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Europe, Forex

Markets bracing for volatility after Argentine opposition upsets Macri in primary

(Updates with bond movement, newer vote count)

By Nicolás Misculin and Cassandra Garrison

BUENOS AIRES, Aug 12 (Reuters) – Argentina’s bonds were down in London trading and further volatility loomed on Monday after voters rejected President Mauricio Macri’s austere economic policies in primary elections, casting serious doubt on his chances of re-election in October.

A coalition backing opposition candidate Alberto Fernandez – whose running mate is former president Cristina Fernandez de Kirchner – led by a wider-than-expected 15.5 percentage points with 47.65% of votes, with 99% of ballots on Sunday’s election counted.

Analysts predicted it could be “game over” for Macri because Fernandez’s lead far exceeded the margin of 2-8% forecast in recent opinion polls. Investors regard Fernandez as a riskier prospect than free-markets advocate Macri due to the opposition’s past interventionist policies.

Argentina’s 2028-maturing, euro-denominated bond was down almost 9 cents in European trading on Monday, Tradeweb data showed.

The peso had plunged 6.1% to 49 per U.S. dollar early Monday on the platform of digital brokerage firm Balanz, which operates the currency online non-stop.

There could be an even stronger degree of market volatility because the official results by early Monday indicated that Fernandez had enough voter support to clinch the presidency in October’s first round, analysts said.

A candidate needs at least 45% of the vote, or 40% and a difference of 10 percentage points over the second-place runner, in order to win the presidency outright. Voters will return for a run-off on Nov. 24 if there is no clear winner.

“It is a shocking and practically irreversible result, which leaves the government in a power vacuum in the middle of a very delicate economy,” said Shila Vilker, an analyst with Argentine firm Trespuntozero.

“The main responsibility of both coalitions should be to prioritize governance over the campaign,” Vilker said, noting that the results could send markets reeling.

STARK CHOICE

Argentina’s main political parties have already chosen their presidential nominees, allowing the primary to serve as the first concrete measure of voter sentiment after opinion polls showed a narrow margin between Macri and Fernandez.

Voters were given a stark choice: stay the course of painful austerity measures under Macri or a return to interventionist economics.

Macri had hoped some recent glimmers of economic revival were enough to encourage voters to stick with his free-market reform agenda despite a painful recession and 55% inflation.

He told supporters on Sunday the primary vote was a “bad election” for his coalition ahead of the official results.

“Recognizing that we have had a bad election, that forces us, starting tomorrow, to redouble our efforts so that in October we will get the support that is needed to continue the change,” Macri said. “This is something that nobody expected. Nobody had these numbers. All the pollsters have failed.”

Re-electing Macri would mean seeing through painful cuts in public spending as part of the $57 billion standby agreement he negotiated with the International Monetary Fund last year.

His popularity has been dented by the spending cuts and tax increases made in an effort to bring the primary fiscal deficit to zero next year under IMF guidelines.

However, unemployment and poverty have risen. Researchers at two Argentine universities estimate that 35% of the population is living in poverty, up from the official government rate of 27.3% in the first half of 2018.

Newly impoverished Argentines may be more energized to vote to punish him at the polls, political analysts said.

Fernandez, looking to spur the opposition’s base to come out and vote, has promised access to free medicines for retirees and better wages for workers, while also hammering Macri for the uptick in poverty and unemployment.

“I am sure that today we Argentines begin to build a new history,” Fernandez said on Sunday. (Reporting by Nicolas Misculin and Eliana Raszewski with additional reporting by Cassandra Garrison and Gabriel Burin; Editing by Paul Tait, Mark Heinrich and Chizu Nomiyama)


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