:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/QJA2UQ5VTVBDZBIW7WJ56YX7TA.jpg "A trader on the floor of the New York Stock Exchange (NYSE) in New York, US.")
A roundup of Wednesday’s stock market results from across the Americas
👑 Argentina’s Merval out ahead:
In Latin America, Argentina’s Merval (MERVAL) closed Wednesday with the sharpest gains, up 1.84%.
But all eyes were on the Peruvian stock market, in the midst of the new political crisis unleashed by the now ex-Pedro Castillo, when he attempted to dissolve Congress in a self-coup, which was followed by an impeachment vote in Congress and Castillo’s subsequent arrest by the National Police.
Peru’s S&P/BVL (SPBLPGPT) gained 0.49% at the close of the day, trimming Tuesday’s losses, with a good performance of consumer staples stocks (+2.46%) and a 2.83% drop in the utilities sector.
After a hectic day and four hours of maximum political movement, the Peruvian Congress swore in Dina Boluarte as the country’s new president, the first woman to hold the position in the country, following Castillo’s removal.
On Wednesday, the Peruvian sol fell as much as 1.7% against the dollar after Castillo’s speech (noon local time), and then reversed losses when the takeover was unsuccessful.
:quality(75):focal(1111x179:1121x189)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/V37CVLTYMZEOFBVJ5UUSXIJDO4.jpg "Dina Boluarte Becomes Peru’s First Female President Following Castillo’s Removal")
📉 A bad day for Brazil’s Ibovespa:
Meanwhile, Brazil’s Ibovespa (IBOV) led the losses in the rest of the region’s stock markets, after falling 1.02%, in the face of recession fears and following the performance of the US indices.
After the close of the day, Brazil’s central bank kept its restrictive monetary policy unchanged, and maintained the benchmark Selic index at 13.75% for the third consecutive meeting, as expected by analysts surveyed by Bloomberg.
Chile’s Ipsa (IPSA) lost 0.69%, Mexico’s S&P/BMV IPC (MEXBOL) fell 0.58% and Colombia’s Colcap (COLCAP) fell 0.56%.
🗽 On Wall Street:
The NYSE came under pressure once again on Wednesday, with Treasuries signaling growing concern about a recession next year amid an aggressively tight Federal Reserve policy.
In a session marked by unnerving swings in both directions, the S&P 500 suffered a fifth straight loss. Oil erased its 2022 gains on easing demand for fuels. Economic jitters were palpable among bond traders, with a key segment of the US curve reaching a four-decade extreme. Treasury 30-year yields sank to the lowest since September.
The S&P 500 dropped 0.19% on Wednesday, while the Nasdaq Composite (CCMPDL) dropped and the Dow Jones Industrial Average closed with no change.
To Nicholas Colas at DataTrek Research, the spread between two and 10-year rates is extremely wide — and is “clearly spooking” equity traders. That’s a signal that markets believe the Fed policy is “very, very restrictive,” he noted. Curve inversions have a track record of preceding economic downturns by 12 to 18 months.
“The last time we were here was at the start of the ‘Volcker recession,’” and his Fed was already cutting rates,” Colas said. “Now we have a Fed that is still talking about ‘higher for longer’ rates. Markets are essentially saying there will be another man-made economic contraction soon: the ‘Powell recession’.”
Ark Investment Management’s Cathie Wood said the bond market appears to show that the Fed is making a “serious mistake” with its monetary policy. Deflation is a much bigger risk than inflation, she noted in a series of Tweets.
Bond-market gauges of inflation expectations have declined in recent weeks. The 10-year breakeven rate for Treasury inflation-protected securities is hovering around 2.3%, down from 2.6% in late October.
Las bolsas de Estados Unidos continuaron a la baja en la tercera jornada bursátil de la semana, en medio de las preocupaciones del mercado por los rendimientos de los bonos del Tesoro, que dan señales de recesión en 2023.
A measure of labor cost growth reinforced the narrative that’s been benefiting Treasuries for the past month — that inflation has peaked. Meantime, mortgage rates fell for a fourth week in a row, the longest such stretch of declines since May 2019, as the Fed has signaled it will soon slow down the pace of tightening.
“Investors are worrying both that the economy may be too strong and that it may be too weak at the same time,” said Ed Yardeni, president of his namesake research firm. “The yield-curve spread between the 10-year and two-year Treasuries suggests that the Fed’s monetary policy tightening cycle is almost over. That’s either because a recession is imminent or because inflation is likely to keep falling, maybe without a recession.”
Those concerns are keeping the tug of war between equity bulls and bear in full force, with the latter having the upper hand. The S&P 500 this week breached a key uptrend line from its October lows, a sign that stocks still face more obstacles before there’s confirmation this year’s downtrend is broken.
To Savita Subramanian at Bank of America Corp., investors should stay invested in stocks despite growing warnings that the S&P 500 may sink to new lows in the first half of next year.
“Not having exposure to stocks and sticking all your money in bonds and cash is a mistake at this point,” she said. “I do think that we are going to go down and then up. The problem is, that is an increasingly consensus view. So I think the bigger risk heading into the first half is actually not being invested in equities.”
Also keeping a lid on risk assets Wednesday were comments from President Vladimir Putin, who warned that the threat of nuclear war in the world is rising, reiterating that Russia will defend itself and its allies “with all means if necessary.”
On the currency markets, the Bloomberg Dollar Spot Index fell 0.3%, the euro rose 0.4% to $1.0511, the British pound rose 0.7% to $1.2212 and the Japanese yen rose 0.4% to 136.44 per dollar.
🔑 The day’s key events:
Oil continued to plummet and erased its 2022 gains for good, in a scenario of low market liquidity and lower demand for fuels.
“There is literally no risk appetite to buy crude right now. This is snowballing into mammoth moves,” explained Rebecca Babin, senior energy trader at CIBC Private Wealth Management, in a commentary.
On Wednesday, WTI crude oil fell 3.02% to $72.01 per barrel, wiping out this year’s gains, and benchmark Brent lost 2.48% to $77.38 per barrel.
Concerns about global growth prospects, along with a weak physical market and falling liquidity have weighed on prices, Bloomberg reported. In addition, during the day, the Energy Information Administration reported that distillate and gasoline inventories had risen, indicating weaker demand.
🍝 For the dinner table debate:
Following Pedro Castillo’s attempt to dissolve Congress just hours prior to his impeachment trial and his subsequent removal as president of Peru, the first reactions from the international community have emerged.
The US embassy in Peru issued a statement in which it “categorically rejected any extra-constitutional act by President Castillo to prevent Congress from fulfilling its mandate”. In the same message, the US encouraged the Peruvian people to remain calm during this uncertain time.
Also, Mexican Foreign Minister, Marcelo Ebrard, said in a tweet that “Mexico regrets the latest events in Peru and hopes for the respect of democracy and human rights for the good of this dear brother people”. He also announced that given what happened in Peru “it has been agreed to postpone the Summit of the Pacific Alliance that was to take place on December 14 in the city of Lima”.
In addition, the government of Chile issued a statement in which it “deeply regrets the political situation that the Republic of Peru is experiencing”, while it trusts “that this crisis affecting a brother country can be resolved through democratic mechanisms and respect for the rule of law”.
Sebastián Osorio Idárraga, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.
