Markets get a Breather But Worries are Still on the Banks

Good Morning,

On Friday U.S. stocks ended the day higher. With the positive performance highs are still on weakness in the banking sector. Eyes are on Deutsche Bank with worries of its financial stability. The stock was down 3%, which is higher then the 14% drop seen earlier in the trading day. Deutsche bank said it would redeem $1.5B in tier 2 notes due in 2028 which scared the market and brought down European bank stocks. News is coming up that a new competitor to Elon Musk’s SpaceX is trying to take market share. Rocket Lab is building a bigger & reusable launch vehicle with a $50M per launch price. SpaceX price per launch is $65M with its Falcon 9 rocket. The week ahead investors will be looking at Fed vice chair Michael Barr testimony in the Senate & house, PCE price index, and final U.S. Q4 GDP growth.

Canadian & Brazilian stocks ended higher following performance from the U.S. markets. Investors are watching the continuing noise of the Lula administration at odds with the central bank. The new fiscal framework the country was supposed to deliver has been delayed. Largest losers on Friday were BRF (-11%), YDUS (-10.%), and Hapvida (-8%).

Markets: Before the Open

Top News Stories

Canada

• Five things to watch for Canada this week (TP)

U.S.

• Used Vehicle prices have almost been cut in half in 2023 vs 2022 (CNBC)

• Rocket Lab is competing again SpaceX’s Falcon 9 rocket with low pricing (CNBC)

• Ford is planning to create 500K EV’s at its Tennessee facility (CNBC)

• Pet Healthcare is the new focus for companies like Chewy and Petco (CNBC)

Argentina

• Fitch Ratings warned Argentina default on foreign currency debt is imminent (BAT)

Colombia

• S&P warns of a wave of defaults in Latina America due to high interest rates (ELT)

Honduras

• After Honduras ended ties with Taiwan, it’s establishing diplomatic ties with China (RT)

Peru

• Peru’s non-traditional exports grew 7.5% in Jan. 2023 (RIO)

• The Central Bank of Peru estimates that private investment will drop 0.5% this year (ELC)

Mexico

• Canadian mining company Discovery Silver study concluded that its flagship silver project in Chihuahua has the potential to be a top 3 silver mine (MB)

Venture Capital

• Uruguayan startup, The Climate Box, raised $350K in a pre-seed round led by The Yield Lab to increase its frost management system (LatamList)

• Biotech Startup Andes raised an additional $15M in Series A capital to a total of $30M led by Accelr8 & Voyager Ventures (LatamList)

• Rook, heath data B2B SaaS startup, raised $1.7M in a pre-seed round led by NuFund Venture group (LatamList)

• Pragma Bio, a tech based drug discovery startup, raised $15M led by The Venture Collective, Viking Global Investors, Merck Global, and CJ Investments (FinSmes)

• Apprentice.io raised $207M in a fundraising round led by ICONIQ Growth to expand operations (FinSmes)

• Vue Storefront, focused on delivering custom storefronts, raised $20M in equity funding led by Felix Capital (FinSmes)

Insights

The Costa Rican Colon has been on a tear recently. In under a year the Colon has hit levels not seen since late 2019, increasing volatility in the currency. This phenomenon has put pressure on exporters in the country.

Colon FX Rate Technicals (as of 3/21/23):

· 50-day moving average - 559.21

· 100-day moving average - 578.34

· USD/CRC Min - 539.72 (3/21/23)

Max - 684.58 (6/1/22)

In 2020 Costa Rica exported $14B worth of goods. Its top exports were:

· Medical instruments (23.4% of exports)

· Bananas (9.13% of exports)

· Tropical Fruits (7.34% of exports)

· Integrated Circuits (7.32% of exports)

· Coffee (2.59% of exports)

Top Export Markets (2020):

· USA (37.1% of exports)

· Netherlands (9.52% of exports)

· Guatemala (4.52% of exports)

For small countries who are focused on being open economies, weak currencies are key. According to the World Bank in 2021 Costa Rica trade to GDP ratio was 70.61%. With this fact being noted, throw in an appreciating local currency at a fast pace illustrates the headache local exporters and producers are contending with. When the value of a local currency increases the products local producers sell become more expensive. When prices go up, sales begin to drop, as foreign buyers look to buy products in other countries or focus on substitute goods. When sales drop so does income, which is felt in the local economy. According to a survey (100+ companies took part of) from the Chamber of Exporters of Costa Rica (CADEXCO), local companies have already laid off more than 700 workers because of the FX rate. The survey also shows the pessimism of local exporters noting they expect to lay off more workers soon. The President of CADEXCO, Sianny Villalobos, noted the companies surveyed plan to stop investment plans and decrease CAPEX. Only time will tell if the Central Bank intervenes in the FX market, the FX rate jumps back up, and how the effect of a higher Colon plays out in the long term.

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