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Argentine election surprise triggers crash in peso and bond sell-off - CNBC

AUGUST 12, 2019

BY   Sam Meredith @smeredith19



Key Points

  • Macri lost the first round of elections by a far greater margin than expected on Sunday, early official results showed, casting serious doubt over the incumbent’s re-election chances in October.
  • It prompted Argentina’s euro-denominated bond to fall almost 9 cents lower, according to data reported by Reuters. The yield, which moves inversely to price, rose almost 3%.
  • Dollar-denominated bonds issued by Buenos Aires and due for repayment in 2048 plunged almost 17% in New York.

GP: Argentines Vote In Primary Elections Seen As Referendum On President Macri 190812 EUMauricio Macri, Argentina’s president, arrives at a news conference at the Juntos por el Cambio party headquarters during a primary election night rally in the Palermo neighborhood of Buenos Aires, Argentina, on Sunday, Aug. 11, 2019. Erica Canepa | Bloomberg | Getty Images

The Argentinian peso and government bonds sold off steeply Monday after the country’s center-right President Mauricio Macri performed poorly in primary elections.

Macri lost by a far greater margin than expected on Sunday, early official results showed, casting serious doubt over the incumbent’s re-election chances in October.

Arentina’s peso shed nearly 25% of its value to around 59 per U.S. dollar shortly after the open of trade. The peso had been at 45.25 at its previous close. According to traders cited by Reuters, the peso then hit a record 65 per dollar to mark a 30.3% loss.

The election result had earlier prompted Argentina’s euro-denominated bond to fall almost 9 cents lower, according to data reported by Reuters. The yield, which moves inversely to price, rose almost 3%.

A fund which tracks the Argentine stock market moved lower by 22% after the open of equity trade in the U.S.

The opposition ticket of center-left Alberto Fernandez, whose running mate is populist ex-leader Cristina Fernandez de Kirchner, secured 47.7% of the vote, with roughly 99% of the ballots counted.

Meanwhile, Macri and his running mate, Miguel Angel Pichetto, received 32.1% of the vote.

The result of the primaries, seen by many as a key gauge for the first round of Argentina’s presidential elections on October 27, is thought to be a clear signal that the South American country is ready to reject the ruling government’s austere economic policies.

It has prompted analysts to warn of widespread panic in financial markets, with Argentinian stocks, bonds and the country’s super-sensitive peso thought to be headed for a day of turmoil.

GP: Primary Elections In Argentina 190812 EUPresidential candidate Alberto Fernandez talks to supporters at the “Frente de Todos” party headquarters during the Simultaneous and Mandatory Open Primaries (PASO) on August 12, 2019, in Buenos Aires, Argentina. Ricardo Ceppi | Getty Images News | Getty Images

Speaking from Buenos Aires on Monday morning, Jimena Blanco, head of Americas research at risk consultancy Verisk Maplecroft, told CNBC that nobody — not even the most optimistic Fernandez supporters — expected to wake up to this result.

“There is total shock on both sides,” Blanco said, emphasizing that almost all polls had predicted a much closer race between the two leading candidates.

“The number one thing to learn is that Argentines do not want austerity.”


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‘A very volatile day’

The presidential primaries were viewed by many as a referendum on Macri’s painful economic reforms. The business-friendly president had promised to continue with the same austerity-driven approach if re-elected later this year.

He had hoped recent glimmers of an economic revival would be enough for voters in South America’s second-largest country to stick with his free-markets reform agenda despite a recession and 55% inflation.

However, analysts told CNBC his re-election chances were now looking “increasingly bleak.”

Speaking to supporters shortly after the result, Macri recognized that his team had suffered a “bad election.”


I don’t think there’s a way to sugar-coat this. We’re likely to see panicked market reaction.
Abhijit Surya
country analyst at the Economist Intelligence Unit

In contrast, Fernandez — who was expected to come out on top in the symbolic primaries but by a much smaller margin — said the country could look forward to creating a “new history.”

Verisk Maplecroft’s Blanco anticipated a “very volatile day” for financial markets on Monday. That’s because the scale of Fernandez’s win had put the center-left candidate on track to secure a congressional majority in presidential elections later this year.

In such a scenario, Fernandez would be able to undo economic reforms put into place by Macri’s administration — including measures related to the International Monetary Fund’s bailout package. “That is what will worry markets most.”

‘No way to sugar-coat the result’

Blanco also said peso depreciation on Monday could see Argentina’s central bank step in to increase interest rates in an attempt to manage the fallout.

“I don’t think there’s a way to sugar-coat this. We’re likely to see panicked market reaction,” Abhijit Surya, country analyst at the Economist Intelligence Unit (EIU) told CNBC via email on Monday.

Surya reaffirmed Blanco’s warning about Argentina’s currency, saying investors should be prepared for the peso to depreciate.

Argentinian bonds and stocks were also likely to “take a hit,” while the country’s risk premium — as measured by the 5-year credit default swap — was likely to rise as market participants factor in a greater risk of sovereign default under a Fernandez administration, Surya said.

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