Investors ended the week with doubts and caution after the cuts to the omnibus law sent to Congress. They do not see that the Government program is being fulfilled. Although the project was approved in general, with the loss of two thirds of the original project, two more customs remain: the particular treatment of articles and the Senate.
The doubts that persist are how much will remain of the original project and how can that change the Government’s plans. On Friday, this state of mind was seen in investors who do not seek risk and try to maintain positions. The dollar, with business falling because there were no sellers, rose less intensely. Both the MEP and the cash with settlement (CCL) increased less than 1% and the “blue” lost $20 by closing at $1,170 due to the greater supply of savers who must face end-of-month payments. The gap widened to 57% and is a level to start worrying about.
Debt bonds had a good run, with specific increases in the securities that have the most impact on the country risk index (EMBI +) prepared by JPMorgan. The most sought after were the longest-term Globals. They are bonds with New York legislation that rose to 1.83%. This caused the country risk to decrease 40 units (-2%) to 1,919 basis points. In the week the country risk grew 65 units (+3.50%). That’s why Friday’s rise looked more like an opportunity purchase.
Juan Martín Yanzón, head of the Cono Sur desk, said: “what continues to catch our attention is that, despite the shocks in the curves, news and volatility from other segments, this class remains resilient. Post closure and knowing the news of the Law, there seem to be payers outside.” The other bond sought was the Bopreal (issued to pay debt to importers): it remained firm between 65 and 68%, with a return rate of 18%, helped due to the announcement that series 2, which will begin bidding this week, will be able to operate in the secondary market.
It is not surprising that many investors prefer Bopreal over debt bonds denominated in dollars that have a parity close to 40 percent. Investors are more inclined to assume “BCRA risk”, in addition to the fact that the bond has the additional attraction of being able to be used to pay taxes. Bonds in pesos tied to the dollar (dollar linked) continue to correct. Those that expire after June were the ones that rose. They estimate that after that month the stocks will disappear.
A man points with concern to an economic graph that reflects the fluctuations in the financial markets, the rises and falls of currencies, the dollar and inflation. Moments of uncertainty in the economy. For the consulting firm F2, run by Andrés Reschini, the dollar continues to be used as an anchor. The 2% monthly devaluation slows down the exchange rate considerably. In fact, in the Free Exchange Market (MLC), the Central acquired USD 78 million. Thus, “the downward trend in purchases and the increase in private interventions continued to deepen while the volume of liquidations remains stagnant. In this way, the week we left behind was the one with the lowest balance of purchases of the Milei era with a cumulative purchase of USD 6.3 billion and of them USD 400 million during this week versus 800 million in the previous three weeks,” Reschini noted.
On the topic of the moment, exchange rate unification, the debate continues because the IMF statement was not precise and indicated that it will be done “as conditions allow”, a vague phrase that each market participant interprets in their own way, although the majority considers that that moment would be in June. What they do not agree on is the devaluation jump before the elimination of the stocks. For F2, it is likely that the current scheme will be abandoned in April, with the heavy harvest. Something that may make sense, since the BCRA could take advantage of the 20% that today goes to the CCL.
Outlier also deals with the type of change, key information for investors. “May and June,” he says, “are two months in which the liquidation of exports rises a lot and could provide a lot of accumulation.” As long as – he clarifies – there is a good harvest and expectations of a significant exchange rate jump are not generated. According to the consultancy “the expectation of devaluation can be compensated with a rate increase, to a certain extent. When it is unified, the export exchange rate ends. With a gap of around 50%, the export exchange rate is 1% above the official one.” That is why he asks: “Can we reach current inflation expectations and an exchange rate level that does not fuel an expectation of a significant additional exchange rate jump in the event of unification?” And he responds: “in our opinion it is difficult without an acceleration of the crawling peg (devaluation rate) or a correction of the additional export exchange rate in the middle. Given the choice and if it is for a short period, the option seems to be the last one.”
EconViews also focuses on this crucial issue. After pruning the fiscal part of the omnibus law, he reiterates his argument that the rate of 2% monthly devaluation “falls short.” “February begins and we will see if there is a change in the exchange rate policy. The main risk of continuing with 2% monthly, while inflation continues happily, is that a jump in the exchange rate is needed, which we know from experience is going to be disruptive. The futures market continues to see a slow devaluation in February, accelerating in March and even more in April. At some point it will have to change to adapt to inertial inflation, and the sooner the better,” says a passage from the consulting firm’s report.
According to EconViews, the Central Bank would keep the monetary policy rate below inflation. The cost? A high exchange rate gap. Another issue that draws attention is the interest rate. “We see it very likely that the Central Bank will keep the monetary policy rate unchanged in February. This will allow us to continue liquefying liabilities, but at the cost of having a high gap. We estimate that in February it will remain at this level. For March, we believe that there has to be a rate increase that helps reinforce the attractiveness of being in pesos and reduce the gap between the official dollar and the parallel dollar,” indicates EconViews.
From FMyA, Fernando Marull recognizes that “the increase in the gap is beginning to raise doubts about the need for a new devaluation to lift exchange controls. Among the possibilities for lifting the stocks are a new devaluation that finally eliminates the gap, or a new devaluation and subsequent dollarization. We believe that both options are, however, unlikely. The first reason is that devaluing would imply a new flash of inflation and another drop in activity. The second, that the government does not have enough dollars to carry it out without a hypermarket involved. “In any case,” he highlights, “the result would lead to a sharp increase in social discontent.”
Consulting firm predicts that “the path the government will take will be “gradual unification, accelerating the crawling-peg to close the gap little by little without devaluation; After the monetary liquefaction and the “recovery of dollars” end, the stocks will open and the interest rate in pesos will possibly have to increase to avoid the flight to the dollar. By the end of 2024, we project that the amount of pesos remunerated in the Central Bank will drop to a more sustainable level, 7% of GDP, and the level of net reserves will return to positive in the second half. The exchange controls and the Country Tax would be maintained until the gap is closed.
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