Monday, March 27, 2023

The financial crisis in the US: how and why it affects Argentine bonds and shares?

The run on deposits that affects the banks Silicon Valley Bank (SVB) and Signature Bank US raises the common fear of a financial crisis in the northern country and a possible contagion effect in the world. In fact, European stocks are suffering the most in their share prices because of this, and the Federal Reserve has announced that it will support the sector to avoid a master effect. Argentina is part of the world and a big question for any investor, at this time, is how it will affect local rates, bonds and stocks in the United States.

The first thing is to understand what is happening in the United States of America. “The bankruptcy of some North American banks that was seen last week and is still ongoing is mainly due to the mismatch of terms and the drop in prices that was seen in North American bonds from the rise in interest rates by the FED”, he explains. Ignacio Zorzoli, Director of Economic Studies Center for Economics Argentina XXI (CEEAXXI).

These institutions have placed the available balance deposited by customers in long-term bonds, which is more sensitive to changes in the interest rate of lenders and Zorzoli indicates that this would be based on discomfort if the monetary regulator decided to buy more flexible. because, according to his vision, “prices could be increased in the said land.”

The collapse of banks and the effects of contagion

Thus, as explained at Epyca Consultants Economist Joel Lupieri, “The collapse of SVB is generating panic both among investors and among other banks that have a position in American treasuries.” and hence the fear of contagion.

As Lupieri points out, in addition to the actions of the FED to avoid the fall of many entities, it is possible that we will see a “risk-off” (the perception of a common risk means that investors are fleeing certain assets. ) worldwide. As declared, the latter refers to the sale of goods, which are perceived as dangerous, and Lupieri warns that “the booty of Argentina, without a doubt, should be called within that category.”

In this context, as Diego Martínez Burzaco, Head of Research and Strategy at Inviu, warns that “the first link of the contagion Argentina suffers from is the crisis of the US banks with the flight to the quality process”, which involves a lot. money is flowing into US Treasuries and out of risky assets, putting downward pressure on bond and bond prices.

How the economic crisis affects Argentina’s assets

Juan José Vázquez, Head of Research at Cohen Aliados Financieros, indicates in this sense that “quality flight” is the effect of all risky assets falling due to the search for liquidity. It happens that when there is the greatest uncertainty, as at present, from deposits running as the risk of recession accelerates in the United States, the increase of all risks is tolerated.

And Vázquez declares, “in that group, it is clear that our bonds are shared.” In fact, this Monday, bonds started with strong falls (about -4.5%) and shares also opened with big falls, although they recovered a little later.

Likewise, Lupieri mentions that another effect would be that the peso would probably see increased devaluation pressures to the extent that the world market is turning (at least for the duration of this “tremor”) to take liquidity positions in dollars.

Dollar Dollar 2022 dollar Pesos bills

Movement Against The Dollar Hurts Argentine Monetary Dynamics.

Movement against the dollar hurts Argentine monetary dynamics.

Marianus Fuchila

“This puts pressure on currencies because the flow of dollars from emerging markets means that there is more supply of those and more demand for dollars,” Martínez Burzaco points out in this regard.

Thirdly, the economist remembers that the negative effect of the economic crisis could be seen in the growth of various commodities, such as oil and copper, which fall sharply and this has a negative impact on the foreign exchange market of Argentina.

And finally, Zorzoli adds, “considering that Argentina’s trade is already affected by the current situation of inequality and uncertainty, it is necessary to pay careful attention to how a possible change in the US could affect the user’s local papers.”

That is what the FED thinks, from the banks in the United States of America, that in the country the increase in prices in that country could increase, that the FED could decrease. .

Nation World News Desk
Nation World News Desk
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