Market Round Up: Don’t cry for me Argentina 😭 – What recession? 😱
1. Don’t cry for me Argentina
…the truth is, I never loved you. Oh dear. As the infamous words sung by Evita suggested, is it time to mourn again?
Argentina’s currency is in free-fall again, inflation is spiralling out of control, interest rates have risen to 60% and, earlier this month, it introduced a new austerity programme. It is also in the process of negotiating a $50 billion bail out from the International Monetary Fund (IMF); unfortunately without its central bank chief, Luis Caputo, who resigned just as strikes paralyse the economy – although it’s not certain there was any life in the economy before the strikes.
But why is this proud nation constantly beset with economic woes? If truth be told, it comes down to confidence and trust; and a lack of liquidity, or cash. While the upper and middle classes of Argentina’s society continue to direct their wealth off-shore, why would anyone else want to invest in the country?
Argentines are not quick to panic, having been through so much economic turmoil in the past. But this time it seems to be setting in. Argentina successfully got itself out of the mire the last time when a commodities boom helped it repay its debt to the IMF in 2007. But people with longer memories have seen the downward spiral too often before; especially to 2001 when Argentina defaulted on its banking debts. So, having got themselves out in 2007, there’s despair in the air as to why they are back at the bottom again. So much so, that everyone is expecting a bank run any time soon. How this will affect other emerging market economies is uncertain, but an economic pandemic is clearly on everyone’s mind.
2. What recession?
U.S. consumer confidence data shot the lights out as the September purchasing index climbed to an 18-year high. Consumers are clearly unfazed about the ongoing Sino-U.S. trade spat and tight labour market conditions seem to be generating a more upbeat consumer environment.
Meanwhile, although house price growth softened in July, they still remained up at 5.9% year-on-year. (Such levels of house price growth are generally viewed as being supportive of consumer spending as it is deemed sufficient to boost household wealth.) However, buyer beware. Rising inputs costs, mortgage rates and supply constraints are starting to weigh up. Whilst new home sales are expected to continue growing, albeit modestly, affordability challenges caused by rising prices and tightening financial conditions will pose significant risks to the housing market.
On other news, the Fed is widely expected to raise rates today. Such a potential outcome is unlikely to have a material impact on the market given that it is priced in.