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Petrobras Share Slump Batters Ibovespa; S&P 500 Closes Sharpest Weekly Drop Since 2020

Fear of lower economic growth hit the oil markets, with WTI and Brent falling more than 5%

The Petroleo Brasileiro SA (Petrobras) headquarters in Rio de Janeiro, Brazil.
By Bloomberg News and Bloomberg Línea
June 17, 2022 | 06:21 pm

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

👑 Latin America’s Leader:

Latin American stock markets also had a mixed day, amid the volatility of the US market. The Mexican stock market showed the best performance among its peers in the region.

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Mexico’s S&P BMV/IPC index (MEXBOL) closed with gains due to the performance of the raw materials, communication services and industrial sectors.

Chile’s IPSA (IPSA) had the second best performance and rose thanks to the performance of the materials, utilities and industrials sectors.

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The shares of Sociedad Química y Minera (SQM/B, Embotelladora Andina (ANDINAB) and Enel Chile (ENELCHIL) were among the highest gainers amid the rally on Wall Street.

The Argentine stock exchange did not trade on Friday due to a holiday.

📉 A Bad Day:

Brazil’s Ibovespa (IBOV) had the worst performance in Latin America after it was closed on Thursday for the Corpus Christi holiday. The index not only reacted belatedly to the falls that occurred in the previous day, amid fears of a possible recession, but also to the setback in iron ore prices.

The raw material accumulated its seventh consecutive day of losses and affected the performance of Vale (VALE3). To this was added the plunge of Petrobas (PETR3, PETR4) shares amid falling oil prices and criticism of the company after decreeing a new increase in fuel prices.

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Petrobras shares fell 5.66% on Friday.

President Jair Bolsonaro criticized the price hike and said the producer has made exaggerated profits during the crisis, disregarding Brazil’s “public interest”, according to Bloomberg.

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“Petrobras may plunge Brazil into chaos,” Bolsonaro said in a Twitter post.

Bloomberg reported that the speaker of the lower house, Arthur Lira, said that on Monday the chamber will discuss a project to reevaluate Petrobras’ pricing policy. In addition, it could increase taxes on the company’s profits and even initiate a congressional investigation of its board members, according to O Globo newspaper.

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🗽 On Wall Street:

US stocks rallied Friday as sentiment improved after traders parsed comments from Federal Reserve officials who reiterated that the central bank needs to do more to curb the hottest inflation in 40 years.

While the S&P 500 rose on Friday, it still closed the week at its lowest since December 2020 as investors grappled with a flurry of data that intensified recession fears. The tech-heavy Nasdaq 100 surged.

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The Nasdaq Composite (CCMPDL) closed with a gain of 1.43%.

Friday also brought the quarterly event known as triple witching. The $3.5 trillion options expiry has arrived with limited downside volatility so far. Treasury yields rose across the curve, with 10-year yields hovering around 3.2%. The dollar snapped two days of losses.

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Read More: Wall Street’s $3.5 Trillion OpEx Has Arrived With Limited Drama

Markets rounded off a week buffeted by interest-rate increases, including the Federal Reserve’s biggest move since 1994, a shock Swiss National Bank hike and the latest boost in UK borrowing costs. The rate hikes are draining liquidity, sparking losses in a range of assets. Traders are still assessing the path of rate hikes the Federal Reserve could take and the impact that would have on the economy.

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“Coming off a painful week on Wall Street, investors are becoming optimistic that the Fed remains committed to bringing down inflation and that markets could be close to pricing in where the overnight rate will be at its peak next year,” said Edward Moya, senior market analyst at Oanda.

Federal Reserve Chair Jerome Powell said, on Friday, that the central bank is “acutely focused” on returning inflation to 2% and that another 75 basis-point hike or 50 basis-point move was likely at the July meeting.

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Federal Reserve Bank of Kansas City President Esther George said she opposed the Fed’s Wednesday decision because the move, combined with the shrinking of the central bank’s balance sheet, creates uncertainty about the outlook.

“I think that we need to work on the basis that the macroeconomic and investment environment will remain potentially very fragile,” said Christian Nolting, Deutsche Bank’s private bank global chief investment officer. “Recovery will not be simple and, even on the most optimistic assumptions -- for example, on Chinese economic reopening -- issues such as supply-chain disruption will take time to fix.”

US factory production data for May pointed at cooler demand as output unexpectedly declined. Meanwhile, industrial production for May rose, but below the estimate.

Global stocks are facing one of their worst weeks since pandemic-induced turmoil of 2020 and some investors aren’t sure that assets have sunk far enough to price in the tightening cycle.

“Near-term recession has become a foregone conclusion for many investors; the only questions now are its duration and the severity of its impact on earnings,” Wells Fargo’s Chris Harvey wrote in a note.

Compared with the last two bear markets that were also associated with runaway inflation, the current one, at six months, has a long way to go, Harvey said. The 1980-1982 downturn lasted just over 20 months, as did the one between 1973 and 1974.

🔑 The Day’s Key Movements:

Fears of lower economic growth hit the oil market and the WTI and Brent benchmarks fell more than 5%.

The possibility that the Federal Reserve will further tighten its monetary policy, as well as authorities such as the European Central Bank and the Bank of England, raises fears that the fight against inflation will end up affecting economic growth.

“While the recession may cool prices in the short term due to the lack of upstream and downstream energy investment, we will continue to see a very tight market and any drop in oil prices may be short-lived,” Phil Flynn, senior market analyst at Price Futures Group Inc, told Bloomberg.

Fed Chairman Jerome Powell reiterated in a speech Friday that the central bank is committed to returning inflation to its 2% target.

🍝 For the Dinner Table Debate:

US President Joe Biden will launch a global infrastructure initiative to counter China’s international ambitions, National Security Advisor Jake Sullivan said, according to Bloomberg.

The US-initiated partnership will cover global infrastructure, physical health and digital infrastructure and provide “an alternative to what the Chinese are offering”, Sullivan added at an event hosted by the Center for a New American Security.

“We intend for this to be one of the hallmarks of the Biden administration’s foreign policy for the remainder of its term,” Sullivan said.

According to US officials cited by Bloomberg, there are$40 trillion in financing needs in the developing world.

-- Carlos Rodríguez Salcedo, a content producer for Bloomberg Línea, and Isabelle Lee and Vildana Hajric of Bloomberg News, contributed to this report