A roundup of Friday’s stock market results from across the Americas
👑 Chile’s IPSA leads in Latin America:
The majority of Latin America’s markers closed with moderate gains on Friday, led by Chile’s IPSA (IPSA), which climbed 0.35%, driven by the communications services, public services and energy sectors. The shares of Enel Américas (ENELAM), Empresa Nacional de Telecomunicaciones S.A (ENTEL) and Cencosud Shopping (CENCOSHO) saw the strongest gains.
Chile is having a hard time lowering inflation and, to make matters worse, the consumer price index (CPI) for January closed with a monthly increase of 0.8%, and up 12.3% year-on-year.
Despite the shock of the first month of the year, market analysts are optimistic that February will bring good news.
The latest Economic Expectations Survey of the Chilean central bank showed that the median of the consulting firms surveyed expected February to end with a monthly CPI of around 0.4%. The measurement was carried out at the beginning of this month and, shortly before the end of the period, some estimates have become more optimistic.
📉 A bad day for the Ibovespa:
Brazil’s Ibovespa (IBOV) was Friday’s biggest loser, dropping 1.67%, dragged down by the performance of the financial, information technology and health sectors.
Blue-chip shares such as Vale (VALE3), Petrobras (PETR4) and Itaú (ITUB4) dragged down the Ibovespa on Friday
Brazil’s National Consumer Price Index 15 (IPCA-15), considered a preview of the country’s official inflation, increased 0.76% in January, higher than expected by the financial market.
Eight of the nine baskets of goods and services included in the statistics agency’s survey rose in early February. Education costs, which rose by 6.41% with the start of the new school year, and housing costs, which increased by 0.63%, had the greatest impact on the monthly increase.
Friction between the central bank and the executive branch has contributed to increasing traders’ bets that rates will have to stay higher for longer, with monetary easing expected to begin only in the second half of the year.
Although President Lula has moderated his attacks on the bank’s strategy in recent days, according to Bloomberg, the outlook for Latin America’s largest country is bleak. Analysts see little economic growth this year and consumer price increases well above the 3.25% target for 2023 and 3% for 2024.
🗽On Wall Street:
Wall Street’s reaction to hotter-than-estimated inflation data suggested growing bets the Federal Reserve has a long ways to go in its aggressive tightening crusade, making the odds of a soft landing look slimmer.
A slide in the S&P 500 Friday extended its weekly rout — the worst in 2023. The tech-heavy Nasdaq 100 sank almost 2% as the Treasury two-year yield hit 4.8%, the highest since 2007. The dollar climbed. Swaps are now pricing in 25 basis-point hikes at the Fed’s next three meetings, and bets on the peak rate rose to about 5.4% by July. The benchmark sits in a 4.5%-4.75% range.
The S&P 500 dropped 1.05%, the Nasdaq Composite (CCMPDL) 1.69% and the Dow Jones Industrial Average 1.02%.
After a lengthy period of subdued equity swings, volatility gained ground this week. Aside from all the economic uncertainties, that’s reflective of a market that has gotten more expensive after an exuberant rally from its October lows. Those gains have been dwindling by the day amid fears that a potential recession could further hamper the outlook for Corporate America.
“There’s little room for upside in stocks right now given the inflation news, current market valuations after the January rally, and a weak Q4 earnings season,” said Brian Overby, senior markets strategist at Ally. “The ‘no landing’ view is quickly becoming more of a ‘bumpy landing’ view with the concept of higher interest rates for longer settling in.”
The unexpected acceleration in the personal consumption expenditures gauge underscored the risks of persistently high inflation. Furthermore, resilient spending paired with the exceptional strength of the labor market could make it tougher for the Fed to get inflation to its 2% goal. Separate data showed US consumer sentiment rose to the highest in a year while new home sales topped forecasts.
‘Do a little more’
Traders also kept a close eye on a parade of Fed speakers.
Cleveland Fed President Loretta Mester noted the latest inflation report is consistent with the fact policymakers need to “do a little more” to ensure inflation is moving back down. Her Boston counterpart Susan Collins said the central bank has to keep raising rates to get them to a sufficiently restrictive level and it may need to hold them there for an “extended” period.
“Move quickly now, reestablish credibility now,” said St. Louis Fed President James Bullard.
Officials may need to raise rates as high as 6.5% to defeat inflation, according to new research that was critical of the central bank’s initially slow response to rising prices. In a paper, a quintet of economists and academics argue that policymakers have an overly-optimistic outlook and will need to inflict some economic pain to get prices under control.
Mohamed El-Erian says financial markets are starting to doubt whether the Fed can bring inflation down to its target.
“We’re seeing actual and survey indicators heading the wrong way,” El-Erian, the chairman of Gramercy Funds and a Bloomberg Opinion columnist told Bloomberg Television.
“So the bullish narrative that the market had coming into the year of slowing economy headed toward a soft landing and slowing inflation allowing the Fed to stop raising rates ASAP, that’s been blown up here by the data. My view is that the market rally that we’ve seen since October was a bear-market rally,” David Donabedian at CIBC Private Wealth US said.
On the geopolitical front, the US will impose a 200% tariff on all imports of Russian-made aluminum, as well as aluminum products made with metal smelted or cast in the country, in a move that could ripple through global manufacturing supply chains.
Treasury Secretary Janet Yellen warned China and other nations against providing material support to Russia, saying any such actions would amount to an evasion of sanctions and would “provoke very serious consequences.”
Elsewhere, the yen retreated as Bank of Japan Governor nominee Kazuo Ueda warned against any magical solution to produce stable inflation and normalize policy as he largely stuck to the existing central bank script in the first parliamentary hearing to approve his appointment.
On the currency markets, the Bloomberg Dollar Spot Index rose 0.7%, the euro fell 0.5% to $1.0547, the British pound fell 0.6% to $1.1943 and the Japanese yen fell 1.3% to 136.40 per dollar.
🍝 For the dinner table debate:
Despite political crises, inequalities and economic problems, South America continues to be the cradle of great footballers. This was once again confirmed by a CIES Football Observatory study on the world’s most important soccer “academies”, which ranked four Brazilian teams (São Paulo, Santos, Flamengo and Fluminense) and one Argentine team (River Plate) among the top 20.
The top 30 also includes another Argentine team (Boca Juniors) and a Uruguayan club (Peñarol). The CIES Football Observatory Weekly Post study ranks teams around the world according to the total estimated transfer value of their youth players (at least three years between the ages of 15 and 21) who are active in more than 50 professional leagues.
Leidys Becerra, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.