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Is Trend Your Friend In 2019?

14 December 2018 by jbchevrel

It might be. But, for the time being, liquidity is not. Argentine Republic (ARGENT) CDS was the worst performer in CDX EM today, wider +30bp, while other LatAm sovereigns are broadly unchanged (-2/0). Volumes were low, and liquidity was poor. Cash opened from ~1p (23s) to ~1.5p (27s) lower. That coincided with DXY testing year high (after weak Chinese data, weak € PMIs, Brexit, risk sentiment deterioration). Later, ARGENT bounced back on no news, paring around half the move as $ fell off the highs, post disappointing US December PMIs. No doubt that low liquidity amplified today’s move, nevertheless ARGENT spread has been trending upwardly over the past 6 weeks. Tighter FCs, $ strength, unresolved trade tensions, and at the 2nd order (via trade partners) commodities volatility, are potential headwinds for ARGENT next year. But the main 2019 risk may be a failed re-election bid by the current President Macri, as this could disrupt economic policy continuity. A quick look in the rear-view mirror reminds us that, in a sense, we have been in a sweet spot.