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.