Peru Leads LatAm Market Gains; S&P 500 Falls Amid China-US Tensions

Tuesday saw mixed results across Latin America’s stock markets, while US markets closed lower for the second day

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By Bloomberg Línea and Bloomberg News
August 02, 2022 | 07:15 PM

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A roundup of Tuesday’s stock market results from across the region

👑 Peru, Latin America’s leader:

The Peruvian stock market led gains in Latin America on Tuesday, which was a mixed day for the markets amid risk aversion generated by tensions between the United States and China.

The S&P/BVL Peru (SPBLPGPT) advanced 1.63% thanks to the performance of the consumer staples, finance and materials sectors.

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Trevali Mining (TV), Unión de Cervecerías Peruanas (BACKUSI1) and Alicorp (ALICORC1) shares were among the best performers.

Yesterday, the latter company presented its results and reported a 36.6% year-on-year growth in sales for the second quarter. “The company continues to drive its program of efficiencies,” it said in a press release.

Brazil’s Ibovespa (IBOV) closed 1.11% higher.

Investors are awaiting Brazil’s central bank’s interest rate decision, with expectations of a half percentage point increase in the Selic rate to 13.75%.

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📉 A Bad Day for Mexico’s BMV:

Mexico’s stock market registered its second consecutive day of losses and suffered the sharpest decline in the region on Tuesday. The S&P/BMV IPC (MEXBOL) fell 1.02%, dragged down by the performance of the healthcare, communication services and non-basic consumer products sectors.

Shares of Industrias Peñoles, América Móvil (AMXL) and Grupo Financiero Inbursa (GFINBURO) were among the day’s biggest decliners. Geopolitical tensions over US House Speaker Nancy Pelosi’s visit to Taiwan hit the stock market and the Mexican peso.

The falls are associated with “the increase in risk aversion after it was made known that Nancy Pelosi made a surprise visit to Taiwan,” Janneth Quiroz, deputy director of Analysis at Monex, told Bloomberg Línea.

Risk aversion also received a boost from the US job openings data, which declined for the third consecutive month, reaching levels not seen since September of last year, according to Quiroz.

🗽 On Wall Street:

US Treasuries sank and stocks dropped after Federal Reserve officials signaled the central bank is still intent on raising rates until inflation is under control.

Treasury yields rose across the curve, with 10-year rates climbing as much as 20 basis points to 2.77%. The yen, which was on track for its fifth daily gain, fell as the dollar snapped four days of losses amid a sudden turnaround in risk sentiment.

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The S&P 500 dropped for the second straight day as Nancy Pelosi’s arrival in Taiwan prompted China to announce missile tests, even as she said her visit did not alter longstanding US policy in the region. The Nasdaq 100 also ended the day down.

El S&P 500 dropped 0.67%, the Dow Jones Industrials 1.23% and the Nasdaq Composite (CCMDPL) 0.16%.

Both indexes swung between gains and losses on Tuesday as markets remained on edge with geopolitical tensions simmering and fresh commentary from Fed officials making it apparent that a policy pivot was less likely.

Stocks started August on the back foot after posting their best month since 2020 in July. Investors have been keeping an eye out for hawkish comments from Fed officials about the need for higher rates to restrain elevated inflation. While San Francisco Fed President Mary Daly said on Tuesday that the Fed is “nowhere near” done with its efforts to tamp down on inflation, Chicago Fed President Charles Evans said he expects the pace of rate hikes will start to slow later in the year.

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“The Fed is not likely to announce they’re letting up on the brakes at this point,” said Ellen Gaske, economist at PGIM Fixed Income. “They are still seeing inflation numbers that have not started to recede.”

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Cleveland Fed President Loretta Mester echoed this, saying that she wants to see “very compelling evidence” that month-to-month price increases are moderating before declaring that central bank has been successful in curbing inflation.

Fresh economic data has also kept investors on their toes. Recent data showed that US job openings in June fell to a nine-month low, a sign of moderating demand for labor as economic pressures mount. The job market has been a bright spot in an economy otherwise losing momentum and possibly heading toward a recession.

Pelosi’s trip has created a fresh pressure point for investors already dealing with the prospects of a US recession, worldwide rate hikes and inflation that risks becoming entrenched as Russia’s war in Ukraine exacerbates food shortages.

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“The Taiwan story fits into the broader risk-off theme,” said Mark McCormick, global head of FX strategy at TD Securities. “It raises concerns about global growth issues, especially if geopolitical tensions and knock-effects exacerbate inflationary concerns. In turn, that forces central banks to keep fighting inflation in spite of the clear deceleration of global growth.”

Earnings

Corporate earnings continued to roll in on Tuesday, with higher prices threatening to erode margins. Caterpillar Inc. slumped after a slowdown in China weakened its business. That weighed on the Dow Jones Industrial Average, which was lower for the day.

Shares of Uber Technologies Inc. surged the most since 2020 during the trading session after the firm reported second-quarter revenue that beat the average analyst estimate.

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With earnings trickling in after the markets closed, Starbucks Corp. rose in extended trading after its net revenue came in slightly above expectations. Meanwhile, Advanced Micro Devices Inc., the second-biggest maker of computer processors, fell after giving a lukewarm forecast for the third quarter.

🔑 The Day’s Key Movements:

Oil prices oscillated during the session and at the end saw gains, as investors await the meeting to be held by OPEC and its allies in which a decision will be made on whether or not to increase supply.

Benchmark Brent remained above US$100, while WTI traded near $95. Looking ahead to the meeting, analysts are skeptical that the group of countries will heed US President Joe Biden’s call to increase oil supplies to reduce barrel prices, Bloomberg reported.

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The alliance is more likely to hold production steady in September, according to a Bloomberg survey of traders and analysts.

By the end of this month, the group will have officially completed the reactivation of supplies they halted during the pandemic.

🍝 For the Dinner Table Debate:

The strength of the US dollar and the depreciation of Latin American currencies has boosted remittances to the region, giving some oxygen to consumers as they face inflationary pressures and rising interest rates.

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Although the measurement of remittances in Latin American countries is not standardized, and some so far only have records for the first quarter of 2022, the region has already reached 37.3% of the World Bank’s projected target for this year.

Among the countries that have information available up to March 2022, Ecuador and Peru appear as the strongest as remittance recipients. The former accumulated $1.10 billion in the first three months of the year, an increase of 19.85% compared to the first quarter of 2021, according to the Central Bank of Ecuador.

The World Bank projected in May of this year that remittances arriving to the region would continue to grow to $143 billion, of which $53.42 billion (37.3% of the projection) have already arrived. To calculate this figure, Bloomberg Linea took the total reported by each country up to August 2 of this year.

-- Carlos Rodríguez Salcedo, a content producer at Bloomberg Línea, and Emily Graffeo and Natalia Kniazhevich of Bloomberg News, contributed to this report.