BUENOS AIRES/LONDON, Aug 14 (Reuters) – Pressure on Argentina’s currency and stocks mounted on Monday following a surprise primary victory for far-right liberals seeking to abolish the central bank and dollarize the economy. increased.
Rep. Javier Millay has shaken the race to October’s presidential election by far exceeding expectations that he will win a maximum share of about 30% with more than 90% of the votes counted.
Markets were betting that a moderate candidate would do well after a bad night in the polls that would serve as a dry run for the national elections in two months.
The result could send the peso currency lower in the popular parallel market on Monday, weighing on bonds that have risen in recent weeks. Meanwhile, Argentine stocks fell sharply, with the Global XMSCI Argentina ETF (ARGT.P) down 4.3% in US pre-market trading. The country’s dollar-denominated government bonds fell by 4 cents to the dollar, with the 2029 bonds leading the decline, according to MarketAccess data.
As of 1246GMT, the 2041 bond trades at 29.75 cents to the dollar and the 2046 bond to 28.35 cents to the dollar.
Investment bank JP Morgan expects “exchange rate pressures to increase, resulting in a widening gap between the real exchange rate and the official exchange rate,” according to a note led by analyst Diego Pereira.
The official exchange rate is 287 pesos to the dollar, but the floating exchange rate is more than double that.
Banks of the United States recommended maintaining a “market weight” in Argentine government bonds as existing financial conditions are “expected to deteriorate further.”
crisis year
The Argentine market has been volatile for many years due to the long economic crisis.
After similar shocking results in the 2019 primaries, bonds and currencies have crashed and are still in dire straits, with the peso now held back by capital controls that the government has been unable to lift. not
Latin America’s third largest economy is facing a deep economic crisis with skyrocketing inflation and declining central bank reserves. It has total reserves of $23.8 billion, but a deficit of more than $8 billion after deducting debt, according to private analysts.
Sunday’s win for rock-singing economist Millais adds another unknown factor that could undermine market confidence, but he still faces a tough battle on Oct. 11. That anxiety may be mitigated by the fact that there will be a runoff election in the month that will test your confidence. Ability to attract more voters.
Goldman Sachs said in a pre-vote memo that Millais backed more “radical policy proposals” including dollarization and drastic spending cuts, adding to the uncertainty given the lack of established political machinery. said to have brought
He will join former security minister Patricia Bulrich, who won the nomination of the main conservative party Together for Change, and Peronist coalition candidate Sergio Massa, economy minister, in October’s three-way election campaign. will fight.
A candidate would need 45% of the votes cast on Oct. 22, or 40% and 10 points behind second place, to win outright. If there is no outright winner, which seems likely, a direct vote by the top two candidates will take place in his November.
“The scenario we are left with is a much more uncertain one than we expected,” said Ricardo Delgado, director of Argentine economic consultancy Analytica.
Argentina is the largest debtor to the International Monetary Fund, with a $44 billion program approved last March to refinance its 2018 loans. The latest programs have failed to stop the economic crisis, with inflation exceeding 100% and four out of ten Argentines living in poverty.
The cash-strapped economy is using China’s swap lines to pay off its debts to Washington-based financiers as discussions over the program overhaul linger and further repayments are currently delayed. I even had to get a loan from
The country recently reached a staff-level agreement with a fund that will allow it to provide about $7.5 billion in funding, but the deal still requires board approval, which is expected in late August. there is
Reporting by Eliana Rashevsky and Giorgelina de Rosario. Additional reporting by Jorge Otaora and Meda Singh. By Adam Jordan.Editing: Bernadette Baum, John Stonestreet, Andrew Cawthorne
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