Mexico Leads LatAm Market Gains; US Stocks Fall Ahead of Employment Data

Argentina’s Merval index fell 1.42% on Thursday, while the Federal Reserve hinting at a further rate rise sent US markets into the red

Mexico's stock exchange (BMV). Photographer: Susana Gonzalez/Bloomberg
By Bloomberg Línea and Bloomberg News
October 06, 2022 | 09:16 PM

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

👑 Mexico leads in Latin America:

Latin America’s stock markets closed mixed on Thursday, with Mexico’s S&P/BMV IPC (MEXBOL) leading the gains, climbing 1.05%, with the shares of Operadora de Sites (SITES1), Industrias Peñoles (PENOLES*) and Grupo Financiero Inbursa (GFINBURO) seeing the sharpest climbs.

Issuances on the Mexican Stock Exchange increased 7.68% compared to the same period last year to September. In the first nine months of 2022, ESG and sustainability-related bond issues totaled 27.42 billion pesos, through six Mexican issuers including Grupo Aeroportuario del Centro Norte and BBVA Bancomer, according to data from the Mexican Stock Exchange.

Peru’s S&P/BVL (SPBLPGPT) also closed higher.

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📉 A bad day for Argentina’s Merval:

Argentina’s Merval (MERVAL) posted the region’s sharpest losses, falling 1.42% on Thursday.

Una medición del estudio EcoGo reveló que el Índice de Precios al Consumidor de septiembre del país se habría ubicado en 6,7%, lo que implicaría una inflación del 82,2% interanual y un acumulado del 65,2% en lo que va del año. Según este relevamiento, el mayor incremento lo habría arrojado bienes y servicios varios (10,2%), seguido por esparcimiento (9,4%).

Argentina is on track to close 2023 with inflation above 100%. And although the president of the Central Bank of Argentina, Miguel Ángel Pesce, predicted a sharp drop in the CPI for 2023, the private sector does not believe that this is possible.

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Moreover, it will be difficult to calm the waters in October, since the month will bring several scheduled increases in the costs of public and private services, including transport.

Chile’s IPSA (IPSA) also closed with losses, down 0.17%, impacted by the fall in price of shares of the technology, non-basic consumer and communications services sectors.

🗽 On Wall Street:

The stock market found little encouragement to sustain any rebound attempt on the eve of the all-important US jobs report, with major benchmarks finishing solidly lower on Thursday.

Aside from the anxiety that usually precedes those numbers, traders had to digest remarks from a raft of Federal Reserve speakers who sounded unequivocally committed to crushing inflation with rate hikes. The hawkish rhetoric helped push the S&P 500 to its second straight day of losses while lifting the dollar and Treasury yields. Oil topped $88 a barrel.

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The S&P 500 dropped 1,02%, the Dow Jones 1.15% and the Nasdaq Composite (CCMPDL) 0.68%.

In the run-up to the payrolls data, Wall Street braced for a mixed picture of a labor market that’s showing some signs of moderation while still remaining robust. With that in mind, several economists believe it may be just too early to think about concepts like “peak hawkishness” or “Fed pivot” as debated earlier in the week.

And officials are making that clear.

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The central bank is “quite a ways away” from pausing its tightening campaign, according to Minneapolis Fed President Neel Kashkari. His Chicago counterpart Charles Evans noted the benchmark rate will probably be at 4.5% to 4.75% by next spring -- from the current 3% to 3.25% range. Cleveland Fed chief Loretta Mester said the US is in an unacceptably high inflation environment.

“I don’t think the Fed is going to be ready to pivot so quickly,” said Rich Steinberg, chief market strategist at The Colony Group. “We’re going to be in this kind of tug of war between good news, bad news. There’s going to still be a lot of volatility to this market.”

As a result, retail investors are stepping up their exodus after bailing on equities during the September rout. They have kept selling this week even as the S&P 500 posted its biggest two-day rally since April 2020, according to an estimate by JPMorgan Chase & Co. based on public data on exchanges.

The degree of anguish among individual investors and traders has been so pronounced that a sentiment gauge by Sundial Capital Research that measures the group’s conviction on a stock rally -- the so-called dumb-money confidence -- plunged to around 20% last week. That’s among the lowest levels since the firm started tracking the data in 1998.

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From a contrarian perspective, the pessimism among retail investors is welcome news for market observers looking for signs of flushed-out sentiment that often signal the selloff has reached its trough.

Read: PGIM Sees No-Brainer in Betting Against Another Fed Pivot Trade

With the economy likely to slow down next year, tech stocks and US equities are looking more attractive, according to Citigroup Inc. strategists led by Robert Buckland. They expect 18% returns for global stocks by the end of 2023 but warn “it will likely be a volatile ride.”

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“US stocks are likely to stay volatile for the foreseeable future as the market continues to face worries related to high inflation, tightening monetary policy, supply chain issues, economic growth, and geopolitical uncertainty,” said Brian Belski, chief investment strategist at BMO Capital Markets.

As rising interest rates rattle investors and threaten businesses’ profits, the US corporate-bond market will likely come under increased pressure, according to Arvind Narayanan at Vanguard Group Inc., who said the finances of corporations are “weakening incrementally” from very strong levels, which he anticipates will continue through the rest of 2022.

Mortgage rates in the US fell, shifting direction after a six-week streak of gains that sent borrowing costs to a 15-year high. Even with the latest decline, mortgage costs have more than doubled since starting the year around 3% -- a steep climb that has slammed the brakes on the pandemic housing rally, highlighting one of the Fed’s goals in its effort to cool inflation.

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Elsewhere, Canada two-year yields hit the highest level since 2007 after the nation’s central bank Governor Tiff Macklem said he remains firmly on an interest-rate hiking path, quashing hopes for an imminent end to a tightening cycle that’s choking indebted households and threatening the economy with recession.

On the currency markets, the Bloomberg Dollar Spot Index rose 0.7%, the euro fell 0.9% to $0.9797, the British pound fell 1.5% to $1.1157 and the Japanese yen fell 0.3% to 145.11 per dollar.

🔑 The day’s key events:

Oil rose for the fourth consecutive day amid fears over supply after the Organization of the Petroleum Exporting Countries (OPEC) and its allies announced their largest production cut in 2020: two million barrels per day.

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West Texas Intermediate (WTI) for November delivery extended gains with a slight increase of 69 cents to settle at $88.45 after advancing 10% in the previous three sessions. Meanwhile, the international benchmark Brent for December settlement closed at $94.42.

“Vulnerabilities abound and now, with this OPEC cut, they are even more pronounced,” said John Kilduff, founding partner at Again Capital. While analysts at Morgan Stanley noted that the combined impact of the OPEC+ production cut and the EU embargo on Russian production suggests a tighter oil market.

“With our tighter balances, we suspect Brent will reach $100 a barrel faster than we previously estimated,” they said in a report.

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🍝 For the dinner table debate:

Global foreign currency reserves are falling at the fastest pace on record as the world’s central banks intervene to shore up their weakening currencies in the face of a strong US dollar.

Specifically, reserves have fallen US$1 trillion over the course of this year, to $12 trillion. This is the largest drop in Bloomberg records that date back to 2003.

Part of the drop, more than 50%, according to estimates by Steven Englander, head of G-10 currency research at Standard Chartered Plc, has to do with valuation changes: as the dollar strengthened to two-decade highs against other reserve currencies, it reduced the dollar value of holdings of currencies such as the euro and the yen.

The drop in reserves illustrates the stress in currency markets, which is forcing an increasing number of central banks to dip into their coffers to avoid depreciation.

-- Leidys Becerra, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.