Argentina Leads LatAm Market Losses; Wall Street Closes Mixed Amid Stock Selloff

A roundup of Wednesday’s stock market results from across the Americas

📉 A bad day for Latin American markets:

Argentina’s Merval index (MERVAL) saw the sharpest losses in Latin America on Wednesday, falling 4.82%, with the shares of Edenor S.A. (EDN) dropping 9.1% and those of Aluar (ALUA) and BBVA Argentina (BBAR) 7.5%.

“On the one hand, international financial uncertainty applies risk on assets at a global level (...) On the other hand, the local situation: the difficulty to avoid daily sales of reserves, the pressure of the exchange rate during the last days and a high inflation that exceeded the REM estimate and is accelerating”, wrote Javier Rava, director of Rava Bursátil, about the Argentinean stock market in a commentary.

Meanwhile, Colombia’s Colcap (COLCAP) had a 3.84% drop on Wednesday, with considerable impacts on the consumer staples, utilities and financial sectors. Within the banking sector, Bancolombia S.A. (BCOLO) shares were the biggest loser, falling 7.74%.

On Wednesday, the dollar in Colombia rose again and closed the day at COP$ 4,890, very close to touching again the COP$ 4,900 barrier. The current political scenario also interfered in the quotation, as the draft of the Pension Reform that Gustavo Petro’s government will take to the Congress of the Republic was made known.

Chile’s Ipsa (IPSA) and Peru’s S&P/BVL (SPBLPGPT) fell 1.93% and 1.56% during the day, respectively.

The Mexican and Brazilian stock exchanges closed a little further away from these levels, but still affected. Mexico’s S&P/BMV IPC (MEXBOL) lost 1.15% and Brazil’s Ibovespa (IBOV) lost 0.25%.

🗽On Wall Street:

Volatility gripped global markets as fresh turmoil at Credit Suisse Group AG days after the collapse of some American regional banks spurred a frantic rush for safety, evoking memories of the 2008 financial crisis and bolstering speculation that policymakers will have to curb their hawkishness to prevent a harsher economic landing.

Equities got some relief after Switzerland’s central bank and financial regulator said Credit Suisse will receive a liquidity backstop if needed — an effort to arrest the slump in confidence around the troubled lender. The S&P 500 pared a slide that topped 2% by more than half. A gauge of US financial heavyweights like JPMorgan Chase & Co. and Citigroup Inc. also trimmed losses, but still hit the lowest since November 2020. First Republic Bank led a rout in US regional peers after being cut to junk by two credit firms.

The Dow Jones Industrial Average dropped 0.87% and the S&P 500 0.70%, but the Nasdaq Composite (CCMPDL) rose 0.05%.

Wall Street’s so-called fear gauge spiked after being relatively subdued for the most part this year. As investors sought refuge, gold reversed an earlier drop and the dollar rallied against all of its developed-market peers except the Japanese yen. Not every haven asset rose, though, with the Swiss franc sinking more than 2% against the greenback.

Bond yields plunged globally as mounting financial-stability concerns prompted traders to abandon bets on additional rate hikes and begin factoring in cuts by the Federal Reserve. They priced in a drop of more than 100 basis points in the US policy rate by year-end while downgrading the odds of additional tightening by the Bank of England and the European Central Bank.

Banks that trade with Credit Suisse moved to safeguard their finances on Wednesday, snapping up contracts that will compensate them if the turmoil deepens. So intense was the demand for the contracts — known as credit-default swaps — that they spiked to levels that signal the Zurich-based firm is in deep financial distress — something unseen at a major global lender since the throes of the financial crisis.

Read: Recession Risk Mounts as Credit Suisse Crushes Soft-Landing Hope

The renewed bout of banking turbulence spurred some worrisome remarks from prominent Wall Street voices.

As Credit Suisse nosedived, economist Nouriel Roubini — who’s known as “Dr. Doom” — said the troubled lender might be “too big to be saved.” BlackRock Inc.’s Larry Fink noted that the banking crisis could worsen, worrying aloud about cracks in the financial system that formed during more than a decade of easy money and low interest rates. Bridgewater Associates’ Ray Dalio said the recent failure of Silicon Valley Bank was just a “canary in the coal mine.”

“Are the dominoes starting to fall?” Fink, chairman of the world’s largest asset manager, said in a letter on Wednesday. “It’s too early to know how widespread the damage is.”

With the banking turmoil rippling through financial markets, Bob Michele, the chief investment officer of fixed income at JPMorgan Asset Management, warned of an economic hard landing.

He now expects the Fed to pause rate hikes next week, saying that a recession is “inevitable” and that the best investment strategy right now is to stick to high quality bonds. Michele reckoned the whole Treasury yield curve will come down to as low as 3% by August, but he stopped short of predicting the end of a hiking cycle. The 10-year rate is currently near 3.5%.

Read: Summers Says Fed, ECB to Judge Disinflationary Impulse Scale

Now that’s not to say Wall Street is necessarily embracing the idea of a “financial crisis 2.0″ at this stage.

Lisa Shalett at Morgan Stanley Wealth Management stopped short of buying into the latest mega-bear-case on equities — namely that the failure of three American banks would be a prelude to a crisis such as the one that laid global economies low in 2008.

She says the collapse of a few regional lenders was mostly driven by poor risk management at a time when the Fed is aggressively tightening monetary policy to slow the economy. While more banks are likely to fall, Shalett considers the threat to the broad financial industry and economy as contained.

“Remember, in the great financial crisis, there was a lot of this that was about cross-counterparty credit risk,” she told Bloomberg Television. “This is less about immediate contagion.”

No matter how bullish or bearish traders are, there seems to be consensus on at least one thing: volatility should continue dominating the financial world for now amid so many uncertainties.

“The emotions of investors remain high, and shrinking liquidity is pouring gasoline on volatility in the equity and bond market,” said Mark Hackett, chief of investment research at Nationwide. “The market remains susceptible to continued pressure until confidence in the system returns.”

The Bloomberg Dollar Spot Index rose 0.9%, the euro fell 1.4% to $1.0580, the British pound fell 0.8% to $1.2060 and the Japanese yen rose 0.8% to 133.21 per dollar.

🍝 For the dinner table debate:

Bloomberg Línea shone at Nasdaq, in the heart of New York’s Time Square and the financial heart of the world on Wednesday, where the four leading podcasts in their markets were highlighted: ‘La estrategia del día México’, the most listened to in LatAm on economic news, led by Jimena Tolama; ‘La estrategia del día Colombia’, led by María C. Suárez; ‘La estrategia del día Argentina’, with the voice of Francisco Aldaya, and ‘Ouvi num podcast’, led by Ana Carolina Siedschlag, the latter for the Brazilian audience.

In addition, a new season of the webseries ‘Casa de Negocio$’ was announced. It has been 19 months since Bloomberg Línea was launched and every month it reaches 30 million people through its different channels.

Leidys Becerra, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.