Merval Leads LatAm Gains Again; S&P 500 Posts Third Day of Losses

US stock markets fell for the third consecutive day amid data showing further signs of a recession. In Latin America, Colombia’s COLCAP saw the sharpest drop

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By Bloomberg News and Bloomberg Línea
August 23, 2022 | 09:50 PM
Reading time: 5 min.

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

👑 Argentina, Latin America’s leader:

Argentina’s stock market posted two consecutive sessions with the highest gains, and on Tuesday it once again led its Latin American peers.

The Merval stock (MERVAL) climbed more than 3% in a session in which YPF (YPFD), Grupo Supervielle (SUPV), and Cresud (CRES) were among the top performers of the day.

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The Monthly Economic Activity Survey in Argentina showed an improvement of 6.4% in June, closing the first half of the year with an increase of 6.3% compared to the same period of 2021. When compared to May, the growth is 1.1%, the highest in 2022.

The gains in the Argentine market mirrored those in the Brazilian stock market, with the Ibovespa (IBOV) rallying on the back of strong performance in the materials, consumer discretionary, and energy sectors.

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📉 A bad day for Colombia:

The Colombian stock market is still feeling the risk aversion generated by the economic data from the United States and Europe and the expectation that investors have for the Jackson Hole meeting to be held this week.

The Colcap (COLCAP) closed with the largest drop in the region, despite the fact that Ecopetrol (ECOPETL) shares, the one that usually moves the most volume in the stock market, had an increase of more than 4% on a par with oil prices.

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Specifically, the shares of Grupo Argos (GRUPOARG), Banco de Bogotá (BOGOTA) and Preferencial Grupo Sura were among the biggest fallers of the day.

The Mexican stock market also fell, with the S&P BMV/IPC (MEXBOL) dropping 0.09%. The communication services and real estate sectors suffered the biggest losses.

According to analysts at BX+, the markets were digesting the manufacturing PMIs in the Eurozone, and continued to wait for the Fed Chairman’s statements at the Jackson Hole Symposium.

🗽 On Wall Street:

Stocks retreated after weak economic data, with traders awaiting more clarity on the Federal Reserve’s monetary policy path from the annual central bankers’ symposium later this week.

The S&P 500 saw its third straight drop after swinging between gains and losses throughout the session. Trading volume was among the lowest in 2022. Treasury 10-year yields topped 3%, while the dollar halted a four-day rally.

Traders are bracing for hawkish talk at the Jackson Hole event after recent comments from officials convinced many investors the Fed will continue to tighten even with a slowing economy. Data Tuesday showed sales of new US homes fell for the sixth time this year to the slowest pace since early 2016, while business activity contracted for a second straight month.

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“For the moment, global sentiment is both skittish and volatile,” said Richard Hunter, head of markets at Interactive Investor. “There is little cause for optimism on the immediate horizon, with any glimmers of economic hope yet to take hold on a sustainable basis.”

Directors at two of the Fed’s 12 regional branches -- St. Louis and Minneapolis -- favored a 100 basis-point increase in the discount rate in July, signaling internal pressure for a bigger move than policy makers delivered last month.

Citigroup Inc.’s Beata Manthey said the recent rally in stocks had gone too far given the prospect of sticky inflation and the need for further interest-rate rises to tame it. While the strategist said she’s still bullish on equities over the longer term, she added that markets don’t go up in a straight line.

Quantitative tightening by the US central bank is set to kick into gear next month, presenting another potential headwind for equities.

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“The near-term outlook for equity markets remains challenging,” said Mathieu Racheter, head of equity strategy at Julius Baer. “The impact of quantitative tightening on financial markets have yet to be felt, while the earnings downgrade cycle has just started.”

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In corporate news, Zoom Video Communications Inc. plummeted after its results showed that the transition from an essential Covid-era tool to an enterprise business platform is going to take longer than expected. Macy’s Inc. climbed after cutting its forecasts for profit and revenue in what Citigroup called a “prudent” move.

Elsewhere, US natural gas prices tumbled as the operators of a key export terminal damaged in an explosion earlier this year announced a delay to the timeline for restart. West Texas Intermediate settled above $93 a barrel as the dollar weakened, making commodities priced in the currency more attractive.

On the currency markets, the Bloomberg Dollar Spot Index climbed 0.2%, the euro was at $0.9946, down 0.2%, the Japanese yen traded at 136.86 per dollar, down 0.1%, and the offshore yuan was at 6.8677 per dollar, down 0.2%.

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🔑 The day’s key events:

Oil prices rose again amid the weakness of the dollar and the possibility of OPEC and its allies intervening in the market. The increase was such that the Brent benchmark returned to touch $100 while West Texas Intermediate approached $94.

The US currency halted a four-day rally after today’s poor economic data, making commodities priced in that currency more attractive.

In addition, investors continued to react to remarks by Oil Minister Prince Abdulaziz bin Salman, who said in an interview with Bloomberg that “extreme” volatility and illiquidity mean the futures market is increasingly disconnected from fundamentals and that the group of countries may be forced to act.

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“The oil market will remain tight whether trading activity continues to weaken sharply or if economic growth remains uneven,” Oanda’s Ed Moya added.

🍝 For the dinner table debate:

The Economic Commission for Latin America and the Caribbean (ECLAC) raised its growth forecast for the region this year, although it warned that it is returning to a low growth trajectory that it already showed before the pandemic.the agency’s calculations indicate that Latin America and the Caribbean will grow by 2.7% this year, higher than the 1.8% it had forecast in April.

Daniel Titelman, head of ECLAC’s development studies section, explained that the bulk of the economies are maintaining their growth dynamics, but there are some in which consumption was more resilient in the first two quarters than expected.

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Venezuela and Colombia will have the highest growth rates for the main economies in the region in 2022. The former will post a 10% increase, while the latter will have a 6.5% increase.

Both cases registered an upward revision with respect to the estimates that had been delivered in April.

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

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