Latin American Markets Close Higher; Regional Bank Recovery Ignites US Stocks

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

🌎 In Latin America:

Latin American markets closed higher Friday, following the good mood on the US markets. Argentina’s Merval (MERVAL) and Brazil’s Ibovespa (IBOV) were the region’s leaders, the former boosted 5.46% by shares of Grupo Financiero Galicia (GGAL), Telecom Argentina (TECO2) and Transportadora de Gas del Sur (TGSU2).

In a context of uncertainty and exchange rate volatility, the central bank of Argentina recorded the withdrawal by Argentines of more than $1 billion of dollar deposits in April, due to the fear of a possible devaluation of the currency on the official exchange rate.

Dollar deposits fell from almost $16.4 billion on March 20 to just under $15.3 billion at the end of April, a decrease of 6.7%, according to central bank data. In Argentina, current accounts are denominated in pesos, but savings accounts can be denominated in US dollars, a reality after decades of currency crises and runaway inflation.

Economic volatility in Argentina rages ahead of the October presidential elections and most economists expect that a currency devaluation at the official exchange rate is almost inevitable.

The Ibovespa rose 2.91% on the back of gains of Braskem (BRKM5), Pet Center Comercio e Participacoes (PETZ3) and Alpargatas SA (ALPA4) Braskem (BRKM5). .

Braskem rose after the information published by newspaper F look de S. Paulo that the state-owned Adnoc, from the United Arab Emirates, is preparing to make an offer, in partnership with the U.S. fund Apollo, for the petrochemical company now controlled by Novonor (formerly Odebrecht) and Petrobras.

The Merval closed with a 5.46% increase, with Grupo Financiero Galicia (GGAL), Telecom Argentina (TECO2) and Transportadora de Gas del Sur (TGSU2) shares seeing the highest gains.

In a context of uncertainty and exchange rate volatility, the central bank of Argentina recorded the withdrawal by Argentines of more than $1 billion of deposits in April, due to the fear of a possible devaluation of the currency in the official exchange rate.

Dollar deposits fell from almost $16.4 billion on March 20 to just under $15.3 billion at the end of April, a decrease of 6.7%, according to central bank data. In Argentina, current accounts are denominated in pesos, but savings accounts can be denominated in U.S. dollars, a reality after decades of currency crises and runaway inflation.

Economic volatility in Argentina rages ahead of the October presidential elections and most economists expect that a currency devaluation at the official exchange rate is almost inevitable.

🗽On Wall Street:

The chaotic week for financial markets ended with a rally in risk assets — possibly driven by short-covering — as regional banks rebounded from a brutal rout and solid jobs data tempered fears of a recession. Treasuries fell.

A rally in equities halted the S&P 500′s longest losing streak since February. PacWest Bancorp soared over 80%, following a rout that saw its shares tumbling to a record low. Western Alliance Bancorp and First Horizon Corp., which were also strongly hit this week, jumped. The KBW Bank Index of financial heavyweights rebounded from its lowest since September 2020.

Wall Street’s favorite volatility gauge, the VIX, snapped a four-day surge to hover near 17. Strong earnings at Apple Inc. helped lift the megacap tech space, with the world’s most-valuable company climbing almost 5%.

US hiring and workers’ pay gains accelerated in April, showing signs of labor-market resilience and inflationary pressures in the face of headwinds.

“For now, this report is another sign that the Fed hasn’t broken the economy yet,” said Callie Cox, a US investment analyst at eToro. “The bears’ best argument is that a recession is around the corner, but it may be hard to make that argument until we see actual evidence in jobs data.”

Another key aspect of the data is the fact that the strong figures also increase chances the Federal Reserve will hold rates higher for longer, and potentially keep the door open to an 11th straight hike in June.

The S&P 500 climbed 1.85%, the Dow Jones Industrial Average 1.65% and the Nasdaq 100 (CCMPDL) 2.25%. PacWest Bancorp (PACW) shares soared more than 80%, after their fall to a historic low, while Western Alliance Bancorp (WAL) and First Horizon Corp. (FHN) also rebounded.

Fedspeak

Fed Bank of St Louis President James Bullard said policymakers will probably have to push rates higher to cool inflation, but added he would wait and see what the data show before deciding what move to support in June. Bullard also said he thinks the central bank can still achieve a soft landing, with inflation returning to the target without triggering a significant downturn.

Rates on swap contracts linked to Fed meetings — which on Thursday briefly priced in a cut in July — moved higher, to levels consistent with a stable policy rate until September — followed by at least two quarter-point cuts by year-end. Treasury two-year yields climbed as much as 15 basis points to 3.94%.

“If the Fed was expecting definitive confirmation it’s time to pause, this is not that signal,” said Ronald Temple, chief market strategist at Lazard. “All said, 500 bps of rate hikes are having an impact, but it’s too early to declare victory over inflation.”

In fact, while inflation has shown some signs of moderation, it’s still well above the central bank’s 2% target. The core consumer price index, which excludes food and energy and is closely watched by the Fed, is projected to show a 5.5% increase in April from a year ago. The report is due Wednesday.

Bank of America Corp.’s Michael Hartnett — who correctly predicted the equity exodus last year — said that a “new structural bull market requires big Fed easing,” which in turn needs a “big recession.”

Resilience in the labor market and price pressures that remain sticky, however, are likely to prevent the Fed from pivoting to cut rates. The strategist reiterated a call to “sell the last rate hike” in the note dated May 4, before the jobs report came out.

The Bloomberg Dollar Spot Index fell 0.2%, the euro was little changed at $1.1018, the British pound rose 0.5% to $1.2635 and the Japanese yen fell 0.4% to 134.85 per dollar.

🍝 For the dinner table debate:

Higher sugar prices, caused by unfavorable weather conditions and limited field work in parts of Asia and South America more than offset a drop in grains and dairy products, leading to a 0.6% increase in the United Nations food commodity price index in April.

The UN gauge, which is down 20% from a record high a year ago, rebounded for the first time in a year, stoking concerns about food inflation. Grocery prices remain historically high in many regions, exacerbating the hunger crisis and weighing on consumer budgets.

In addition, the El Niño phenomenon threatens to further reduce food supplies.

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