Recession fears plague Latam markets, Argentina peso slides further

Latin American markets were no exception to a slump across markets on Wednesday on rising fears of a looming recession, while Argentina's peso showed no signs of stabilizing despite the president's attempts to calm investors with relief measures.

An inversion in the US yield curve for the first time since 2007 - a classic signal for recession, following bleak data out of Germany and China - weighed heavily on investor sentiment as it returned focus to the impact of a bruising trade war on global economic growth.

After a day of relief on news that Washington would delay 10% tariffs on some Chinese goods, currencies in Brazil, Mexico, Colombia all fell well more that 1%, while Chile's peso slipped a percent.

Regional stocks also slid, with Mexico's main index sinking to its lowest in more than 5 years, while Brazil's main index tumbled 3% and was on track for its worst day in 4-1/2 months.

At the bottom of Brazil's main index were shares of education company Kroton SA down nearly 10% after weaker-than-expected quarterly results, followed by planemaker Embraer which reaffirmed it would report a loss for 2019.

In Argentina, the peso closed down 7.1% at 60.2 to the dollar in its third straight day of heavy losses, and the Merval stock index skid 2.4%, finding no solace from a package of welfare subsidies and lower taxes for workers unveiled by President Mauricio Macri.

The rout in Argentine markets was set-off by Macri's loss by a wide margin to opposition candidate Alberto Fernandez in presidential primaries on Sunday as it raised risks of a return to interventionist policies under Fernandez if he were to win in October general elections.

Fernandez on Wednesday said Macri's new economic measures are too late and warned that Argentina could run out of foreign currency reserves as it defends the peso. Including Wednesday's auction, the bank sold $355 million from its own reserve this week.

"Markets will pay close attention to the upcoming Treasury-bill maturities as roll-over risks remain high," said Morgan Stanley analysts in a note.

Between now and the elections, almost $14.7 billion of T-bills will mature, they say and see this as another potential concern particularly as the debt burden increases with a weaker peso.

"With markets already pricing in a very low probability of policy continuity and high uncertainty regarding the path for economic policy, liquidity and solvency issues will be watched closely."

IHS Markit's latest estimate prices the probability of a sovereign default within the next five years at 78%.