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The Argentinian peso and government bonds collapsed Monday after Argentina’s center-right President Mauricio Macri lost primary elections by a far greater margin than expected on Sunday. The ARSUSD lost almost 30% to around 59 per U.S. dollar shortly after the market open.

Argentina Macri 2019

Argentina President Macri

Going out on Friday the peso was 45.25 against the U.S. dollar. Reuters reported the peso then hit a record 65 per dollar to mark a 30.3% loss on Monday.The bond market also reacted swiftly. Argentina’s euro-denominated bond fell almost 9 cents lower, according to data reported by Reuters. The yield rose almost 3%. Dollar-denominated bonds issued by Buenos Aires and due for repayment in 2048 plunged almost 17% in New York.

The Global X MSCI Argentina ETF (NYSEARCA: ARGT) fund which tracks the Argentine stock market moved lower by 24% 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. 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.

Argentina Peso 2019

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. Which have already seen today.

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.” ‘A very volatile day’

Macri’ 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.

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

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.”

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.

Argentina’s risk premium  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.

Source: CNBC, Reuters

From The TradersCommunity News Desk

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