• Matheus Zani

🌎 Golden Week 黄金周 | Where has Argentina International Reserves gone? | Spain green recovery plan

Updated: Nov 24


October 9th, 2020


Happy Friday!


The second installment of the Presidential debate continued this week as Vice president candidates Sen. Kamala Harris and VP Mike Pence went head to head. It lacked the fireworks and constant interruption of the Trump vs Biden showdown. There was however an unwelcome guest who took center stage and naturally went viral on social media.



Did You Know...


...that up until 1800, the Vice President of the U.S. was the person who had the second-most votes in the presidential election. This worked until a tie between Thomas Jefferson and Anthony Burr.


Do you know how many Vice Presidents there have been?



(Answer below)


Follow us on LinkedIn


CNY


It was a Golden week for Chinese tourism



China’s domestic tourism has been buoyed having just come to the end of the Golden Week holiday. Although travel in China still has some limits, in recent months there has been a gradual easing. This has meant that Golden Week was tipped as a pivotal indicator of economic recovery and domestic tourism confidence.


Tourism sites were visited by 637 million domestic tourists over the eight-day national holiday, generating 466.56bn Yuan. Compare these numbers to the travel that occurred during Labour Day (115m domestic tourists 47.56bn Yuan) and we can see that China is committed to putting Covid-19 behind them and promoting a resumption of normalcy. The improvement in confidence can almost certainly be linked to recent claims that China has seen only 205 Covid-19 cases among its population of 14 billion people.


Although many have lauded this economic rebound, there are still many analysts who have promoted a more cautious tone for China. “The quick rebound may have alleviated concerns about China’s growth momentum, but it is too early to be complacent,” Betty Wang, senior China economist at ANZ. This was after the recent figures defied expectations, considering the belief that due to restrictive cross-border traveling, there would be an even larger boom for domestic tourism.


Nevertheless, China’s emergence from the pandemic has been boosted by strong industrial growth and state support, but consumer activity has depicted a different picture. The wider economy returned to growth in the second quarter after a historic contraction at the start of the year. But data on retail sales of goods only edged back into growth territory in August after seven straight months of year-on-year decline. Therefore, despite there being fewer total visitors and revenues, considering the current global environment, many view this as a big improvement.



FX

The Golden Week is over and China’s market reopened today. The CNY ended higher 1.20%. The CNY’s leap, was partly a catch-up since the offshore yuan has gained against a weakened USD during the week, as well as on the back of U.S election poll surveys, which provide indications that Biden's lead in the polls is raising the stakes for a more stable Chinese-American relationship. It is worth highlighting that the CNY’s leap was its biggest daily jump in nearly two years and signaled that policymakers in China don't mind its rise. USDCNY is a rather stable pair, with volatility around 4%/annum. CNY has strengthened 4% against the USD in the last 4 months.




Announcement - New partnership



Deaglo is proud to announce its partnership with Cognitive Corporate Finance. CCF is a cutting-edge, technology-enhanced, Big Data-powered, third-millennium merchant advisory firm that provides new and innovative financial services on a global scale.


Charles Thoma, CEO and Founder said "we believe Deaglo's offering can bring fund managers and corporates in our network extra value through reduced costs when hedging currency risks in their overseas transactions or onboarding foreign investors"



Read More Here


ARS


Argentina’s cash reserves are how much?



How large are the Argentinian Central Banks USD reserves? Well turns out this is the billion-dollar question, which nobody knows the answer to. What everybody can agree on is that international reserves have fallen rapidly…


Last year there was a loss of more than 10 billion dollars, and although gross reserves are around US$41 billion, experts estimate that net reserves are only close to US$5 billion dollars. However, there are more dismal estimates which show net liquid reserves may even be as low as negative US$2 billion.


Fig. Official international reserves by country 2020 (in billion U.S. dollars)

Source: Statista 2020


The country’s foreign exchange reserves are failing due to capital flight, debt payments, and currency-market intervention, indicating that the country might eventually run out of the cash it needs to pay creditors and buy imports, a situation that could ruin the already fragile economy due to the Covid-19 pandemic.


The latest numbers show that from September 15th, the date where a new series of measures that seek to avoid the drawing of USD was implemented, until this Tuesday (06), the monetary reserves fell by almost 1,400 million dollars, while deposits in currency had a reduction around 1,500 million. This bleeding shows the severe restrictions on dollar purchases, both for individuals and companies, has not been working effectively.



Against this backdrop, it seems like dark clouds loom for the country’s economy:


  • The Argentine Peso ARS, which is the countries official currency, has weakened almost 30% since January;

  • Prices for Argentine bonds issued just a month ago have fallen ever deeper into the distressed territory;

  • Inflation has remained stubbornly above 40%, unemployment is at a 16-year high;

  • Argentina’s economy is forecast to shrink 12% this year, its worst one-year contraction on record.


