Argentina‘s Fortunes May Change for Patient Investors

Argentina has named Luis Caputo as the new chief of the central bank after Federico Sturzenegger’s

Caputo has been Finance Minister till now. Interestingly, he also was a key figure in securing an agreement with investors holding Argentine debt when the country defaulted on in 2001, which has allowed the country to return to global capital markets.

Caputo will now have to convince investors that he is able to curb volatility in the Argentine peso and that he can reestablish the credibility of the Argentina financial system that faces also huge challenges coming from outside the country like the resurgent dollar, rising global interest rates and higher risk aversion especially on emerging economies like Argentina.

The Argentina peso has lost more than a quarter of its value since the end of April, including a selloff of more than 6 percent Thursday that left it at a record low.

Aside from the obvious risks still there for investors, I think that we are close to the moment we could witness a change of fortune.

The $50 billion standby loan Argentina got from the IMF is more than enough to satisfy the short term financial needs. Such an amount of money should change the odds in favor of Argentina that at present faces a complete illiquid market.

At the end of the day, financial markets will respect that.

As always, investors that are interested will need patience and absolute complete information.

ECB Policy Decision

European Central Bank President Mario Draghi announced yesterday the ECB’s bond buying program will come to an end by the end of the year, or sort of, and that the ECB will possibly start raising rates over the course of the summer of 2019, what was what markets were expecting.

The commitment of not raising rates before the summer was perhaps a little bit more than had been expected.

However, the spin of Draghi’s news conference was taken dovishly. It would seem that Draghi’s five-step rehabilitation program to end overcome an addiction to “easing” might have skipped a step or three, but not completely.

“Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year,”

Markets could probably focus, for the moment at least, on the sentiment of the policy changes and so the sudden weakening of the euro yesterday could be no more than a blip.

Nevertheless, investors could do well also keeping in mind there is still a chance that any rate hike will come before the Draghi leaves the ECB in October 2019,

Besides that, it’s also a fact that the Euro area’s growth is no more what it was at the beginning of the year and it could well be that the slowing trend continuous well into 2019, which is of course not a sure thing, but nevertheless that investors that have euro linked investments should better keep it on their radar screen.

is a bank economist who has advised investors on financial markets and international investments.