Argentina’s Merval Index Falls 4.5%; NYSE Closes Lower In Worst Week Since September

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

📉 A bad day for Latin America’s markets:

Latin American stock markets ended the week with losses, Argentina’s Merval (MERVAL) suffering the sharpest fall, closing 4.50% lower, with the shares of YPF (YPFD), Ternium Argentina (TXAR) and Central Puerto (CEPU) seeing the sharpest losses.

YPF shares dropped 6% during Friday’s session, on the day it marked 30 years since debuting onthe NYSE.

In the agenda of the day, the team of Economy Minister Sergio Massa tried to make up the result of the debt swap in pesos, in order to show a positive picture, but the result of the swap was much lower than expected. Only 57.7% of the debt maturities were swapped. The government reported 64%, adding the January conversion operation, and very few private companies accepted the official proposal.

The meager result was achieved despite the fact that hours before the exchange, the central bank increased the type of securities that financial entities can integrate as reserve requirements, in order to stimulate the financing to the Treasury, but even so, not a quarter of the private entities validated the exchange. “Poor result of the swap, which only managed to clear 23% of the maturities with private parties, the maturities that really matter in each roll over”, broker Aurum Valores said in a report.

🗽On Wall Street:

A renewed bout of volatility rattled markets around the world as SVB Financial Group’s turmoil spurred concern about further distress in the banking industry at a time when the Federal Reserve is deploying its most-aggressive tightening campaign in a generation.

Not even remarks from prominent voices that a systemic financial crisis is unlikely was able to appease investors. Equities sold off, with the S&P 500 coming close to wiping out its 2023 gains. Traders rushed in droves to the safety of bonds, which also soared after jobs figures offered a glimmer of hope that the Fed may refrain from accelerating its pace of rate hikes.

As risk assets got pummeled, the US stock benchmark suffered its worst week since September. Wall Street’s so-called “fear gauge” spiked, with the Cboe Volatility Index hitting the highest this year. Treasury two-year yields plummeted 28 basis points to 4.59%.

The S&P 500 dropped 1.45%, while the Dow Jones Industrial Average fell 1.07% and the Nasdaq Composite (CCMPDL) slid 1.76%.

The trigger for further de-risking was the official news that Silicon Valley Bank became the biggest US financial failure in more than a decade, after its long-established customer base of tech startups grew worried and yanked deposits. It’s the second regional lender to fold this week after Silvergate Capital Corp. announced it was voluntarily liquidating its bank.

Anxiety is also running high ahead of next week’s consumer price index report, especially after Fed Chair Jerome Powell recently emphasized that a move to a faster pace of tightening would be based on the “totality of the data.”

“We are just beginning to feel the effects of quantitative tightening on markets and the economy,” said Peter van Dooijeweert at Man Solutions. “As such, the market seems to be reverting to a 25 basis-point hike next meeting after almost being certain of 50 basis points only a few days ago. The worst-case scenario ahead would be a high CPI next week forcing the Fed’s hand despite hints of financial stability issues.”

Swap traders now see a 25-basis point hike at the March policy meeting as more likely than half-point move. They also lowered expectations for how high the Fed will push the borrowing costs — once again fully pricing in a rate cut from the peak level by year-end.

The rate hikes of the past year were not a prelude to a steady Goldilocks economy that’s running neither too hot nor too cold, but instead to a “hard landing and credit events,” strategists led by Michael Hartnett wrote in a note on fund flows pointing to another risk-off week in markets.

Investors pulled $500 million from equity funds and piled $18.1 billion into cash and $8.2 billion into bonds, according to BofA citing EPFR Global data for the period through March 8.

Treasury Secretary Janet Yellen said the US banking system “remains resilient” and regulators “have effective tools” to address developments around Silicon Valley Bank. Former Treasury Secretary Lawrence Summers said the meltdown of SVB shouldn’t pose a threat to the financial system as long as depositors are made whole.

“Contagion risk and the systemic threat can be easily contained by careful balance sheet management and avoiding more policy mistakes,” Mohamed El-Erian, the chairman of Gramercy Funds and a Bloomberg Opinion columnist, said in a tweet on Friday.

On the currency markets, the Bloomberg Dollar Spot Index fell 0.4%, the euro rose 0.5% to $1.0639, the British pound rose 0.8% to $1.2026 and the Japanese yen rose 1% to 134.83 per dollar.

🍝For the dinner table debate:

The British government suspects that Russian nationals have taken advantage of the country’s lax company registry controls to try to launder war profits stolen from Ukraine, according to people familiar with the matter.

British law enforcement agencies have detected in recent years a large number of shell companies set up in the UK by nationals of various countries, probably for money laundering or tax evasion purposes, according to the source, who asked not to be named because the matters are confidential.

Hundreds of those companies count Russians among their directors, and some Russian-controlled companies are trying to exploit the war in Ukraine for financial gain, the people said.

Russians feature prominently among those attracted to the London City thanks to lax regulation that allows them to protect their assets with little scrutiny. Although the UK has imposed wide-ranging sanctions on many Russian companies and individuals since the invasion of Ukraine, years of courting foreign money have left the British financial system riddled with shell companies and other structures that complicate efforts to enforce restrictions on Russian interests.

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