberg reported.

-- Carlos Rodríguez Salcedo, a content producer at Bloomberg Línea, and Isabelle Lee, Emily Graffeo and Elaine Chen of Bloomberg News, contributed to this report.