Yen, gold gain on trade war angst as Argentine peso slides

A man looks at an electronic board showing currency exchange rates in Buenos Aires’ financial district Argentina on Aug. 12 2019. REUTERS

A man looks at an electronic board showing currency exchange rates in Buenos Aires’ financial district Argentina on Aug. 12 2019. REUTERS

In the wake of Argentine President Mauricio Macri's stunning rout in primary elections over the weekend, investors dumped its stocks, bonds and currency en masse in a selloff that left much of Wall Street wondering whether the crisis-prone nation was headed for yet another default.

Argentina is on the brink of financial crisis after a shocking primary election saw President Mauricio Macri lose to Alberto Fernandez and his running mate, former president Cristina Fernandez de Kirschner.

The political turmoil, the burden of unpopular economic measures, and the uncertainty of a possible future populist government caused the dramatic slump in the markets with the Argentine stock market falling 35% and the currency dropping 25% of its value against the US dollar after a surprise primary election result.

LONDON, Aug 13 (Reuters) - The Japanese yen remained near seven-month highs on Tuesday and the U.S. dollar supported, as investors unnerved by the Sino-U.S. trade war, protests in Hong Kong and a crash in Argentina's peso currency sought safety.

Investors are anxious that Argentina will default on its debt again.

"The hopes of Argentina becoming a sustainable, well-functioning economy have been shattered for now", said Patrick Wacker, fund manager for emerging-market fixed income at UOB Asset Management Singapore.

Stocks could dip between 5 per cent to 10 per cent but prompt long-term investors to enter the market as valuations fall, he said.

That is because further falls in the peso - which on Monday at one stage plunged 30% against the U.S. dollar - will make the flexible formula enacted by the Macri government less sustainable.

The government and its subsidiaries now have US$15.9 billion in debt payments denominated in dollars and euros due this year, according to data compiled by Bloomberg. If Macri loses, Fernandez may attempt to renegotiate Argentina's debts with the International Monetary Fund.

Investors are now fleeing the country's assets in hoards, leading industry watchers to question if default is on the horizon.

Expected to trail his opponent by just a few points, Macri was instead pummeled at the polls Sunday, with voters giving Fernandez a 15-point lead.

Credit default swap prices from data provider IHS Markit showed five-year credit default swaps (CDS) marked at 2,116 basis points, up from what was already a five-year high of 1,994 bps the previous day. Government bonds tumbled 25% on average, with some prices falling to as low as 55 cents on the dollar, according to Bloomberg. Most likely, the growth of the first cryptocurrency is associated with the fall of the peso, which today fell by as much as 30%.

In a press conference Monday, Macri said he still has a shot to reverse the trend in October and that his economic team is working on measures to address voter concerns on the economy.

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