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Mexico’s Stocks Lead in LatAm as US Markets Defy Bad News

U.S. stock markets rose on the hope that the Fed will ease its rate hikes. Latin America shared in the mood and stock markets closed higher.

Mexico's stock exchange, the Bolsa Mexicana de Valores (BMV).
By Carlos Rodríguez Salcedo (EN) and Bloomberg News
July 28, 2022 | 11:11 pm

This is a roundup of Thursday’s stock market results from across the region.

🥇 The Leader:

A greater appetite for risk, following a strong performance by the U.S. stocks, helped the main Latin American markets in an overall winning day. The Mexican stock market showed the best performance with the S&P/BMV IPC (MEXBOL) gaining more than 2%.

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Services, materials, finance, and communication services sectors posted the strongest gains. Industrias Peñoles, Grupo Financiero Inbursa (GFINBURO) and Grupo México (GMEXICOB) shares were among the session’s biggest winners.

Brazil’s Ibovespa (IBOV) gained over 1% and continued the rally it posted on Wednesday. Gol (GOLL4) and Pão de Açúcar (PCAR3) shares were among the highlights.

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Earlier in the day, Petrobras (PETR3, PETR4) reported a lowering of gasoline prices for the second time in two weeks, in a move that could help ease political pressure against the company as Brazil battles high inflation.

The Peruvian stock exchange did not trade due to a national holiday.

🗽 On Wall Street:

US equity futures climbed Friday on positive earnings from Amazon.com Inc. (AMZN) and Apple Inc. (AAPL) and expectations of shallower Federal Reserve monetary tightening, a prospect that’s also supporting sovereign bonds.

Nasdaq 100 contracts added more than 1% after the US stock market hit a seven-week high Thursday. Amazon jumped over 13% in extended trading, while Apple also advanced, after their revenues beat estimates.

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But Asian bourses were more mixed, hampered by a decline in Hong Kong and hesitant performance in China. Traders were parsing a downbeat economic growth assessment from China’s top leaders at a key meeting and a lack of new stimulus policies.

Treasuries trimmed a rally that’s left the 10-year yield close to lowest level since April. Bonds jumped in the Wall Street session on data showing a second consecutive quarterly contraction in the US economy, which bolstered the view that inflation will cool and that the Fed will become less aggressive.

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A dollar gauge was steady, oil topped $97 a barrel and gold dipped. Bitcoin slipped back after breaching $24,000.

Global shares are on course for a second weekly advance, paring this year’s rout to about 16%. The risk is that the recent bout of optimism eventually gets a reality check if inflation stays stubbornly elevated, leaving interest rates higher than investors would like amid an economic downturn.

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“At some point, the Fed will pivot policy and that should be better for risk markets, but in the meantime, they’re so bent on quelling inflation that we prefer not to buy the dip here,” Thomas Taw, head of APAC iShares Investment Strategy at BlackRock Inc., said on Bloomberg Radio.

Second-quarter US gross domestic product fell an annualized 0.9% after a 1.6% drop in the first three months of the year. Back-to-back quarters of decline define a recession in most parts of the world, but in the US it’s not official until economists at the National Bureau of Economic Research deem it so.

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Swaps tied to Fed meeting dates anticipate a peak in the fed funds rate of about 3.25% around year-end, less than a percentage point above its current level, followed by reductions next year to shore up growth. Such pricing is a major bone of contention for market participants.

“Market pricing is overdone and the terminal rate should move closer to 3.5%-3.75%” as inflation remains too high amid strong labor market and wage trends, Priya Misra and Gennadiy Goldberg, strategists at TD Securities, wrote in a note.

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Elsewhere, a call between US President Joe Biden and his Chinese counterpart Xi Jinping underlined bilateral tension even as the leaders told aides to plan an in-person meeting.

🔑 The Day’s Key Events:

Gold, the eternal safe-haven asset, gained on quarterly US GDP results and hovered above $1,700 per ounce as investors weigh the idea that the Federal Reserve won’t further tighten its rhetoric to avoid chilling the economy.

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“Stagflation is here to stay and that should be good news for gold prices. The US economy is headed for a recession and as long as Wall Street believes the Fed will slow the pace of tightening, gold will surely see safe haven flows again,” reckoned Edward Moya, an analyst at Oanda.

Increased risk appetite also boosted cryptocurrencies, with Ether leading the gains among major digital assets. In the wake of the latest economic data, the cryptocurrency was up nearly 10% by 4:40 p.m. New York time, and was trading above $1,700 as it also benefited from expectations that it will switch to a more energy-efficient system.

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Bitcoin also showed a positive performance as it posted a gain of almost 6% and was struggling to stay above US$24,000.

“The market is outperforming the macro outlook right now,” Katie Talati, director of research at Arca, told Bloomberg. “Many are now speculating that the Fed will adopt a more dovish stance and taper additional rate hikes this year.”

🍝 For the dinner table debate:

Pedro Castillo achieved one year as president of Peru amidst investigations, controversies, and the disapproval of several legislators. Castillo visited Congress to deliver his first State of the Nation message and said that he has been slandered “without any evidence.”

“Even when my family is defamed on a daily basis, I submit myself to justice to solve the crimes I am being accused of,” said Castillo in his speech.

In one year in office, Castillo made 59 cabinet reshuffles, marking a record. At the same time, public officials and former ministers, such as Juan Silva, are under judicial investigation.

While the president deplored the criticism he received in the last year, during which the Attorney General’s Office has opened five investigations against him, Castillo said he will reach out to Congress to work “for the benefit of the people.”

While he delivered his message to the nation, several opposition congressmen abandoned the Congress building.