Mexican Market Falls Following Rate Rise; S&P 500 Hits Lowest Level In a Month

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👑 Argentina leads in Latin America:

In Latin America, only Argentina’s Merval (MERVAL) trimmed part of the losses registered during the week, gaining 0.31%, following lower inflation than analysts’ estimates.

The country’s statistics agency INDEC published Argentina’s consumer price index on Thursday, reflecting monthly inflation of 4.9% in November, a year-on-year variation of 92.4% and a cumulative rise since January of 85.3%.

Added to this was the Argentine government’s debt tender, which ended up being successful.

“Bids for 1.2 trillion pesos were received, of which 770 billion pesos were taken up, which give breathing space to [economy minister] Sergio Massa’s team in view of the upcoming maturities”, wrote in a commentary Rava Bursátil’s account executive Leonel Buccolo.

📉 A bad day for the Mexican and Chilean markets:

Chile’s IPSA index (IPSA) saw the sharpest losses in the region, falling 142%, while Mexico’s S&P/BMV IPC (MEXBOL) dropped 1.41%, after the Banco de México moderated its monetary policy and raised interest rates by 50 base points to a record 10.5%.

Peru’s S&P/BVL (SPBLPGPT) dropped 1.32% as the country’s political crisis continues amid social unrest.

One of the world’s leading copper mines, Las Bambas, owned by MMG Ltd., is running out of storage space, increasing the risk of slowing or halting production, in another threat to the global supply of the metal. The mining company stated that reserves are rapidly approaching maximum capacity.

Brazil’s Ibovespa (IBOV) dropped 0.01% and Colombia’s Colcap (COLCAP) 0.64%.

🗽 On Wall Street:

Stocks dropped and the dollar rallied after a wave of rate hikes from central banks this week, with the Federal Reserve and the European Central Bank warning of more pain to come.

The S&P 500 fell more than 2%, closing at its lowest level in more than a month. The tech-heavy Nasdaq 100′s losses exceeded 3%, with yield-sensitive stocks taking a hit.

The S&P dropped to 3,895.75 points, the Dow Jones Industrial Average closed 2.25% lower and the Nasdaq Composite (CCMPDL) dropped 3.23%.

Equities in Europe also closed Thursday lower after the ECB’s upward revision to 2024 inflation projections.

Oil snapped a three-day rally. Commodities from oil to copper were under pressure as fears of a global economic slowdown and waning demand mounted. The dollar climbed the most since September as investors sought haven assets.

Risk assets have been on the back foot since Fed Chair Jerome Powell reiterated his hawkish stance on Wednesday and policymakers signaled a peak rate that was above market expectations.

The ECB and the Bank of England were among major central banks that followed the Fed with hikes of half a percentage point. But the BOE tempering its pace of monetary tightening was interpreted as a sign that rates could peak at a lower level than expected, which pushed the pound to its worst day versus the dollar in six weeks.

While the Fed and ECB also slowed the tempo of their hikes, Powell and ECB President Christine Lagarde hammered home their resolve to remain persistent as they battle inflation. This didn’t sit well with investors, who hoped for a dovish shift in tone.

Traders also digested a bevy of US data Thursday showing the economy cooling, even as the labor market stays strong. Softening in the labor market remains a big target for the Fed.

“The pullback in the market today — we aren’t surprised by it,” Nadia Lovell, UBS Global Wealth Management senior US equity strategist, told Bloomberg Television on Thursday.

“This is a market that has traded on the hope that the Fed will not do what they say they will do. Yesterday they sent a clearly different message,” she added.

On the currency markets, the Bloomberg Dollar Spot Index rose 1%, the euro fell 0.6% to $1.0623, the British pound fell 2% to $1.2176 and the Japanese yen fell 1.6% to 137.68 per dollar.

🔑 The day’s key events:

A higher level of central bank terminal rates hit oil on Thursday, interrupting three days of gains. Commodities, from oil to copper, remain under pressure as fears of a global economic slowdown deepen.

WTI crude oil lost 1.51% to settle at $76.11 per barrel, while Brent crude fell 1.48% to $81.48 per barrel.

TC Energy Corp. made a partial restart of the Keystone Pipeline on Thursday, resuming the flow of Canadian crude to refineries in the US Midwest. However, stockpiles in the Gulf Coast increased last week, indicating that the market remains well supplied for now and putting downward pressure on prices.

Talk of keeping interest rates higher to bring down inflation continues to hit markets, which fear lower demand in 2023.

🍝 For the dinner table debate:

ECLAC’s new economic estimate for Latin America and the Caribbean is that the region will end the year with an economic growth of 3.7%, 0.5% above the estimate made by the organization in October, when it projected a 3.2% growth for the region as a whole for 2022.

“There is a slowdown in both economic growth and global trade in both 2022 and 2023. The good news is that there is already a slowdown in inflation, which we hope can lead to a moderation in central bank monetary policy rates,” added ECLAC Executive Secretary José Manuel Salazar-Xirinachs in his presentation.

In 2022 Paraguay and Haiti will suffer an economic contraction of 0.3% and 2.0%, respectively. While in the same year, Venezuela’s economy will be the most outstanding with a growth that would reach 12%. Panama and Colombia are also expected to grow by 8.4% and 8.0%, respectively.

For 2023, as projected in October by ECLAC, Chile will continue with economic contraction and it is even expected to be deeper, since in October a 0.9% decrease was estimated, and in the balance presented this Thursday it is estimated that the contraction in 2023 will be 1.1%. Haiti also appears as a country in contraction next year, with growth to drop by 0.7%.