A roundup of Tuesday’s stock market results from across the region
👑 Mexico bucks the trend in Latin America:
Most Latin American stock exchanges were infected by the mood of the US markets and closed with losses.
The exception was the Mexican stock market, which was the only one to post gains on Tuesday, with the S&P/BMV IPC (MEXBOL) closing 0.74% higher, driven by the communication services, finance and non-core consumer goods sectors. Shares of Megacable Holdings (MEGACPO), Becle S.A.B (CUERVO*) and Grupo Financiero Banorte (GFNORTEO) were among those that led the day’s gains.
On Tuesday, Mexico kicked off its massive 2023 oil hedging program, according to people familiar with the matter. The oil-producing nation is setting its prices at $75 per barrel for the first half of 2023, said one of the people with knowledge of the matter who asked not to be identified because the matter is private.
Mexico has become increasingly secretive about oil hedging to prevent traders from trying to get ahead of the curve, which could drive up the cost.
Closely watched by the global market because it has the potential to move prices, the so-called “Hacienda hedge” is the world’s largest sovereign oil hedge fund and generated revenue for Mexico of $2.38 billion in 2020, when oil prices plunged.
📉 A bad day for Argentina’s Merval:
Argentina’s Merval (MERVAL) closed Tuesday’s session with the region’s sharpest losses, sinking 5.30%.
The International Monetary Fund (IMF) projected on Tuesday an inflation rate of 60.0% for Argentina in 2023, which would represent a strong deceleration compared to the 95.0% annual rate it forecasts for this year.
In both cases, the estimates of the international organization differ from the consensus of analysts consulted monthly by the central bank of Argentina (BCRA). At the end of September, the same experts had anticipated a price increase of 100.3% for 2022 and 90.5% for next year.
However, after the increase applied at the beginning of October, the Argentine government expects more increases in the price of fuels such as gasoline in the midst of inflationary pressures.
The last hike in prices of gasoline and diesel was due to a “programmed unfreezing” of taxes on fuels. On that occasion, the country’s Energy Minister Flavia Royón had assured that, with that increase, the purpose was to compensate a delay that covered two quarters of 2021, when increases had been postponed in the context of the coronavirus pandemic.
Chile’s IPSA (IPSA) and Colombia’s Colcap (COLCAP) also closed lower, down 1.79% and 1.50% respectively.
🗽 On Wall Street:
US stocks turned sharply lower in late trading after comments by the Bank of England chief on removing market support rattled investor sentiment. Benchmark Treasury yields rose and the dollar gained.
The S&P 500 slid amid renewed selling in tech shares that sent the Nasdaq 100 down more than 1%. Long-end Treasuries bore the brunt of losses and the pound tumbled after BOE Governor Andrew Bailey urged investors to finish winding up positions that they can’t maintain, saying the central bank will halt intervention in the market as planned at the end of this week.
The S&P 500 dropped 0.65% after hitting its lowest day-on-day drop since November 2020, the Nasdaq Composite slid 1.10%, while the Dow Jones Industrial Average clawed back and gained 0.12% at the close of trading.
“When Andrew Bailey makes a comment that he will stop QE on Friday, this is going to be an interesting test,” Jimmy Chang, chief investment officer at Rockefeller Global Family Office, said on Bloomberg TV. “It’s a very interesting line in the sand. Will the market push back? How much higher will the yields run? We’ll see.”
Risk sentiment remained fragile after a four-day losing streak wiped $1.6 trillion off the value of the S&P 500 Index ahead of US inflation readings. Data Thursday may seal the case for another 75-basis-point interest-rate increase at the next Federal Reserve meeting in the absence of a major shortfall.
Nor have officials given any inclination to pause their rate-hiking cycle in the near future, with Cleveland Fed President Loretta Mester saying Tuesday officials need to keep raising interest rates and cannot get complacent.
“The gilt market is one of the more fragile elements of global finance right now,” said Steve Sosnick, chief strategist at Interactive Brokers. “The BOE rescued global markets in the last week of September when they stabilized gilts, so it’s a big risk if they’re going to let them potentially drift lower.”
In addition to inflation data, big US banks kick off the third-quarter earnings season in earnest later this week, with strategists braced for weak profits against a drumbeat of warnings over the rising risk of a global recession. The International Monetary Fund joined the refrain, warning of a worsening outlook as efforts to curb inflation may add to damage from the war in Ukraine and China’s slowdown.
“We have not seen the impact of tightening,” Michael Kelly, head of the multi-asset team at PineBridge Investments told Bloomberg TV. “That lies ahead and when we see that, it’s another leg down for risk assets.”
Meanwhile, Russian President Vladimir Putin threatened further missile attacks on Ukraine after hitting Kyiv and other cities in the most intense barrage of strikes since the first days of its invasion.
“It’s little wonder investors enter the week in a dreary mood, especially with headlines from Ukraine signaling a further escalation in geopolitical tensions,” Christopher Smart, chief global strategist at Barings, said in a note.
With world growth under pressure, US oil futures tumbled more than 2%, giving up more of last week’s 17% rally.
On the currency markets, the Bloomberg Dollar Spot Index rose 0.2%, the euro was little changed at $0.9711, the British pound fell 0.6% to $1.0986 and the Japanese yen was little changed at 145.82 per dollar.
🔑 Key events of the day:
Oil prices fell again on Tuesday amid fears that an economic slowdown will curb the gains of the Organization of Petroleum Exporting Countries (OPEC). West Texas Intermediate (WTI) closed the day at $89.35 per barrel for November delivery, further trimming the gains it managed to accumulate last week when OPEC and its allies announced a production cut of two million barrels per day. Brent for December delivery fell below $94.
On the other hand, leading Wall Street figures, such as JPMorgan Chase & Co. (JPM) CEO Jamie Dimon, expect the US and world economies to sink into recession as early as next year.
The International Monetary Fund and the World Bank have also warned that the risks of a slowdown have increased.
“Lack of risk appetite and technical moves seem to be responsible for the move lower in crude after a very bullish few sessions following the OPEC quota cut announcement,” said Bart Melek, chief commodity strategist at TD Securities.
🍝 For the dinner table debate:
The International Monetary Fund (IMF) once again improved its growth forecast for Latin American and the Caribbean in 2022. According to the most recent version of its World Economic Outlook (WEO), the figure will be 3.5% this year, 0.5% above its July forecast. The new projections are 1% above the April revision.
However, the outlook for 2023 is less favorable, when the IMF expects the region’s economy to grow by 1.7%, down -0.8% and -0.3% from the April and July revisions, respectively.
Like other projections such as those of the World Bank and the Institute of International Finance (IIF), which both projected 3% growth for the region in 2022 in their October revisions, the IMF also argues that the rise in commodity prices and the normalization of activities in intensive sectors have given the region better economic activity.
-- Leidys Becerra, a content producer at Bloomberg Línea, and Stephen Kirkland of Bloomberg News, contributed to this report.