IMF Declares Argentina Debt Unsustainable Paving Way for Creditor Losses


South Korea reported its first death from the coronavirus on Thursday bringing to five, the number of countries ex-China that have recorded fatalities from the virus. The number of new confirmed cases slowed to 484 on Wednesday, down from 1,412 on Tuesday. The number of deaths also slowed to 112 from Tuesday’s 137 while confirmed recoveries were at 1,224 compared to Tuesday’s 1,841. The recoveries continued their recent trend of dwarfing new infections perhaps pointing to measures to contain the virus getting more successful.


The NASDAQ closed 0.87% up to notch a record high for a second straight day on Wednesday as the market got encouraged by minutes from the Fed’s January meeting. Members of the FOMC believed that the economy appeared stronger in late January than they expected although they highlighted concerns over the coronavirus outbreak. Comments from the Chinese government that it would help alleviate the disruptions caused by the coronavirus also added to the upbeat sentiment. The S&P rose 0.47% to notch a record as well while the DOW gained 0.40%. Treasury yields were higher with 2Y and 10Y yields at 1.422% and 1.566% respectively.


British inflation rose for the first time in six months in January with prices rising 1.8% YoY compared to December’s 1.3%. The acceleration, following December’s 3-year low, appears to validate the Bank of England’s decision to hold rates despite fears of a recession. Energy prices were the main drivers for the rise while a more muted slowdown in prices of clothing and air fare helped the figure come higher than the expected 1.6% forecast. The BoE said improved business sentiment following the December elections would bring inflation to the 2% target in three years at the January meeting. The pound closed weaker at $1.2920 while yield on 10Y and 30Y UKTs closed lower at 0.598% and 1.084% respectively.


German business sentiment took a turn for worse in February according to the latest ZEW survey as concerns over the impact of the coronavirus came to the fore. Following a period of sustained improvement since November, the January figure came at 8.7 from January’s 26.7 falling even below the most pessimistic estimate in a Bloomberg survey which had a median forecast of 21.5. The outlook seems quite dreary as Bundesbank said it sees no signs of growth improving in Q1 with the economy having stagnated in Q4 2019. With China being a huge market for the economy – only second to the US ex-EU – the significance of disruptions in its economy will weigh heavily on Germany’s with some German companies having already projected a pessimistic outlook. The euro closed weaker at $1.0791 while yield on 10Y and 30Y DBRs was lower at -0.420% and 0.930% respectively.


Asian markets were mixed on Thursday despite yet another round of stimulus by the People’s Bank of China as the central bank tries to alleviate the disruptions caused by the coronavirus. The PBOC cut its benchmark 1Y loan prime rate by 10bps and the 5Y one by 5bps; this comes days after a 10bps cut to the 1Y medium-term lending rate to 3.15%. The CSI rose the most on the news, up 1.84% while the NIKKEI and the ASX rose 0.34% and 0.25% respectively. The HANG SENG was down 0.17% having recovered somewhat from early trading low of 0.8%.


Turkey cut its rates for a sixth straight meeting on Wednesday by 50bps to leave the benchmark rate at 10.75%. The comparatively modest cut appears to show that the central bank realises it has increasingly smaller headroom as it delivered the smallest cut in its 7-month easing cycle; increasing price pressures and real rates sliding further into negative territory will have no doubt also played a part with CBRT governor Murat Uysal having promised a positive real rate of return to investors. The real rate now stands at -1.4%, below such developed economies as the US, the UK, Japan and Canada. While the monetary policy committee left it guidance unchanged, it notably removed is previous comment that inflation outlook was improving. The lira closed weaker at 6.0639 to the dollar while TURKEY 47s were over a point lower, trading in the low 93s.


Argentina got what effectively is a seal of approval to push losses to creditors after the IMF declared its debt load unsustainable. In its statement following meetings with Argentine officials on Wednesday, the IMF said a “meaningful contribution” will be required from bondholders to get the country’s debt situation back on track effectively giving President Alberto Fernandez’ government an upper hand in renegotiations of its liabilities with creditors. The peso closed weaker at $61.7281 to the dollar while ARGENT 21s were about half a point lower, trading in the low 53s.


President Vladimir Putin’s move to steer the Russian economy eastward in a bid to avert the onslaught of Western sanctions may be hitting a bump amid the coronavirus outbreak. Reports citing the Far East unit of the Russian Customs Service show exports to China dropped 21% YoY in January and having halved for the first 10 days of February. With China being Russia’s biggest trading partner – trade figures just about doubling the second biggest, Germany (based on 2018 data) – the hit on the Russian economy could be significant more so if oil prices slump because of waning demand. The ruble closed firmer however at 63.5825 while RUSSIA 47s were higher, trading in the high 131s.


The Bank of Zambia held he benchmark rate constant at 11.5% on Wednesday despite continued acceleration in inflation. The monetary policy committee raised the rate by 1.25% in November, its highest level since May 2017, in a bid to slow inflation but January inflation came in hotter even at 12.5%, a 3-year high. The central bank expects the economy to expand 3% in 2020 with 2019 growth estimated at 2%. The kwacha, one of Africa’s worst-performing currencies in the past 12 months, closed about flat at 14.668 to the dollar while ZAMBIN 22s were about flat, trading in the low 71s.