Mexico’s Market Posts Gains As Inflation Cools; NYSE Pulls Out of 5-Day Nosedive

Mexico’s and Brazil’s markets were the only Latin American stock exchanges trading on Thursday, while the NYSE snaps its downward streak

Bloomberg Línea
By Bloomberg Línea
December 08, 2022 | 09:31 PM

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

👑 Mexico leads in Latin America, with only two markets open:

Most Latin American stock exchanges remained closed Thursday, with only Brazil’s Ibovespa and Mexico’s Mexbol trading.

The S&P/BMV IPC (MEXBOL) closed the day with a gain of 0.70%, driven by the performance of the real estate, materials and finance sectors.

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Grupo México (GMEXICOB), Grupo Bimbo (BIMBOA) and Regional SAB de CV (RA) led the index’s gains.

Inflation in Mexico stood at 7.8% annualized in November 2022, which implied a deceleration with respect to October, however, the underlying component accelerated, which generates pressure on the Bank of Mexico (Banxico), which will have to increase its interest rate for the last time this year in a week.

The National Consumer Price Index rose 0.58% in November with respect to the previous month. With this result, general inflation stood at 7.8% annualized in November, the country’s statistics agency INEGI reported.

📉 A bad day for the Ibovespa:

Brazil’s Ibovespa (IBOV) fell again on Thursday and closed the day with a loss of 1.67%, affected by the performance of the non-basic consumer products, finance and industrial sectors.

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The shares of CVC Brasil (CVCB3), Azul SA (AZUL4) and Raizen SA (RAIZ4) saw the sharpest losses.

The Ibovespa began to fall more sharply after news that President-elect Luiz Inácio Lula da Silva is planning to appoint Fernando Haddad, former mayor of São Paulo, and who has been part of the government’s transition team, as his finance minister, according to three advisors familiar with the decision.

The market also directed the maintenance of the benchmark Selic index at 13.75% for the third consecutive meeting; as well as the approval of the Transition PEC by the Senate, which authorizes 145 billion reais for the payment of Bolsa Familia outside the spending ceiling in 2023, after weeks in which the issue was at the center of investors’ discussions. Now, the text will pass to the Chamber of Deputies.

🗽 On Wall Street:

Stocks climbed on Thursday, snapping a five-day slide, with traders awaiting key inflation figures for clues on whether Federal Reserve officials will be able to notch down their aggressive tightening campaign.

The rebound in the S&P 500 followed a rout that put the gauge on the cusp of breaching an important technical indicator: its average price of the past 100 days. Investors also assessed news that the US Federal Trade Commission is seeking to block Microsoft Corp.’s $69 billion acquisition of Activision Blizzard Inc. Treasuries fell, with 10-year yields hovering near 3.5%. Oil hit a one-year low after earlier rallying on a pipeline outage.

The S&P 500 gained 0.75%, the Nasdaq Composite (CCMPDL) 1.13% and the Dow Jones Industrial Average 0.55%.

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Friday’s producer price index for November is one of the final pieces of data Fed policymakers will see before their Dec. 13-14 policy meeting. The PPI in October cooled more than expected. In the run-up to the numbers, a separate report showed some signs the labor market is cooling, with continuing jobless claims climbing to the highest since early February.

“Investors will have a lot to digest these next few days as they get a clearer picture of where we stand in the fight against inflation before the Fed decision,” said Mike Loewengart at Morgan Stanley Global Investment Office. “The market is largely expecting the slowdown in rate hikes to begin next week, but whether the pivot will be enough to steer the economy into a soft landing remains the question.”

Strategists from Morgan Stanley to JPMorgan Chase & Co. have warned investors against piling back into risk on hopes the Fed is getting close to pivoting to easier policy.

“Presumably if the Fed is pivoting this time around, it’s not for a good reason. It’s a deteriorating fundamental picture,” Joyce Chang, chair of global research at JPMorgan, told Bloomberg Television. “I mean, is that really a reason to be buying risk? I think it’s premature to say that there is a Fed pivot.”

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Investor optimism that inflation has peaked is misguided as a potential spike in energy costs in 2023 could keep prices elevated and interest rates high, according to Goldman Sachs’ Peter Oppenheimer.

