ORLANDO, Florida (Reuters) -U.S. stocks were mixed on Tuesday, with the global momentum that had lifted Japanese and several other indices to new highs fizzling out, as investors digested a sharp fall in gold prices and the U.S. government shutdown entering its third week.

More on that below. In my column today, I look at the Trump administration's purchases of Argentine pesos, which appears to be the U.S. government's first ever unilateral and direct FX market intervention to support an emerging market currency. Why Argentina, and will it work?

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

1. FOMO meets FOWO in edgy markets: Mike Dolan 2. EU gets a lousy 'Draghi report' card. But it might notmatter: Klement 3. Japan's next finance minister could unsettle yen bears 4. China's consumer subsidy scheme needs a rethink 5. Why is inflation so high in the UK?Today's Key Market Moves

* STOCKS: New highs for Australia, Japan, South Korea,Taiwan, France, euro zone. Asia ex-Japan highest since February2021. Wall Street mixed - S&P 500, Nasdaq essentially flat, Dow+0.5%. * SHARES/SECTORS: GM shares +15%, Warner Bros +11%,Netflix slumps 7% in after hours trade following Q3 earnings.U.S. industrials +0.9%, consumer discretionaries +1.3%,utilities -1%. * FX: Dollar rises for a third day, biggest gains vs ZAR,THB and KRW. Argentina's peso falls to a new low, Japanese yenslides after new finance minister appointed. * BONDS: U.S. Treasuries rise across the curve, yieldsdown 3 bps at the longer end. * COMMODITIES/METALS: Gold falls as much as 6%, silverslumps 8%. Oil settles 0.5% higher, bouncing off Monday's5-month low.Today's Talking Points

* U.S.-China tensions

Buoyant stocks suggest investors are confident U.S.-China trade tensions will ease, as both sides cool the rhetoric, step away from the brink, and strike a mutually face-saving deal that ensures trade between the world's two largest economies keeps flowing.

That may reflect over-confidence, or complacency. The mood at the IMF/World Bank meetings in Washington last week was far less upbeat, with the recent escalation around rare earths and 100% tariffs marking a new and worrying phase. Markets are priced for significant de-escalation, and if that doesn't materialize, volatility could pick up.

* Gold finally at a tipping point?

Gold fell 6% on Tuesday, its largest decline since August 2020 and second biggest since 2013. After such a steep ascent - its year-to-date gain last week was almost 70% - the inevitable question now is: correction, or crash?

Some kind of correction was surely inevitable. Tuesday's slide takes gold back to where it was only a week ago, which is unlikely to fluster the gold bugs. But deeper reversals have to start somewhere, and if the base for the surge is weakening - central bank buying, debasement fears, asset reallocation, "FOMO" buying - there could be more downside to come.

* Japan's new-look government

Japan has a new-look government, headed by hardline conservative Sanae Takaichi, the country's first female prime minister, and with Satsuki Katayama as the country's first female finance minister.

Investors will be focused on how closely the government and Bank of Japan work together, how much fiscal stimulus is coming down the pike, and whether the BOJ sticks to its gradual policy tightening path. The initial verdict, at least, seems clear - looser policy, higher stocks and a weaker yen.

Trump sets head-scratching FX intervention precedence in Argentina

The Trump administration has engaged in what appears to be the U.S. government's first ever unilateral foreign exchange intervention to support an emerging market currency - and the country in question is Argentina, a poster child for economic volatility.

    The Treasury on Thursday October 9 sold an unspecified amount of U.S. dollars for Argentine pesos, followed up with a second round of peso-buying intervention on Wednesday October 15, and a third the following day. All three rounds are part of the U.S. administration's broader package of measures to support Argentina's beleaguered economy and battered financial markets. 

    The U.S. has a long history of offering emerging economies financial support, most notably Mexico in the mid-1990s, but almost always via credit lines, loans or currency swap lines. It is the nature of Washington's financial support to Buenos Aires that sets this episode apart. 

Since the Bretton Woods era of fixed exchange rates ended over 50 years ago, the Treasury has, to the best of our knowledge, never officially waded into the global FX market to unilaterally spend taxpayer dollars on foreign currency, least of all one as volatile as Argentina's peso. 

    'UNUSUALLY RISKY'

What is behind this unprecedented move?

    It certainly is not close economic ties between the U.S. and Argentina. Total bilateral goods and services trade last year amounted to only around $26 billion, just 0.35% of America's global $7.3 trillion trade activity.

    For comparison, U.S.-Brazil trade last year was five times larger at around $128 billion. 

    Another suggestion is that the U.S. could be making a long-term strategic move here as part of its rivalry with China.

    Argentina is home to significant lithium and copper deposits, as well as, potentially, rare earth minerals. If supporting the peso and agreeing to set up a $20 billion swap line helps dilute Beijing's influence in Buenos Aires and the region more generally, then Washington may see it as a price worth paying.

    But even if competition with Beijing is a motivation here, which the administration hasn't publicly confirmed, there are clearly other factors at play.

Namely, President Donald Trump appears to be using the FX markets to back a political ally, Javier Milei, the unorthodox, populist and controversial President of Argentina.

    Trump suggested as much last week, saying, "we're not going to waste our time" on Argentina if Milei's party doesn't win the October 26 midterm legislative elections. Treasury Secretary Scott Bessent later clarified that U.S. financial support would continue as long as Milei's government pursues "good policies", regardless of the election outcome.

    But even if the administration is intent on supporting what it deems "good policies", direct purchases of pesos are "unusually risky", says Brad Setser, senior fellow at the Council on Foreign Relations.

    "The operation seems to be about supporting ideological friends and expanding the set of Latin leaders that support the U.S., and not about helping a large troubled emerging economy fix its very real problems - in this case, a shortfall of reserves and an overvalued currency," Setser says.

    PESO DEVALUATION - WHEN, NOT IF? 

    The belief that this is mostly a political decision rather than an economic one is why many analysts say Washington's peso-buying spree is doomed.

    For one, Argentina's macroeconomic situation remains precarious. The country has spent decades battling crippling inflation as well as currency and debt crises. And it currently owes the International Monetary Fund around $57 billion, having defaulted a further two times since its record default in 2001.  

    Milei has implemented a series of aggressive spending cuts, deregulation and privatization reforms since sweeping to power in 2023, and inflation has fallen to 32% from over 200%. But the country is now back in a currency crisis, and pressure to remove the peso from its dollar shackles, currently a trading band, is immense.

Letting the currency float would trigger inflation initially, but it should also boost exports, widen the trade surplus, and allow the central bank to accumulate foreign currency reserves again.

    Bessent says the peso is undervalued, but most market participants think the opposite is true. Despite Washington's intervention, the Argentine currency slid to a record low of 1,476 per dollar on Monday. It thus seems less a question of 'if' the peso's devaluation will come, but 'when'.

    If the crawling band is indeed scrapped, U.S. Treasury support could then be the peso's only anchor in the immediate term. But it's unlikely to hold for long without other reforms. 

    While the U.S. has long used access to the dollar to pursue foreign policy goals, this direct FX intervention represents a new tactic that, given its likelihood to produce losses, has many investors scratching their heads.

What could move markets tomorrow?

* Japan trade (September) * Indonesia interest rate decision * UK inflation (September) * U.S. Treasury auctions $13 billion of 20-year bonds * U.S. earnings, including Tesla, SAP, IBM, AT&TWant to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. 

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