Argentina’s Merval Rallies; Wall Street Recovers Following First Republic Rescue

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

👑 Argentina’s Merval leads in Latin America:

Argentina’s Merval index (MERVAL) led the gains in Latin America on Thursday, gaining 6.46%, boosted by the shares of Bolsas y Mercados Argentinos (BYMA), Aluar Aluminio Argentino (ALUA) and Transportadora Gas del Norte (TGNO4).

In the day’s agenda, the Central Bank of Argentina raised the monetary policy rate to 78% NER. Barely 48 hours after the Indec revealed that the year-on-year inflation in Argentina reached three digits, the entity presided by Miguel Pesce decided to raise by 300 basis points both the rate for Leliq and for retail fixed terms.

The decision was taken this Thursday by the board of directors of the monetary authority and represents the first movement for the monetary policy rate in more than six months. With this new increase, the Annual Effective Rate that the BCRA will pay for the more than $8.1 trillion allocated in Leliq reaches 113.3%, from the 107.3% it was paying until Thursday. The monthly rate, meanwhile, climbs from 6.2% to 6.4%.

The downside of this new rate hike is that it implies a further cooling of the economy at the beginning of the final stretch towards the 2023 elections.

📉 A bad day for Peru’s stock market:

Peru’s SPBLPGPT dropped 0.23% and was the region’s only index to close lower, dragged down by the shares of Minas Buenaventura SAA (BVN), Minsur SA (MINSURI1) y Southern Copper Corp (SCCO) golpeó al indicador y lo llevó al terreno negativo.

As expected by most analysts, Peru’s Ministry of Economy and Finance and the central bank (BCR), Peru’s economy registered its first fall in 22 months in January 2023, negatively impacted by social protests as a result of political tensions and road blockades that affected a number of productive sectors in the Andean country.

According to the national production report of the national statistics agency INEI, Peruvian economic activity fell by 1.12% in the first month of this year and registered a contraction for the first time since February 2021.

In that period -February 2021- where the Peruvian economy also declined, Peru had been affected by a quarantine and the closure of some activities due to the second wave of Covid-19 at a national level.

🗽On Wall Street:

US stocks ended the day higher after a First Republic Bank rescue package was secured, sparking a rebound in shares of embattled regional lenders. Treasuries fell after the European Central Bank delivered a rate hike that added to bets the US central bank will also raise next week.

The S&P 500 notched its largest one-day advance since January after the biggest banks in the US agreed to contribute $30 billion in deposits to First Republic. The regional lender’s shares had tumbled more than 60% before Thursday as investors speculated the bank could be the next to fail after two high-profile demises touched off the crisis last week. An index of regional banks closed higher, the gauge is still down over 20% this March. The tech-heavy Nasdaq jumped 2.7%% to a one-month high.

The Nasdaq Composite (CCMPDL) climbed 2.48% and the Dow Jones Industrial Average 1.17%.

Tech has become more sensitive to interest rates, said Tony Welch, chief investment officer at SignatureFD.

“When economic growth becomes more scarce, you want to look to those industries and sectors that can produce the growth. Tech is certainly one of those that can potentially be a better grower,” Welch said.

Los mercados de Estados Unidos cerraron este jueves con ganancias luego de dos días de pérdidas por severos desplomes bancarios. Hoy el rescate del First Republic Bank avivó el interés por el riesgo y provocó un repunte en las acciones del sector financiero.

Meanwhile, Treasury Secretary Janet Yellen’s prepared remarks presented to Capitol Hill Thursday “did a good job of boosting confidence about the banking system,” said Art Hogan, chief market strategist at B. Riley Wealth Management.

“They’d like to see the support come from the private sector and that is likely going to be now the first of many larger, more sound banks supporting some of those banks that might have impaired balance sheets,” Hogan said of the big lenders coming to the regional bank’s aid.

The First Republic news comes after a lifeline from Swiss regulators overnight stabilized Credit Suisse Group AG, easing worries that the European lender would lead to a cascading crisis in that region. The idea of a forced combination with a larger rival, UBS Group AG, was shot down on Thursday and receipts in Credit Suisse ended the session unchanged. The cost to insure the Swiss bank’s debt has been rising.

“That the market is reacting relatively positively to the fact that we are applying some guardrails here shouldn’t necessarily be a catalyst for markets to move much higher,” said Meera Pandit, JPMorgan Asset Management global market strategist on Bloomberg TV. “There is still some vulnerability here to a correction because we don’t know how this continues to evolve.”

Markets were also digesting a European Central Bank rate hike and comments from the ECB president that inflation is projected to remain too high for too long. The Federal Reserve is expected to raise interest rates by a quarter percentage point next week. Rising odds for that move sent two-year Treasury yields back above 4%, though they remained lower than they were just a week ago.

Government securities swung in the session with yields eventually climbing. A measure of Treasury market volatility touched levels last seen in the midst of the global financial crisis this week.

Read more: US Two-Year Yield Surges Anew, Prolonging Extreme Volatility

FedEx Corp. shares jumped in afterhours trading following earnings from the delivery company that beat estimates and its outlook for the year was boosted. United Parcel Service Inc. also climbed.

Quarterly triple witching, where contracts for index futures, equity index options and stock options all expire, could amp up swings in Friday’s trading.

All eyes are now on the Federal Reserve’s policy meeting next week, with traders debating whether the central bank will increase interest rates. Market pricing suggests the Fed will soon pivot and will start cutting rates this year.

Data Thursday showed first-time unemployment claims dropped more than analysts’ estimates last week, while housing starts and building permits exceeded expectations, underscoring the economic resilience that’s allowed the Fed to tighten aggressively over the past year.

“Central banks appear to be willing to push through the problems higher rates are causing in order to address inflation,” Louis Navellier, chief investment officer of Navellier & Associates wrote in his daily newsletter. He views the ECB’s rate increase as a “test run” ahead of the next Fed meeting.

“All else being equal, more restrictive lending increases recession risk,” he said. “Expect lots of volatility in the near term and remain cautious as this banking crisis plays out.”

The Bloomberg Dollar Spot Index fell 0.3%, the euro rose 0.3% to $1.0614, the British pound rose 0.5% to $1.2118 and the Japanese yen was little changed at 133.47 per dollar.

🍝 For the dinner table debate:

Meta Platforms Inc. began to flesh out job cuts announced this week, starting with 1,500 employees in the recruiting and human resources departments, according to people familiar with the matter.

Meta executives explained the first wave of cuts to employees in a call Thursday morning, said the people, who asked not to be identified because internal discussions are private. CEO Mark Zuckerberg was also due to address staff later today, one person said.

On March 14, Zuckerberg said Meta planned to lay off about 10,000 employees and eliminate 5,000 open positions. In November, the company laid off 11,000 people, representing 13% of its staff.

Leidys Becerra, a content producer at Bloomberg Línea, and Carly Wanna and Angel Adegbesan of Bloomberg News, contributed to this report.