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The bear market that mauled growth stocks this year now threatens the value stocks in the industrial, financial and energy stocks where investors sought refuge this year, noted Morgan Stanley’s chief investment officer Mike Wilson.

“The problem with the value stocks now is they’re probably just as vulnerable to the economic slowdown as the over-earning growth stocks were six or 12 months ago,” Wilson said.

At a time when virtually all of Wall Street is on guard against a recession, Jim Paulsen at Leuthold Group said stocks are about to rally at least 25% in the next year. He predicts the S&P 500 will hit 5,000 in the coming 12 months — a far more bullish call than any provided by the strategists Bloomberg regularly surveys.

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“The lows are in, and I think we are starting a new bull market,” Paulsen said. “The Fed is not the only policy driver in the room. There are others and a lot of those have already started to ease.”

Besides the 100-day moving average, the S&P 500 is trading near a key support at 3,900, a level that has provided the pivot point for reversals on multiple occasions this year.

As the equity market rebounded, the Cboe Volatility Index fell to around 22. Yet derivatives strategists at JPMorgan Chase & Co. say the VIX has further room to advance.

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They expect the fear gauge to average at 25 next year, and see the gauge trading above that level in the first half of the year amid elevated monetary-policy concern before subsiding below the line in the latter part of 2023 when the central bank is expected to pivot its stance.

Read: Risky Companies Rush to Buy Time on Debt Before End of Year

Heightened trader concern over an economic recession has recently pushed up the Cboe equities put/call ratio — the relative trading volume of loss-protecting contracts versus bullish ones — to elevated levels

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That suggests there’s “too much pessimism,” according to Ed Yardeni, president of his namesake research firm. “It favors a year-end rally rather than a year-end crash.”

On the currency markets, the Bloomberg Dollar Spot Index fell 0.3%, the euro rose 0.5% to $1.0556, the British pound rose 0.3% to $1.2239 and the Japanese yen was little changed at 136.67 per dollar.

🔑 The day’s key events:

Oil hit a new one-year low on Thursday after a session marked by volatility in which supply fears were stoked. Today, it was learned that the Keystone pipeline, which connects oil fields in Canada to refineries on the U.S. Gulf Coast, was shut down after an oil spill in Kansas, which could disrupt supply.

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TC Energy Corp. declared force majeure on its pipeline system, such a clause is used when a company encounters an unforeseen event that usually indicates that supply agreements may not be fulfilled. It is worth noting that any prolonged disruption, according to Bloomberg, could affect overall US crude inventories.

After a brief rally, West Texas Intermediate fell to $71.75 in New York, the lowest level since December last year, erasing earlier gains of as much as 4.8%, when the price topped $75. Meanwhile, Brent for February delivery settled at $76.35 a barrel.

“Oil markets are exhausted,” said Edward Moya, market analyst at Oanda Corp. “Oil’s initial rally following news of the Keystone pipeline leak did not last, as some energy traders expect this disruption to be temporary,” he added.

Oil has weakened this month, erasing all the substantial gains it has posted this year, as central banks continue to tighten monetary policies and the macroeconomic outlook deteriorates.

🍝 For the dinner table debate:

Within the US economy, Latinos are the fastest growing group. According to the latest 2020 US Census data, Latinos number 62.6 million, although only 23% consider themselves financially healthy.

The consulting firm McKinsey & Company analyzed the growth of this group and concluded that in the last 10 years Hispanics represent the fastest growing portion of the population according to the US GDP. For this reason, if they were to represent a country, they would be the third-fastest growing after China and India.

The growth in the labor market is remarkable. While in 1990 some 10.7 million were part of the labor force, in 2020 that number rose to 29 million and 35.9 million are projected for 2030, according to the US Bureau of Labor Statistics.

This has a direct impact on households, where US$1 billion was consumed in 2021 growing annually by 6% over the past 10 years. It is worth noting that these households are larger in terms of number of members than the US average.

At the same time, according to McKinsey & Company, the net wealth of Latinos is increasing at a faster rate (9%), compared to 4% for non-Latino whites, and this is narrowing, but not yet closing, the gap between them. However, nearly half of Latinos have little or no retirement or savings.

Sebastián Osorio Idárraga, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.