Risk Aversion Again Tumbles Latin American, US Markets

Aversion to risk and fears of a recession have knocked markets across the Americas, while the US dollar hit historic highs and the S&P 500 falling to December 2020 levels

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, US. Photographer: Michael Nagle/Bloomberg
By Bloomberg Línea and Bloomberg News
September 26, 2022 | 09:15 PM

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

📉 A bad day for Latin America:

Risk aversion once again hit Latin American markets and once again, none of the main stock exchanges closed with gains.

The movement continues to be marked by the international mood and the possibility of a recession in the world’s main economies.

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In the midst of this context, Colombia’s COLCAP (COLCAP) had the largest drop among its peers in the region and fell to levels not seen since June 2020.

Ecopetrol (ECOPETL), the share with the highest trading volume, was among those that lost the most during the day and returned to prices it had not seen since November 2020.

The Brazilian stock market also did not escape the international mood and the Ibovespa (IBOV) fell, although investors are also weighing the proximity of the first round of the presidential elections to be held next weekend.

Mexico’s S&P/BMV IPC (MEXBOL) also lost ground as the market awaits the announcement of the Bank of Mexico’s monetary policy decision. Analysts estimate a 75 basis point increase to bring the benchmark to 9.25%.

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“The negative sentiment of the previous week continues, with widespread declines in the main indexes. Risk aversion remains due to the expectation that strong monetary tightening will continue, increasing concerns of a weaker economic performance,” Banorte analysts said in a note.

🗽 On Wall Street:

US stocks fell, cutting short a brief, cautious rebound led by technology shares earlier in the session, as hawkish central banks across the globe continued to subdue sentiment. The pound dropped after the Bank of England said it may not act before November to stem a rout that took the sterling to a record low.

The S&P 500 trimmed declines and the tech-heavy Nasdaq 100 climbed, after both equity gauges plunged last week. US Treasury yields continued to rise, with the 10-year rate climbing as much as 21 basis points to 3.898%, its highest level since April 2010. The pound hovered around $1.07. The dollar soared to yet another record high.

The S&P 500 dropped 1.03%, hitting its lowest level since December 2020, while the Dow Jones Industrial Average dropped 1.11% and the Nasdaq Composite (CCMPDL) 0.60%

Markets are on the edge after a selloff of risk assets deepened last week as the UK’s plan to lift its economy fueled fears that heightened inflation would push rates higher and ignite a global recession. UK markets were in focus on Monday as the pound remained volatile after crashing to an all-time low, with the Bank of England’s comments doing little to reassure traders.

Federal Reserve officials also added to the hawkish rhetoric. On Monday, Boston Fed President Susan Collins said additional tightening is needed to rein in stubbornly high inflation and cautioned the process will require some job losses. Atlanta Fed President Raphael Bostic also said the central bank still has a ways to go to control inflation.

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“On the macro front, it feels like a remake of West Side Story, with a gang of central bankers going after the job market, which refuses to let go,” said Mike Bailey, director of research at FBB Capital Partners. “Powell and now Andrew Bailey at the BOE are trying to slow the economy down, but my sense is employers are keeping as many workers as they can to avoid being left out in the cold when we recover from the next recession. So we almost have an arms race with central bankers raising rates and employers holding on to workers.”

US markets will continue to remain challenged by uncertainty until companies start to report their third-quarter earnings next month, which will provide greater detail on the health of corporate revenues and profit, wrote John Stoltzfus, chief investment strategist at Oppenheimer. Any company or industry that needs lower rates could be in trouble, FBB’s Bailey says.

Investors will also be keeping an eye on the economic data stream for hints of prices cooling, Art Hogan, chief market strategist at B. Riley, wrote in a note.

“What the market will need to see now to get out of the current conundrum is for inflation inputs to start coming down noticeably,” said Hogan. “We will get a read on the Fed’s preferred inflation indicator this Thursday when the second quarter core PCE is reported. Along with that investors will keep a close eye on the economic data stream for hints of prices paid coming down.”

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Trading this week will be punctuated by a number of economic reports including US initial jobless claims and gross-domestic-product data, along with PMI figures from China. Choppiness in price moves is likely with a steady stream of Federal Reserve officials speaking through the week.

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On the currency markets, the Bloomberg Dollar Spot Index rose 1%, the euro fell 0.7% to $0.9619, the British pound fell 1.5% to $1.0697 and the Japanese yen fell 0.8% to 144.52 per dollar.

🔑 The day’s key events:

Weak investor confidence also hit the oil market, which has been no stranger to fears of a recession that could eventually hit demand for crude oil.

Investors’ mood at the beginning of the week led prices to touch almost nine-month lows. Brent settled below $85, while WTI remains below $80 per barrel.

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The search for a haven pushed the dollar to record highs, which also hit the attractiveness of commodities priced in that currency.

“Crude oil prices are struggling against a strong dollar and a global recession outlook that will reduce the outlook for crude demand for the rest of the year,” said Edward Moya, an analyst at Oanda.

The market is also watching European Union discussions to set a cap on Russian oil prices, however, negotiations have been delayed in the face of divisions in the bloc.Cyprus and Hungary are among the countries that have voiced opposition to the proposal, according to sources cited by Bloomberg.

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🍝 For the dinner table debate:

The Board of Governors of the Inter-American Development Bank (IDB) voted to remove Mauricio Claver-Carone as president of the international organization, according to media outlets such as Reuters, EFE and La Nación on Monday.

Unnamed sources familiar with the matter had told Bloomberg that IDB directors recommended his removal after an investigation into an alleged romantic relationship with a high-ranking female advisor found that he likely violated ethical rules.

Claver-Carone denied any allegations and said he had not been informed by the IDB that its board had voted to remove him, according to statements picked up by Reuters. The official added to the news agency that he had been denied due process.

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Although the IDB has not issued an official statement, after the decision this bank will have to embark on a new path to elect its top manager.

The Board of Governors itself is in charge of electing a new president for a five-year term, according to the regulations established in the Bank’s Articles of Agreement.

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