Latin American Markets Sink; Nasdaq 100 Suffers Sharpest Drop In a Month

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

📉 A bad day for Latin America’s markets:

Latin American stock markets followed Wall Street’s bad mood on Monday and closed the trading day with losses.

Argentina’s Merval index (MERVAL) saw the sharpest losses, falling 3.31%, with all leading stocks closing in the red.

Among those that registered the largest losses were the shares of Empresa Distribuidora y Comercializadora Norte - Edenor (EDN), Pampa Energía (PAMP) and Cresud (CRES), closing with losses of between 3.08% and 4%.

During the day the Argentine Treasury said it raised 222.98 billion pesos ($1.19 billion) during the last bidding in January, when only 106.16 billion pesos were due, and Economy Minister Sergio Massa said that fresh funds for around 116.81 billion pesos, allowing him to close the first month of the year with extra financing of 198.85 billion pesos, a rollover of 144%.

Although this is a positive result in terms of obtaining debt to finance the country’s deficit, the market assures that Massa had the inevitable help of public agencies to score this “success”. In other words, it is intra-state indebtedness.

🗽On Wall Street:

US stocks declined on Monday as investors turned cautious going into an eventful week that includes the Federal Reserve’s rate decision and a slew of big-tech earnings.

The Nasdaq 100 suffered its worst day since December 22, while the S&P 500 fell the most since January 18. Declines in Apple Inc. and Microsoft Corp. weighed on both the indexes as investors await earnings from companies including Alphabet Inc. and Meta Platforms Inc. this week.

After the closing bell, NXP Semiconductors NV offered a revenue forecast for the first quarter that missed the average analyst estimate. Whirlpool Corp., meanwhile, said it expects a decline in sales this year.

Treasuries pared earlier declines, with the benchmark 10-year rate around 3.54%. A dollar index rose. Oil fell to its lowest in almost three weeks.

The Fed is widely expected to raise rates by a quarter percentage point on Wednesday, slowing its pace for a second straight session. But traders will be watching for the tone officials set for future meetings. Fed Chair Jerome Powell has continued to push back against traders anticipating rate cuts later this year, emphasizing that he won’t budge until inflation has eased meaningfully. Stocks have still rallied in January, with investors seemingly brushing off Powell’s “higher-for-longer” warning.

“Investors seem to have forgotten the cardinal rule of ‘Don’t Fight the Fed.’ Perhaps this week will serve as a reminder,” a team of Morgan Stanley strategists led by Michael Wilson wrote in a note. Investors adding to the rally in stocks this month will be disappointed if they’re in direct defiance of the Fed, the strategists said.

Citi Global Wealth’s Kristen Bitterly echoed this, saying that January’s rally was technical as it was largely driven by 2022′s “laggards and losers.”

Traders are also awaiting the US jobs report later this week. A less tight labor market is a key goal for the Fed. Investors have also been parsing a slew of earnings reports, with more to come throughout the week. Signs of earnings pressure have been raising concerns about the health of the economy and the outlook for equities.

“The week ahead will not only be a Fed story, as Friday’s employment situation report will provide clarity on the strength of the labor market to start the new year,” wrote Ben Jeffery and Ian Lyngen of BMO Capital Markets.

The European Central Bank and the Bank of England are also each projected to hike by half a percentage point when they deliver decisions a day after the Fed.

On the currency markets, the Bloomberg Dollar Spot Index rose 0.2%, the euro fell 0.2% to $1.0847, the British pound fell 0.3% to $1.2349, and the Japanese yen fell 0.4% to 130.46 per dollar.

🔑 The day’s key events:

Oil posted its biggest drop in nearly three weeks today, with technical indicators digesting market direction amid a lack of clarity on crude demand.

West Texas Intermediate (WTI) for March delivery fell 2.25% to settle at $77.89 a barrel in New York, the biggest drop since January 4 and the lowest price since January 11. Meanwhile, Brent for March delivery settled at $85.08 a barrel.

While the reopening of China has driven crude oil higher recently, the market has struggled to maintain those levels as prices test their 50-day and 100-day moving averages.

And that’s because in recent months, oil prices have swung on demand from China, the White House’s goal of refilling the Strategic Petroleum Reserve, the European Union’s impending ban on imports of Russian oil products by sea, and the possibility of a recession.

🍝 For the dinner table debate:

According to strategists at Morgan Stanley (MS), investors who jump in to buy shares rising on the US stock market are in for a disappointment, considering they are in for a direct collision with the Federal Reserve.

“Improving price action in stocks has begun to convince many investors that they are missing out on something, forcing them to participate more actively,” a team led by Michael Wilson wrote in a note. “We believe the recent price action is more a reflection of January’s seasonal effect and short position hedging after a rough end to December and a brutal 2022.”

But in reality, earnings season is worse than expected, especially in the area of margins, strategists said. “Second, investors seem to have forgotten the cardinal rule of ‘Don’t fight the Fed.’ Perhaps this week will serve as a reminder.”

Leidys Becerra, a content producer at Bloomberg Línea, and Isabelle Lee of Bloomberg News, contributed to this report.