Furthermore, a recent report published by JP Morgan, calculates that there is a 50% probability of a strong devaluation of USD/ARS in the first quarter of 2021, to as high as 130 pesos to one dollar.


The Argentine government is studying new measures that tend to regain market confidence and "stop the drainage of foreign exchange due to exchange rate pressure". Everything indicates that the renegotiation of the debt of US$ 68bn a few months ago was an easy task in relation to what awaits for President Alberto Fernández in the near future.



FX

The Argentinian peso weakened sharply over the week, with the pair USD/ARS hovering over 77.0 level as the central bank abandon its policy of "uniform devaluation", which will add even more volatility. The USDARS is almost surreal. It almost looks managed, as there’s very little noise, yet it's lost 80% of its value in just the last three years. Annual volatility is an unbelievable 22% (37% VaR). Unfortunately but not unexpectedly, there are no direct hedging solutions; and no proxies either.



EUR


Spain is going green to grow the economy


Over this week, Spain’s prime minister Pedro Sánchez unveiled a major plan to boost his country out of recession by spending around 52 billion euros (of 140 billion euros) on a new green plan, which focuses primarily on getting Spain to transition to green energy. It seems that Spain has taken the International Monetary Fund (IMF’s) recent warning to heart.


The IMF recently published studies that said that without further action to reduce greenhouse gas emissions, the world is on course to reach extreme temperatures, with potentially catastrophic implications for human activities. Also, an initial green investment push would deliver the needed emission reductions at reasonable transitional global outputs effects, putting the global economy on a stronger and more sustainable footing over the medium term.


The plan Mr. Sánchez brought forward will target to install 100,000 electric vehicle charging points between 2023 from 2025. Half a million homes will be retrofitted to be made energy-efficient over the next three years, and there will also be funding to move towards a plan for all electricity generated in Spain to be renewable by 2050.


In addition to the green plan, the country is betting on a plan for digital economy transformation, which will make up 33% of the total budget’s plan. Along with all these investments which include strengthening the public health service and improving public infrastructure, the Socialist-wing government aims to create 800,000 jobs over the next three years and to achieve growth of 7.2% next year.

Source: INE e Informe de Situación 2020


Despite the extraordinary green plan, in the meantime, it is likely that Spain’s socialist government will need more financial resources or will have to implement stricter measures to combat the spread of Covid-19. The country has the European Union’s largest number of Covid-19 cases, which now sits at more than 872,000, and more than 20% of its population are again under some form of lockdown or restrictions, with further fears of impact on the economy.



FX

The focus continues to be on how Europe will deal with the second Covid-19 wave. France, Spain, and the Czech Republic posted record increases in Covid-19 cases throughout this week, underscoring growing alarm on the continent as it struggles to control the pandemic.




In Other News


Currency Heat Map

This chart shows the relative volatility between currencies. The redder the color, the higher the volatility.




We are a cross-border advisory firm that provides the next generation of innovative FX execution and risk management solutions for institutional investors, investment managers, and multinational corporates.


We educate and empower CFOs and Investors to take control of their FX risk and manage their cross-border transactions more effectively. Contact Us or to explore Our Solutions.


Quiz of the week


Answers


There have been 48 Vice Presidents of the United States of America, serving only 45 presidents.



27 views
Deaglo white logo.png
  • LinkedIn - White Circle

All statements of opinion and/or belief contained in this website and all views expressed represent Deaglo Partners LLC's “Deaglo” own assessment and interpretation of information available to it at the date of this website. The information contained in this website is based on publicly available information only, from third-party sources. Deaglo does not represent that it is accurate, timely, comprehensive or complete and it should not be relied upon as such, nor has it been independently verified. No reliance may be placed for any purposes whatsoever on the information contained in this website. Under no circumstances should the information provided in this website be considered as investment or trading advice, or as a sufficient basis on which to make any investment or trading decisions and is provided to you for information purposes only. Whilst this website has been prepared in good faith, Deaglo and its group undertakings, members and employees from time to time (“Affiliates”) do not make and are not authorized to make any representation, warranty, or undertaking, express or implied, with respect to the information or opinions contained in it and no responsibility or liability is accepted by any of them as to the accuracy, completeness or reasonableness of such information or opinions or any other written or oral information made available to you. Without prejudice to the foregoing and to the fullest extent permitted by law, Deaglo and its Affiliates do not accept any liability whatsoever for any loss however arising, directly or indirectly, from use of this website or otherwise arising in connection therewith. Nothing herein shall not exclude any liability for, or remedy in respect of, fraud or fraudulent misrepresentation. Our professionals may provide oral or written market commentary or trading strategies to our clients. Deaglo will not treat recipients as clients by virtue of their receiving this report. Data may be subject to updates and corrections without notice. No part of this material may be (i) copied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Deaglo.