While the Turkish collapse has managed to stabilize (if that’s the right word) for the time being, it appears Europe’s close has refocused attention on South American EM as the peso and and real plunge.
First, Argentina is attempting to force its banking system to shift away from short-term funding, has canceled the daily dollar auction and phased out its short term Lebacs (bills) program amid concerns of successful rolling over, offering 1-year notes and beyond instead. The peso reacted badly immediately.
However, the central bank then stepped in and just unexpectedly hiked 7-day rates by 500bps to 45%.
Commenting on the move, Bloomberg’s Sebastian Boyd said that “Argentina’s central bank is reacting fast. After the peso slid through 30 per dollar for the first time earlier today, the bank raised its benchmark interest rate by 500bps to 45%. It’s too early to tell if this is going to be enough, but EM investors will be pleased to see at least one crisis-buffeted central bank moving to stem the decline.“
And then, souring the mood further, the Brazilian FinMin said he saw no need to intervene in FX markets and the real plunged to the day’s lows:
The Mexican, Chilean, and Colombian Pesos are all tumbling too:
EM FX is pushing towards new lows…
Notably, US equity indices were also pressured lower around the European close…