A roundup of Thursday’s stock market results from across the Americas
🌎 LatAm markets close lower:
Latin American markets closed lower on Thursday, with the sharpest losses for Argentina’s Merval index (MERVAL), which dropped 3.42% in a correction of Wednesday’s 5% hike. The biggest losses were for the shares of Grupo Supervielle S.A. (SUPV), falling 8.8%, and Grupo Financiero Galicia S.A. (GGAL), down 6.62%.
Brazil’s Ibovespa (IBOV) dropped 1.23%, with the central bank’s monetary policy committee maintaining interest rates at 13.75%.
A similar decision was taken by Mexico’s central bank, maintaining rates at 11.25%, with the S&P/BMV IPC index (MEXBOL) falling 0.93%.
Colombia’s Colcap index (COLCAP) dropped 0.88%, with the index having fallen more than 10% so far this year, a year shaping up to be the fourth in which the index will remain in negative territory.
Chile and Peru’s stock markets closed 0.34% and 0.43% lower, respectively.
🗽On Wall Street:
Bond yields climbed after major central banks warned about the potential for more interest-rate hikes, with officials signaling they’re nowhere near ready to declare victory over inflation.
Treasury two-year yields hit the highest since March as Jerome Powell said the US may need one or two more rate increases in 2023 while the Bank of England cautioned it may have to hike again after delivering a half-point boost. A key section of the German yield curve inverted the most since 1992 on economic concern. Norway’s krone led gains among developed currencies as the nation’s officials pledged more aggressive tightening.
Equities struggled for direction throughout most of the session, with the S&P 500 closing with a mild gain after a three-day slide. A renewed rally in megacaps like Amaon Inc. (AMZN), Apple Inc. (AAPL) and Microsoft Corp. (MSFT). fueled the rebound, with the Nasdaq 100 up more than 1%. As stocks gained traction, Wall Street’s favorite volatility gauge, the VIX, slumped below 13 to the lowest level since January 2020.
“We’ve seen central banks say: ‘Oh, we haven’t done enough.’ They thought at the beginning of the year they had, and everybody thought we were going into recession, and now what we’re seeing is the data sequentially move away from that,” said Phillip Colmar, global strategist at MRB Partners. “If you’re not in a recession, it’s also really hard to get core inflation down because you need to weaken the employment sector in order to do so.”
To Kristina Hooper, chief global market strategist at Invesco, if the Federal Reserve does tighten two more times this year, it risks sending the economy into a “significant recession.”
“I’m sounding like a broken record, but I’ll say it again: There is a lengthy lag between when monetary policy is implemented and when it actually shows up in the real economy data,” Hooper added. “We haven’t seen much of an impact yet because of that lag. That’s why we have to worry so much about overkill.”
US equities are in for a tumultuous second half of the year as the lagging impacts of aggressive monetary tightening by the Fed catch up to the economy, according to JPMorgan Chase & Co.’s Marko Kolanovic.
“In equities, absent pre-emptive Fed easing – vs. Fed dots that imply two more hikes by year-end – we expect a more challenging macro backdrop for stocks in 2H, with softening consumer trends at a time when equities have re-rated sharply,” Kolanovic said Thursday in his mid-year outlook note to clients.
Low conviction
While US equities stormed into bull territory in June, investors haven’t bought into the rally en masse.
There are already signs of low conviction in the S&P 500′s 14% rally this year, with the index set to end its longest weekly winning streak since 2021. Bank of America Corp.’s latest survey shows a net 25% of global money managers are still underweight US equities, despite a recent improvement in allocation.
Elsewhere, Turkey’s lira slumped as the central bank delivered a significantly smaller interest-rate increase than anticipated, as policymakers embark on what they said will be a gradual transition from an era of ultra-cheap money.
The Bloomberg Dollar Spot Index rose 0.3%, the euro fell 0.3% to $1.0958, the British pound fell 0.2% to $1.2746 and the Japanese yen fell 0.9% to 143.14 per dollar.
🍝 For the dinner table debate:
The World Bank Group is leading a new initiative aimed at driving greater private sector investment in emerging markets, with an initial focus on renewable energy and energy infrastructure.
The Private Sector Investment Lab will be led by Ajay Banga, president of the World Bank Group, who will work alongside Mark Carney, former governor of the Bank of England, and Shriti Vadera, chair of Prudential Plc. Carney is also co-chair of the Glasgow Financial Alliance for Net Zero, which has more than 550 member companies, including many of the world’s largest banks and asset managers.
For years, the World Bank and other multilateral organizations have failed to mobilize the huge sums of finance needed to help developing countries cope with the consequences of climate change. As pressure mounts on these groups to consider more drastic measures, the World Bank is now willing to allow vulnerable and disaster-stricken countries to put their debt repayments on hold.
The external financing needed amounts to an extra $1 trillion a year, Carney said in the same interview. “So we need to scale it up quickly. But we also need to generate a lot more domestic financing.”
Sebastián Osorio Idárraga, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.