A roundup of Wednesday’s stock market results from across the region
👑 Peru leads in Latin America:
Latin American stock markets were boosted by the positive performance on the NYSE on Wednesday after inflation in the US grew less than expected.
The good stock market mood led the S&P/BVL Peru (SPBLPGPT) to record the best performance in the region, thanks to the performance of the materials, finance and consumer staples sectors.
Brazil’s Ibovespa (IBOV) also closed higher, as the CPI pointed to a better outlook for the Brazilian economy.
📉 A bad day for Colombia’s COLCAP:
The Colombian stock market did not benefit from lower risk aversion and posted losses despite the advance made by its peers in the region, with the COLCAP index (COLCAP) dragged down by the performance of stocks such as Banco de Bogotá (BOGOTA), Grupo Bolívar (GRUPOBOL) and Grupo ISA (ISA).
Ecopetrol (ECOPETL), which has the highest volume of shares on the Colombian stock market, closed with a 0.64% drop.
Investors are attentive to the tax reform presented by President Gustavo Petro’s government, which would bring additional taxes for oil, coal and gold exporters.
In addition, they are closely following the bills filed by the ruling party’s bench, such as the one that seeks to prohibit fracking in the country. Although fracking is not yet under way commercially, Ecopetrol is leading pilot projects to analyze the viability of the practice.
🗽 On Wall Street:
US stocks surged as softer-than-expected inflation data fueled bets the Federal Reserve could pivot to a smaller pace of hikes -- a view taken with a grain of salt by market watchers saying officials may still be a long ways from achieving their goal.
Traders went risk-on Wednesday, with the S&P 500 hitting a three-month high. A rally in tech shares sent the Nasdaq 100 more than 20% above its June bottom, leaving it in a bull market going by a commonly held definition. The gauge still sits 19% below its November record. The Cboe Volatility Index slid to a level last seen in April.
The S&P 500 climbed 2.13%, the Dow Jones Industrials 1.63% and the Nasdaq Composite (CCMDPL) 2.89%.
The dollar sank the most since the onset of the pandemic. Treasury two-year yields were lower by about five basis points in late trading after plummeting nearly 20 basis points immediately after the data. West Texas Intermediate crude topped $91 a barrel.
For a market plagued by fears about the Fed’s struggles to tame the inflation beast, the July consumer price index brought a sigh of relief -- with both core and overall measures coming in below forecasts. Swaps are now suggesting a move of 50 basis points as more likely in September than a repeat of the 75-basis-point increases that officials have opted to implement at their past two meetings.
“This is overall good news for risky assets,” wrote Florian Ielpo, head of macro at Lombard Odier Asset Management, adding that “a lower growth rate of prices does not mean the end of inflation, and naturally the end of hawkish central banking. Inflation remains a situation that requires the Fed’s attention and more importantly the Fed’s measures.”
One danger of the stock-market bullishness right now is it could cause a relaxation of financial conditions that would go against the Fed’s goals. It’s also worth looking back to the early 1980s, when then Fed Chair Paul Volcker eased policy as inflation peaked and the economy tipped into a recession. But the moderation of price pressures proved to be much slower than officials wanted -- and they had to tighten again months later.
In fact, the CPI surprise is just one piece of the intricate puzzle officials are playing with at the moment -- and possibly over the next several months -- with the central bank still miles away from reaching its inflation target. Food prices in the US soared the most since 1979 in July, keeping the cost of living painfully high even as lower gasoline costs offered some relief to consumers.
Two Fed officials responded to softening inflation data by saying it doesn’t change the US central bank’s path toward even higher rates this year and next.
Alluding to market pricing of the policy trajectory, Fed Bank of Minneapolis President Neel Kashkari said it was not realistic to conclude the central bank will start cutting rates in early 2023. His Chicago counterpart Charles Evans said officials will probably continue hiking into next year to bring down “unacceptably high” inflation.
“The easing of financial conditions likely annoys the Fed, and we should not be surprised to see Fed speakers continue to try to talk down the market and risk assets,” said Christian Hoffmann, portfolio manager at Thornburg Investment Management.
“The Fed still has significantly further to tighten and the US economy ultimately cannot avoid its fate. Enjoy today and the next few weeks, it won’t last for too long,” said Seema Shah, chief global strategist at Principal Global Investors.
🔑 The day’s key events:
Lower risk aversion generated by the inflation data also helped boost oil prices, which have been hit by fears of a recession impacting market demand.
In addition, US government data showed gasoline stocks fell to 220.3 million barrels as demand rises, Bloomberg reported.
The U.S. price data also added to news of the resumption of oil flows out of Russia to some countries in Europe that had been halted during the week.
The pipeline runs through Ukraine to Hungary, Slovakia and the Czech Republic but had been halted after a transit fee was not paid because of sanctions against Moscow.
The good mood among investors reached even the cryptocurrency market. Ether, the second largest digital token by market capitalization, led the gains and was up more than 7%. Bitcoin was trading above $23,700.
🍝 For the dinner table debate:
Elon Musk returned to the market and, again, to sell more Tesla (TSLA) shares. The entrepreneur raised $6.9 billion in his most recent transaction, according to regulatory documents made public Tuesday night.
The electric car maker’s founder explained in a tweet that he made the move “to avoid an emergency sale of Tesla shares” in the event that he is forced to pay a penalty to Twitter (TWTR).
The billionaire is in the midst of a court dispute with the social network after he backed out of the initial deal he submitted to take over the company in a $44 billion bid. Musk backed out by arguing that Twitter had not been clear about how many fake accounts the social network has.
Together with the sales he made in April, the entrepreneur has raised about $15 billion in cash, according to Bloomberg calculations.
-- Carlos Rodríguez Salcedo, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.