After long weeks of calm, volatility has returned to the fore on Argentina’s financial front. Both the parallel exchange rate, which has shot up 5% in the first two rounds of this month in the case of cash settlement, and the prices of shares and bonds show that the market is beginning to become concerned about the economic direction of Javier Milei’s program.
At the same time, Argentine stocks, which had taken a break from their rally days ago, are back on the downward path. In New York, ADRs sank by almost 10%, although they cut back the loss towards the end of the session. The stock that lost the most was YPF, which ended with a drop of more than 8%. In the Buenos Aires market, the Merval index fell 5.7% if measured in dollars.
This Tuesday, the financial dollar added a new step: both the MEP and the CCL rose by nearly 1% and closed at $1,280 and $1,311, respectively. On the street, the blue exchange rate rose $30, to $1,265 for sale.
After having closed May with net sales in the last round of the month, the Central Bank returned to buying dollars after it intervened in the MULC: in the first two rounds of June, it accumulated US$ 107million, a pace much lower than the daily average it had registered in previous months. In the official segment, it was the round with the lowest volume since January 15. “Part of this fall could be a sign of a reason why financial dollars maintain an acceleration pace,” they said at Aurum Valores.
This, for Delphos analysts, “shows a reduced supply by non-agricultural exporters and a demand for imports that has recovered its pace. Additionally, the possibility that the Government must pay (all or part) the activated portion of the swap with China (US$ 5 billion), with the consequent impact on reserves, continues to push the search for coverage in hard currency with interest rates at recent lows.”
Doubts about the sustainability of the reserves are leading to lower expectations that Javier Milei’s government will be able to lift the exchange restrictions and move towards the second stage of its plan, currency competition, without having to resort to a new devaluation. And this is what worries the market.
The drop in rates in the economy also explains a good part of this appetite for dollarization. Economist Gustavo Ber stated: “Financial dollars continue to readjust, given that more economic agents continue to be inclined towards greater coverage, even though at the same time the appetite for short-term Lecaps remains strong – with rates already close to 3% monthly – to mitigate the climate of negative real rates.”
At the same time, the market is taking the pulse of Milei’s political capacity to manage and is attentive to the discussion on the Ley Bases. “Political uncertainty may have an impact. For the next few months, the exchange rate gap will possibly move around the political sustainability of Milei’s model,” warned Adcap.
This new jump in the dollar places the gap at 46%, one step above the level of between 20% and 30% at which it has remained in the last two months.
The exchange rate tension is also being reflected in the bond market. Global dollar-denominated securities ended down more than 3%. Country risk measured by the JP Morgan baBankshot up almost 14% in the first two days of June and remained just below 1,500 points.
The transfer of debt from the Central Bank to the Treasury did not help in the process of reducing country risk either. The economic team cannot find a ‘financial bridge’ that would allow it to strengthen reserves and, thus, send a clear message of commitment to the payment of global bonds. A new agreement with the IMF that involves fresh money is a long way off and IDB disbursements are being held up by a lack of projects (government management error?), to mention some potential sources of dollars,” they explained at Delphos.
