US Offers Argentina's Peso a Helping Hand: 3-Minute MLIV

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Transcript

00:00I want to start off with this redhead that crossed the terminal just 10 minutes ago about

00:04the yen on the move because of a report that perhaps the ruling coalition in Japan

00:09could fall apart. Your thoughts on that?

00:14Yeah, hi there, Valerie. So it's an interesting one. We don't know all the details yet,

00:18but the idea that the ruling LDP won't get the support of its coalition parties

00:24leaves it looking pretty vulnerable and certainly opens up a rather uncertain path ahead for

00:30Japan. You know, there's still a possibility that Takeichi could continue to rule over a minority

00:38government. That would probably be more difficult than for her to get things through that she wants

00:43to get done. So it might reduce Japanese ability to do stimulus spending, therefore weigh on stocks

00:48a little bit. It might, you know, kind of take away some of her powers. And the market had been

00:53assuming that she was very bearish for the yen. We saw a little bit of strength come through

00:57immediately after the headline as a result that maybe, you know, kind of that won't be able to have

01:02the same impact. But we might get other scenarios. Maybe the other coalitions in a wildcard sort of

01:07scenario could try to form a government without LDP. That would create a lot more uncertainty. I don't know if the market

01:12would know how to trade that necessarily. And so it would probably be taken as a negative at least for

01:17equities. But I think what's interesting here as well is, you know, we've been writing earlier in the week, the yen hasn't

01:22been looking very much like a haven or performing like a haven in recent days and weeks. So if there is

01:27more risk off and uncertainty for Japan itself, does that mean a year stronger yen, which you would have

01:32normally expected in the past or may it actually weaken the currency instead, which would be a really

01:35interesting development? I think the Swiss are watching this very carefully right now. Paul, I want to talk about

01:41emerging markets from a number of different angles, one of which is the fact that we've got this kind of dollar

01:45momentum trade, which is beginning to build a little bit of ground at the moment. And that kind of speaks

01:51negatively maybe to the idea that emerging markets are going to do well going forward, which has been

01:55a lot of conversation people have been having. The other one is like the US is intervening in

01:59Argentina, which again kind of just raises hairs on the back of your neck about kind of Argentinian

02:06risk, EM risk. Are the stars kind of disaligning now for that EM trade?

02:13It's a really difficult one to tease out. Emerging markets are having such a great year. Emerging

02:21market stocks are up every month of this year, nine months in a row, which is the longest winning

02:24streak since 2004. So they've got a lot of momentum behind them. But part of that premise, as you were

02:29saying, Guy, is the idea that the dollar is weakening. People are putting their money elsewhere. The

02:33currencies of emerging markets can fare well against the dollar when the Fed is cutting interest rates. So the fact that we are

02:38seeing this kind of bottoming out of the dollar and a little bit of a turnaround in some areas, you know, does

02:44jolt that confidence a little bit. Now, Latin America has already been performing better than the dollar, even when we've seen

02:50a little bit of this recovery. So it's not certain that that's going to impact there particularly. But this is, you know,

02:55like where we've got that really interesting thing and the swap going on with Argentine pesos, the efforts by the US to support

03:02Millet and his government to help him through local midterm elections that are coming up and keep him in

03:08power feels like a political play as well as an economic play. But Argentina has defaulted so many times

03:13they think the best way to prevent that happening again is to prop it up this time.