Weekly Market Snapshot: Argentina in Focus

gcoin-market-snapshot

Broadly, Emerging Market (EM) currencies and assets are horribly out of favor and have been trading poorly, led by the King of the devaluation and default, Argentina. The price of a dollar is currently about 40% higher in just 2 months and its ripple effects are terrifying markets. The country has had a track record of hyperinflation and severe currency devaluation, and consistent growth in the central bank’s balance sheet has shown that the printing of additional money has created excess supply and drove the value of the currency down. This crisis has even pushed officials to negotiate a $50bn line of credit from the IMF, but until policy matches the IMF’s generosity and investors again feel comfortable with the US Dollar bonds they fought to buy 2 years ago, Argentina remains in the spotlight.

Worse, with summer liquidity just around the corner, the likely risk is things deteriorate, probably rapidly, and this creates the perfect storm for EM crises, which thrive in thin markets.

In our week on week comparison, the Turkish lira, South African rand and Mexican peso also have shown weakness and stand out as poor performers. Looking ahead, we keep our eyes on headlines coming out of rising trade tensions between the US and China to see how markets will react.

Trader Notes:
By Malcolm Day, Managing Director, FX and Treasury Management Emergent Technology

 

 

Ticker

Today*

vs 1 wk ago

BP change

Comment

Commodities​​ 

XAU

1,283.00

     1,300

-133

If we close down here (below 1290 a new 2018 low), my bullishness and optimism are sidelined. Itr makes no sense but don't fight it, until 1290 is regained or the $ rolls back over

XSG

16.62

16.6

12

We said a close above 16.88 opens 17.20 and it  did... looked great on Friday, at 17.25. However, a record shift in speculative positioning tipped the boat over, hence -4% in a session. Buy dips to 16.10

XAU Vol %

11.16

11.3

-14

Going nowhere

Oil (Brent)

74.1

76.1

-270

Unlike the $ index, this one's behaving perfectly - price action confirms it's turned. Heads to 72 then 62

Market Indicators

DXY

94.8

93.4

148

I'm sticking with 95.0 was/is the top and Trump's policies take it back down below 90.00

US 10yr %

2.91

2.96

-5

The Fed hike was a non-event, fully priced. 2.90-3.05 still the range, with 3.05 more vulnerable

S&P

2,779

2,779

0

Lower highs and higher lows usually signal a break out is coming. Continue to watch 2530 below

Vix

14

13.3

70

Bounced but attracting no attention

Emerging Market Currencies

$/INR

68.05

67.3

-105

Big reversal, the Rupee trades badly - gives back ground with alarming ease. 68.50 above is the key

Rupee/1 G

2,810

2,818

-28

Over time, need to see if this triggers retail to react, or stay away

$/CNH

6.453

6.4

-99

The basket is doing its job, no story here

$/MXN

20.71

20.3

-210

22.00 could be on here and as it's being labelled the 'new EM bellweather', look for correlation trades. The southern neighbors aren't helping…

$/ARS

28.05

25.3

-1087

We said 27.0 first stop - it sailed straight through. Round numbers, so 30.00 - the first level we picked when 20.00 broke. A proper mess.

$/BRL

3.73

3.7

-81

The BCB will intervene ($2bn daily) and hike rates but while Argentina is in play, it's in trouble. If 3.97 goes, it's 4.25, maybe 4.30

$/ZAR

13.46

13

-347

EM contagion at its best… If we're just squeezing positions, it fails here at 13.50. Otherwise, it's 14.00, maybe 14.55

$/NGN

360.5

360.5

0

Showing the beauty of a Central Bank in control (for now, trouble ahead). Note, RMB auctions are happening, announced last week, 15bn… a real alternative to $$s

$/TRY

4.717

4.5

-494

So 17.75% rates aren't enough… Worryingly, we're seeing new closing highs, suggesting 4.90 may gain be tested

$/EGP

17.82

17.9

28

Central Bk holding it steady

Cryptocurrencies

BTC

6,433

6,743

-482

We said the 2018 lows at 6430 and 6000 MUST hold, or it's 5000, probably quickly, violently and now we're at the first. BIS comments today deeply negative

ETH

494

530

-729

Well 500 has gone, so there’s little to stop it before 360.. Ditto BIS comments

XRP

 0.5170

0.58

-1219

A new addition to the list, 0.455 is key here