LatAm, US Markets Climb As Expectations Rise Ahead of Powell Speech

Argentina’s Merval once again led the gains in Latin America, while US investors await the speech on Friday morning by the chairman of the Federal Reserve

Photo: Bloomberg
By Bloomberg Línea and Bloomberg News
August 26, 2022 | 07:34 PM

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

👑 Argentina’s Merval leads LatAm gains again:

Latin American markets closed with gains on Thursday, mirroring the gains on the NYSE, as investors cautiously await the messages coming out of Jackson Hole.

Argentina’s stock market continues to perform well, as it has done in the last week, and once again led gains among its peers in the region.

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The Merval (MERVAL) advanced following increases in stocks such as Central Puerto (CEPU), Telecom Argentina (TECO2) and Cresud (CRES).

On the Brazilian stock market, beyond the expectations on the US monetary policy, investors continue to reflect optimism after the data of falling inflation in the first half of August, which contributes to the increase of expectations that the end of the cycle of high interest rates in Brazil could come.

This scenario contributed to the gains on the Ibovespa (IBOV), with shares of Azul (AZUL4) and Gol (GOLL4) among the sharpest on a day on which oil prices dropped.

Mexico’s stock market rebounded after Wednesday’s declines and the S&P/BMV IPC (MEXBOL) advanced with increases in the materials, industrial and consumer sectors.

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On the other hand, Peru’s stock market barely changed and registered and dropped 0.01%. On Thursday, the Ministry of Economy and Finance published updated projections, in which it revised downward GDP growth estimates from 3.6% to 3.3% for this year, while forecasting that private investment will not grow this year.

🗽 On Wall Street:

Stocks rose and bond yields fell, with the financial world awaiting Jerome Powell’s keynote for clues on how much further the Federal Reserve will pump the brakes on the economy to bring inflation back under control.

A two-day advance for the S&P 500 trimmed a selloff that knocked down the market earlier in the week. Following the slowest trading day of 2022 for US equities, volume was once again below average. Megacaps like Apple Inc. and Amazon.com Inc. rallied, though Tesla Inc. whipsawed as its stock split took effect. Treasury 10-year yields traded near 3%, while the dollar slipped.

The S&P 500 climbed 1.41%, the Dow Jones Industrial Average 0.98% and the Nasdaq Composite (CCMPDL) 1.67%.

Investors were mostly unfazed by hawkish comments from Fed officials gathering for the annual conference in Jackson Hole, Wyoming. Powell’s speech at 10 a.m. Washington time Friday will mark the highlight of an event that’s been used for making key announcements.

The Fed’s boss is widely expected to restate his resolve to keep tightening monetary policy to fight inflationary spirals.

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“We are not convinced Jackson Hole tomorrow will be a negative market shock because expectations are hawkish while exposure still low,” said Dennis DeBusschere, founder of 22V Research. “We thought the market correction would be leading into Jackson Hole and that has largely played out. We are neutral short term.”

Traders will also be closely watching out for any signals about the pace of the Fed’s balance-sheet runoff -- known as quantitative tightening -- which gets up to full speed in September at a monthly clip of up to $95 billion. While some strategists are convinced the unwinding could pose a threat to equities, others say that there’s still plenty of liquidity left from stimulus measures to prop up the market.

In fact, stocks surged 18% during QT from October 2017 through July 2019, Ed Yardeni, president of Yardeni Research, wrote in a recent note. Meantime, a survey conducted by DeBusschere’s firm showed that over half of the respondents believe QT will push Treasury yields higher, 32% say they will be unchanged and only 12% bet on a drop.

The Fed “should not blink” as it addresses hot inflation, and Powell faces a “huge” challenge finding ways to cool price growth without damaging the economy, Mohamed El-Erian, chief economic adviser at Allianz SE, told Bloomberg Television.

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“We are confident that Powell’s commentary will be void of any major-market moving surprises,” said Robert Schein, chief investment officer at Blanke Schein Wealth Management. “We expect Powell to continue to emphasize that the Federal Reserve’s decisions are data dependent and should Friday’s PCE inflation reading top expectations, that will firmly quash any expectations of a policy pivot.”

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Investors also waded through data showing the government’s main measures of US growth pointed in different directions in the first half of 2022, adding to the ongoing debate on the health of the economy. Another report showed applications for unemployment benefits fell for a second week, suggesting employers are holding on to workers despite growing uncertainties.

In corporate news, US-listed Chinese shares rallied after the Wall Street Journal reported that regulators in Washington and Beijing were nearing an agreement that would move them one step closer to resolving a long-standing disagreement over auditing practices. Snowflake Inc. surged as an upbeat forecast reassured Wall Street that companies are still investing in their technology systems to boost efficiency. Peloton Interactive Inc. tumbled as a bleak outlook renewed concerns about the fitness company’s comeback plan.

On the currency markets, the Bloomberg Dollar Spot Index fell 0.2%, the euro was little changed at $0.9971, the British pound rose 0.3% to $1.1836, and the Japanese yen rose 0.5% to 136.45 per dollar.

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🔑 The day’s key events:

Oil prices halted this week’s rally as investors watch for the Federal Reserve’s next move at its September meeting. While Powell’s speech is the most anticipated, the market was watching for comments from other central bank officials on the need to continue raising interest rates.

Kansas City Fed President Esther George said in an interview with Bloomberg Television that interest rates are not yet at levels that could hurt the economy, so there is still room for further increases.

“We have to raise interest rates to slow demand and bring inflation back to our target,” George said.

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Rate hikes are often seen as bearish for crude demand, as they are aimed at cooling the economy, Bloomberg explained. “Oil is going into wait-and-see mode until Fed Chairman Powell’s speech in Jackson Hole,” said Edward Moya, an analyst at Oanda. “Everyone is anticipating a big move in the dollar after Powell and that will likely determine whether we see oil prices continue to move toward the $100 per barrel level.”

🍝 For the dinner table debate:

Mexico has become the most popular destination for Americans looking for housing, according to a report prepared by the real estate site Point2 based on Google (GOOGL) searches.

Activity on the popular search engine, over the past 12 months, shows a 60% year-over-year increase in searches by Americans. In second place is Canada, with Costa Rica third.

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Interest in buying homes in other countries has been driven by “incredible price increases” for homes in US tourist destinations, Scott Cutter of real estate brokerage 2Costa Rica Real Estate said in the report, Bloomberg reported.

In addition to the top three destinations, other countries such as Panama, Bahamas, Haiti, Chile and Aruba have also seen an increase in interest. In the case of the latter three locations, searches doubled in the year-over-year comparison.

-- Carlos Rodríguez Salcedo, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.