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It Was A Lull

28 August 2019 by jbchevrel

Confirming last 8/16 post, Argentina had been enjoying a short-term lull, as opposed to a proper recovery. This week, risk is off again. The CDS sold off almost 10 points since last post, settling in low 50s as BCRA’s efforts to support ARS weigh on reserves and the next cash flow from the IMF is seemingly in the balance. A team from the IMF visits Buenos Aires to determine whether to pay next tranche ($5.4b of the $57b), decision to come in the next few weeks. If the IMF doesn’t agree to pay it, the Argentinian government will find itself with a liquidity issue to pay down $ ARGTBs before the end of this year and will have to hit already melting FX reserves, as Argentinians take their money out of the country. On last Monday night, Fernández has blamed the IMF bailout for financing the capital flight, thus reasserting the capital control threat, when he gets (probably) elected in two months. Indeed, of the paid-by-IMF c$45b, c$37b have already left the country. His tone was pretty hawkish, adding to risk aversion: “Those that have generated this crisis, the government and the IMF, are responsible for putting an end to and reversing the social catastrophe that an ever-greater portion of Argentine society is suffering”. Not good. Not nice. Cash also fell to new lows. € bonds trade in low 40s% along with the $ century bond. ARS fell -4% before reverting on BCRA, vs USD. Elsewhere, while a short-term resolution on trade looks unlikely, the stasis didn’t last long in stocks. CDS keep outperforming, as to the prospects of more central bank easing is added the upcoming roll. Pockets such as Brexit, Italy and Argentina haven’t proved systemic yet, but Brexit undoubtedly starts impacting core € stocks (DAX -1.5% off intraday), adding to acute expectations of German recession in Q2-Q3.