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Stocks drop, Argentine peso increases with US Treasury move

The major stock indexes slipped on Thursday. Meanwhile, the dollar rose to its highest level since mid-February against the Japanese yen as the newly elected leader for Japan's ruling political party failed to instill confidence in the market about the currency’s direction.

The local peso and Argentina's dollar-denominated bonds strengthened on Thursday night after the U.S. Treasury participated directly in the foreign exchange markets.

Scott Bessent, U.S. Treasury secretary, made the announcement following the close of the market as part of the previously pledged support to Argentinean President Javier Milei’s reform programs.

All three major U.S. indexes finished lower and European stocks also ended in the red. The stock market has been largely rising in recent sessions, despite the ongoing U.S. shutdown and political risks in Japan and France which have made investors nervous.

Oil prices dropped as investors weighed the potential benefits of a ceasefire in Gaza, which could reduce tensions in the Middle East, against the stalled peace negotiations in Ukraine. Spot gold also fell after demand for safe havens pushed the metal to above $4,000 per ounce this week.

Sanae Takaichi said that she didn't want to cause excessive declines in Japanese currency. This led to a short-lived fall in the value of the dollar against the yen, before it reversed.

This week, the yen fell on fears that Takaichi would introduce fiscally expansive policies. The dollar last rose 0.27% to 153.09yen, after reaching its highest level since February 13 earlier.

The peso ended the day at 1,425 to the dollar, an increase of 0.8%, after a series of sessions in which the local Treasury intervened and managed the weakness.

It makes sense that the Argentinian Peso has jumped as high as it did after a $20 billion currency swap to ease the financial crisis Argentina faces. This is in line with the U.S. government's policy to aid those who align with its agenda, whether it be on trade, diplomacy or other American interests, said Juan Perez of Monex USA, Washington.

The U.S. federal government shutdown, which began last week, has left investors with no access to key economic reports.

Adam Sarhan of 50 Park Investments, New York, stated that despite Thursday's decline, the stock market is still buoyant. He added that stocks may weaken if there is a prolonged government shutdown.

He said: "We are in a very solid bull market which refuses to fall meaningfully." "I expect a pullback to happen at some point, but the market is strong for now."

JPMorgan Chase CEO Jamie Dimon stated that there is a greater risk of a significant stock market correction in the U.S. within the next 6 months to 2 years. Dimon cited factors such as geopolitical tensions and government spending, along with remilitarization across the globe.

The Dow Jones Industrial Average dropped 243.36, or 0.5%, to 46,358.42. The S&P 500 declined 18.61, or 0.2%, to 6,735.11 while the Nasdaq Composite lost 18.75, or 0.8%, at 23,024.63.

Sunday marks the third anniversary of the current bull market in the United States. On October 12, 2022, the benchmark S&P 500 reached its nadir in this current market cycle.

The pan-European STOXX 600 ended 0.43% down, dragged by steep losses at HSBC and Ferrari.

The dollar and euro were down against each other again on Thursday. Since Monday, when French Prime Minister Sebastien lecornu resigned and his government with him, the currency has fallen. The office of French President Emmanuel Macron said that he would appoint a prime minister in 48 hours.

The currency fell 0.61% to $1.1555, its lowest level since August 5.

On the back of the belief that the country will avoid an early election, French bonds maintained gains from the previous day. France's 10-year yield increased by 0.2% on the day to 3.529%.

Brent crude fell by $1.03 and settled at $65.22 a barrel. U.S. crude futures declined $1.04, settling at $61.51 per barrel.

Spot gold fell by 1.56% to $3,975.04.

The yields on U.S. Treasury bonds have remained relatively unchanged as the shutdown of the federal government continues. The yield on the 10-year bond was marginally higher at 4.142%.

(source: Reuters)