ARGENTINA: Milei's Party Still Favourites, But Odds Declining
Political betting markets continue to see President Javier Milei's libertarian La Libertad Avanza (LLA, 'Liberty Advances') as favourites to win a plurality of seats in the upcoming congressional elections on 26 October. Nevertheless, the implied probability of LLA winning a plurality has fallen to its lowest on record, at 56%. This is down from a peak of 90% in mid-August, before the disastrous result for LLA in the Buenos Aires provincial election on 7 September, in which the left-wing Peronists led by provincial Governor Axel Kicillof secured a comprehensive win.
- The Peronist Fuerza Patria ('For the Homeland') alliance has a 39% implied probability of winning the most seats in the election, up from a low of 9% one month ago.
- In the election, one-half of the seats in the Chamber of Deputies and one-third of the seats in the Senate are up for election. Since coming to power in Dec 2023, Milei and the LLA have had to govern in tandem with a whole host of centrist/centre-right/right-wing parties to secure parliamentary majorities.
- Expectations in recent months had been that gaining a larger share of seats in Congress (albeit perhaps not outright majorities) would allow Miliei a freer hand in enacting planned reforms. However, the sharp rebuke from voters in Argentina's most populous province has seen this scenario come under threat. In the aftermath of the BA election, Argentinian financial markets have experienced notable instability in the face of potential policy paralysis/reversals.
Chart 1. Implied Probability of Winning Most Seats in October Legislative Election, %
Source: Polymarket
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SONIA: Calendar spreads are dominating the flows
Dominating flow in the Sonia strip, not too surprisingly has been in Flatenners following the touch higher UK Inflation.
Aside from the 11k SFIU5Z5 spread that has traded in 11.8k, pushing back Rate cut bets.
- SFIZ5/H6 has traded in 31k spread to the downside.
- SFIZ5/M6 in 22k also to the sell side.
- SFIZ5/Z6 has traded in 51.1k lots, mostly to the sell side.
The SFIZ5/H6, SFIZ5/M6 have seen their largest single moves since the US NFP, but for the SFIZ5/Z6, this the most notable single move since 8th May.
OUTLOOK: Price Signal Summary - GBPUSD Bull Cycle Still In Play
- In FX, a consolidation mode dominates for now in EURUSD. The trend set up however, remains bullish. A resumption of gains would expose key resistance and the bull trigger at 1.1829, the Jul 1 high. Clearance of this level would resume the uptrend. Support to watch lies at 1.1588, the 50-day EMA. Major support rests at 1.1392, the Aug 1 low.
- The latest pullback in GBPUSD for now, appears corrective and a bullish condition remains intact. Recent gains resulted in a breach of resistance at 1.3589, the Jul 24 high. This signals scope for a climb towards 1.3636, the 76.4% retracement of the bear leg between Jul 1 and Aug 1. Initial firm support to watch is 1.3449, the 50-day EMA. A clear break of it would signal a possible reversal.
- USDJPY remains in consolidation mode. A bearish threat is present as the pair trades closer to its recent lows. Sights are on support at 145.86, the Jul 24 low. Clearance of this level would highlight a stronger S/T reversal and strengthen the bearish engulfing signal on Aug 1. This would open 144.69, a trendline drawn from the Apr 22 low. Initial firm resistance to watch is 148.52, the Aug 12 high.
OPTIONS: Larger FX Option Pipeline
- EUR/USD: Aug21 $1.1600(E1.3bln), $1.1700(E1.6bln), $1.1750(E2.0bln), $1.1800(E3.0bln); Aug25 $1.1640-55(E2.0bln)
- USD/JPY: Aug21 Y145.95-00($1.2bln), Y146.70-80($1.8bln); Aug22 Y147.90($1.4bln)
- AUD/USD: Aug21 $0.6590-00(A$1.8bln); Aug25 $0.6510-25(A$1.1bln)
