A roundup of Monday’s stock market results from across the Americas
👑 Mexico leads in Latin America:
Argentina’s Merval rose 1.42% with shares of Aluar Aluminio (ALUA), Central Puerto (CEPU) and Loma Negra (LOMA) driving the gains, while the Ibovespa rose 1.31% following Sunday’s victory in the presidential elections of left-wing former president Luiz Inácio Lula da Silva.
The Ibovespa was also buoyed by shares of CVC Brasil (CVCB3) and Alpargatas (ALPA4), which climbed 9.63% and 9.04%, respectively, while Petrobras (PETR3; PETR4) and Banco do Brasil (BBAS3) fell, the latter by 4.64%.
Goldman Sachs (GS) analysts said that Lula’s policy proposals could be positive for consumers, which would explain the good performance of the sector’s shares during Monday trading.
“Although the current Bolsonaro administration has been more generous than initially expected in terms of fiscal policy and social spending, Lula’s campaign has mentioned possible policy proposals that could boost consumption in the short term,” said a report led by Irma Sgarz of Goldman Sachs.
🗽 On Wall Street:
Stocks pared their monthly surge as bond yields climbed, with investors awaiting Wednesday’s Federal Reserve decision for clues on whether officials will dial back the pace of rate hikes as early as December.
Big tech weighed heavily on the S&P 500, while energy shares whipsawed on news that President Joe Biden will call on Congress to consider tax penalties for producers accruing record profits. Equities may also have come under pressure as pension funds that rebalance on a monthly basis potentially dumped shares amid an 8% rally for the US benchmark gauge in October.
The S&P 500 dropped 0.75%, the Dow Jones Industrial Average 0.39% and the Nasdaq Composite (CCMPDL) 1.03%.
A selloff in bonds across the curve sent two-year US yields to around 4.5%. Swap markets are pricing in a 75-basis-point hike this week amid the Fed’s most-aggressive tightening campaign in four decades. The outlook for the following meetings is less certain, with traders seeing a “coin toss” between an increase of that size and a 50-basis-point boost in the final month of 2022.
“This week will be loaded with scary stuff, from the Fed meeting and press conference to employment data on Friday,” wrote Paul Nolte, portfolio manager at Kingsview Investment Management. “Market expectations are for the Fed to begin signaling that their very aggressive rate hiking cycle will begin slowing down.”
JPMorgan Chase & Co.’s Marko Kolanovic is joining strategists who believe the aggressive hiking is nearing an end. The US will likely raise rates by 50 basis points in December and pause after one more 25-basis-point hike in the first quarter, he said. Indicators such as the inversion of the yield curve between 10-year and three-month Treasuries “all support a Fed pivot sooner rather than later,” wrote Morgan Stanley’s Michael Wilson.
Although October can evoke fear on Wall Street following stock market crashes in 1929, 1987 and 2008, it’s living up to its reputation as the best month in US midterm election years. Now traders are holding out hope this October will follow a historical pattern of being a “bear-market killer” following a turbulent year for equities.
When it comes to elections, the fourth quarter of midterm years and the following first quarter historically have been the two strongest of the 16-quarter presidential cycle, delivering average gains of 6.4% and 6.9% respectively for the S&P 500, according to investment research firm CFRA.
November has historically been one of the strongest months of the year for US stocks, said Bespoke Investment Group. The S&P 500 has experienced an average gain of 0.82% with positive returns 69% of the time, according to data going back to 1983. Over the last 10 years, the gauge saw a median advance of 1.26% and gains nine out of 10 times.
To Jason Draho at UBS Global Wealth Management, while the recent rally in stocks didn’t really look sustainable, that doesn’t mean markets can’t keep grinding higher in coming weeks, “provided that the Fed and labor and inflation data don’t disappoint.”
Global economic reports didn’t help sentiment on Monday. Euro-area inflation surged to a fresh all-time high, while the bloc’s economy lost momentum -- reinforcing fears that a recession is now all-but unavoidable. China’s factory and services activity contracted in October, with signs that things could worsen in the coming months.
Wheat prices soared after Russia suspended a deal guaranteeing safe passage of Ukrainian exports, with Moscow warning that shipments become “much riskier” without its participation even as new vessels loaded with crops set sail from Ukraine.
On the currency markets, the Bloomberg Dollar Spot Index rose 0.7%, the euro fell 0.8% to $0.9883, the British pound fell 1.3% to $1.1468 and the Japanese yen fell 0.7% to 148.68 per dollar.
🔑 The day’s key events:
Oil recorded its first monthly rise since May, boosted by the announcement by the Organization of the Petroleum Exporting Countries (OPEC) that it would cut production by 2 million barrels per day starting in November, complicating an already uncertain period for crude supply.
West Texas Intermediate (WTI) fell during the session to close to $86 per barrel, but recorded a rise of 8.9% in October. On the other hand, Brent for December settlement fell to close at $94.83 per barrel.
The daily rise in crude reversed after government figures in China showed that factory and service activity contracted in October, with signs that things could worsen in the coming months. In addition, Vitol Group, the world’s largest independent oil trader, said the company is seeing signs of oil demand destruction.
“It’s still painful, it’s still difficult for a lot of countries” after the spike in energy prices earlier this year, Vitol Chief Executive Officer Russell Hardy said in an interview with Bloomberg Television in Abu Dhabi on Monday. “As a result, we’re going to continue to see demand destruction for another few months.”
🍝 For the dinner table debate:
With the reelection of Luiz Inácio Lula da Silva, investors are seeking information from sources close to the former president, the Workers’ Party and political allies on the choice of the names that will form part of the cabinet of the next government.
There is pressure from the financial markets for the names to be announced quickly, especially in the economic area, in order to reduce uncertainty. However, judging by the history of the previous president when he was first elected, the announcement may take a few weeks to be made.
In 2002, Lula only announced the names of Antonio Palocci and Henrique Meirelles to head the finance ministry and the central bank, respectively, on December 12, more than a month after his electoral victory. Meirelles is expected to return to some position in Lula’s new term, although it is not yet clear which one. According to Bloomberg News, he and former health minister Alexandre Padilha are two of the names most often mentioned to take the helm of the economy.
In the PT wings, one of the most cited is Fernando Haddad, according to the newspapers O Globo and O Estado de S. Paulo. Haddad was minister of education in the governments of Lula and Dilma Rousseff, between 2005 and 2012. Market sources, on the other hand, point out that one name that is gaining strength is that of Marcos Lisboa to be the country’s new economy minister.