Petrobras Shares Boost Brazil’s Ibovespa; US Markets Advance Despite China Slowdown

Brazil’s index was the only one in Latin America to close with gains on Monday, with holidays in Argentina, Chile and Colombia, while US markets climbed amid tech share gains

A pedestrian walks past Petroleo Brasileiro SA (Petrobras) headquarters in Rio de Janeiro, Brazil. Photographer: Dado Galdieri/Bloomberg
By Bloomberg Línea and Bloomberg News
August 15, 2022 | 08:00 PM

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

👑 Brazil, Latin America’s leader:

Brazil’s stock market managed to reverse the losses with which it traded part of the session, after the economic slowdown in China hit the price of commodities from oil to iron ore.

Only Brazil’s Ibovespa (IBOV) closed higher on Monday, on a holiday day for several countries in Latin America. Falling oil prices contributed to the pullback in stocks linked to the sector, however, after reporting another reduction in gasoline prices, Petrobras (PETR3; PETR4) turned the numbers in the red and closed with gains.

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This is the third fuel price reduction in less than a month.

During the day, it was reported that Brazil’s economic activity grew above expectations in June and the central bank’s economic activity index, a GDP benchmark, grew by 0.69% compared to May. On a year-on-year basis, the economy advanced 3.09%.

📉 A bad day for the rest of the region:

The stock markets of Argentina, Chile and Colombia did not trade due on Monday due to a holiday.

The biggest drop was seen on the Peruvian market, where the S&P/BVL Peru (SPBLPGPT) closed with a decline of more than 1%.

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The materials and financial sectors had the biggest losses during the day, with shares of Volcan Cia Minera (VOLCABC1), Minsur (MINSURI1) and Southern Copper (SCCO) among the session’s decliners. Copper-linked shares retreated along with commodity prices.

The drop in the red metal’s price, which fell 1% on the London Metal Exchange, outweighed the growth of the Peruvian economy, which registered an increase of 3.44% in June, according to the country’s statistics bureau. Annually, the economy grew by 5.51%.

The Mexican stock market also closed 0.44% lower, with the S&P BMV/IPC (MEXBOL) dragged down by the materials, consumer staples and communication services sectors.

🗽 On Wall Street:

US stocks rose on Monday, with megacaps catching bids as investors digested weak data on New York manufacturing and the Chinese economy. Treasuries gained with the dollar, while commodities from oil to iron ore tumbled.

The S&P 500 closed up 0.40%, near highs of the day, reversing losses of as much as 0.5%, with only energy and materials sectors ending in the red. The tech-heavy Nasdaq 100 outperformed, with Tesla Inc., Apple Inc., Microsoft Corp. and Nvidia Corp. leading gains. Treasury yields declined and the bond curve remained deeply inverted, pointing to potential risks of a US recession as the Federal Reserve tightens monetary policy.

The Dow Jones Industrials advanced 0.45% and the Nasdaq Composite (CCMPDL) 0.62%.

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US stocks are coming off a fourth straight weekly gain, the longest run this year, with sentiment buoyed by signs of slowing price pressures that stirred hopes of a shift by the Fed to less aggressive rate hikes and a gradual slowdown in the economy. Still, the rally has left market breadth looking stretched with stocks vulnerable to a pullback.

“The magnitude of this bear market rally has surprised many, including us,” Morgan Stanley strategists including Michael Wilson wrote in a note. “In our view, it’s been driven by a combination of better-than-feared 2Q earnings (although revisions/price came down into the quarter), light positioning and continued hope for a less hawkish Fed path.”

In corporate news, activist investor Dan Loeb said he acquired a stake in Walt Disney Co. and called for sweeping changes. The shares rose for a fourth day to the highest since April. Big-box retailers take center stage this week with Walmart Inc., Home Depot Inc. and Target Corp. due to report earnings.

Read more: Walmart View on Shoppers in Focus After Outlook Cut: Preview

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“Traders seemingly embraced the downtick in inflation last week and pushed stocks to their highest levels since early May,” Chris Larkin, managing director of trading at E*Trade from Morgan Stanley, said in a note. “Though with inflation still unsustainably high, and the Fed needing to continue to hike interest rates, the possibility of an inflation ‘head fake’ after last week’s data remains.”

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A gauge of New York state manufacturing activity plunged by the second-most in data back to 2001, with sharp declines in orders and shipments indicating an abrupt downturn in demand, a report showed Monday.

Meanwhile, data showed China’s July retail sales, investment and industrial output missed economists’ estimates, and in the euro area, the risk of a recession has reached the highest level since November 2020, according to economists polled by Bloomberg.

Oil shed more than 3%, while iron ore, copper and other metals declined amid mounting concerns that China’s sluggish recovery will curb demand for raw materials. Gold retreated below $1,800 an ounce and Bitcoin hovered above $24,000.

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“We would caution investors not to get too bulled up or chase this rally,” Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management, said. “There is a decent risk that the Fed has to hike rates more than we and the market are currently expecting, a possibility that would quickly cool the warming sentiment. That would also increase downside risks to growth, which are already prevalent.”

On the currency markets, the Bloomberg Dollar Spot Index rose 0.7%, the euro fell 1% to $1.0159, the British pound fell 0.7% to $1.2054, and the Japanese yen was little changed at 133.30 per dollar.

🔑 The day’s key events:

Data from China hit oil prices, which reached their lowest level in six months, after the Asian giant reignited signs of a recession.

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The slowdown in the Asian giant’s economy generated fears about the possible impact on demand in the face of slower growth in the main oil importer.

To this was added the progress made in the talks with Iran, which could return Iran’s oil to the international market. Foreign Minister Hossein Amirabdollahian adopted a more conciliatory tone after he said he would inform the European Union of his position regarding a final draft text for a possible nuclear agreement, according to Bloomberg.

Adding to the optimism were statements by a spokesman for the country’s Foreign Ministry in which he said that “in the very near future” there could be a basis for signing some agreement.

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🍝 For the dinner table debate:

BP is in the process of exiting its oil exploration business in Mexico, six years after it arrived in the country following the opening of the energy sector to private companies as part of the 2013 energy reform.

BP Exploration Mexico will conclude its participation in three exploration contracts in offshore blocks located in the Gulf of Mexico, as reported exclusively by Bloomberg Linea. In two of the blocks it will hand over it operated as operator and in one more as partner, thanks to the Mexican government’s auctions within the framework of the 2013 energy reform.

BP’s CEO, Bernard Looney, stated in April 2021 during a call with analysts that the company’s operation in Mexico was important, but was not the focus of its growth strategy.

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The situation for oil companies in the country is unfavorable. President Andrés Manuel López Obrador cancelled two oil auctions scheduled at the beginning of his administration and set private companies a production target of 280,000 barrels per day before considering new rounds.

-- Carlos Rodríguez Salcedo, a content producer at Bloomberg Línea, and Stephen Kirkland and Vildana Hajric of Bloomberg News, contributed to this report.

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