Financial week: Argentine assets reflected in their prices the agreement with the IMF

It wasn't just any financial week. The necessary legislative process of the agreement with the International Monetary Fund, which was overcome by the vote in the Senate, conditioned financial business, also affected by the reaction of international markets to the novelties of the war in Ukraine.

The result was positive for investors. The S&P Merval panel of the Buenos Aires Stock Exchange, at 89,057 points, advanced by a minimum of 0.1% in pesos and yielded 1.4% measured in dollars, but already discounted the agreement by the debt to the agency, retains a hard currency profit of 11.2% in 2022, in a historically bad quarter for Wall Street.

Therefore, having avoided a foreseeable disarming of positions with the approved agreement (” selling with the news”) is a good sign, given that the implementation of the demands committed to the Fund portends very tough months for macroeconomics, in the process of stagflation and lack of dollars.

“The final approval of the agreement with the IMF is a step forward that avoids greater macroeconomic complexity for the time being, mainly in financial terms. However, this does not solve the internal problems facing the Argentine economy, which will have to be addressed, sooner rather than later, and despite the resistance within the ruling political space, through a stabilization program. It is not in vain that the President's announcement, although not very wise given the context, about the war that is beginning”, summarized Martín Calveira, researcher at the IAE Business School of the Universidad Austral.

Dollar bonds earned 2% weekly according to the Globales benchmark, in a recovery movement that must be put into context, as these restructured securities have fallen by 2.5% on average so far in March, and 6% since the beginning of 2022.

“Sovereign bonds naturally had a positive reaction to the advance of the agreement with the IMF, but they have been showing a lot of volatility so far this year. The uncertainty generated by the armed conflict in Ukraine was one of the factors that did not help sovereign bonds to perform better, while the monetary adjustment cycle initiated by the Fed could slow down the speed of recovery of sovereign bonds,” said Balanz Capital experts.

In the same vein, JP Morgan's country risk, which measures the rate gap for US Treasury bonds with similar emerging issues, fell below 1,800 units, at 1,786 basis points, after reaching 2,000 points on March 8.

“Sovereign dollar bonds, with a lot of volatility involved and sensitivity to emerging debt, continue to be punished in their parities and lose the correlation they usually have with the 'liquidation count' and the accumulation of BCRA reserves. We point out that securities continue in oversold prices and can be a considerable alternative to entering with pesos, also assuming the fall in the exchange rate,” stressed Lucas Yatche, Head of Strategy and Investments of Liebre Capital.

The progress of the dialogue between Russia and Ukraine decompressed the tension in foreign markets, which are still subject to very wide volatility. On the week, the Dow Jones of Industriales gained 5.5%; the S&P 500, 6.2%, and the Nasdaq tech, 8.2%. However, in 2022 these indicators remained red at 4.4%, 6.3% and 11.5%, respectively.

The US Federal Reserve also ratified on Wednesday 16 the signal of reversal of its ultra-laxa monetary policy of the COVID-19 era, to intensify its fight against persistent inflation, announcing the first in a series of expected interest rate hikes this year.

In the statement issued by the entity, it considered that further increases in interest rates will be necessary in the future. In addition, the Fed forecasts 4.3% inflation in the US in 2022.

The change of position, with a quarter-point increase in the one-day benchmark rate, has been prepared since last year and has already driven up the cost of mortgages for homes in the US and other types of benchmark credit, in anticipation of what the Fed will do to curb prices that last Thursday showed their largest annual increase in 40% years.

Free dollars polled lows of the year

In the exchange market, the path of gradual devaluation imposed by the Central Bank continued, with a wholesale dollar that earned 82 cents or 0.8% a week in $109.70.

Two news stories with negative reception hit the exchange square. On the one hand, the closure of exports due to a possible adjustment of withholdings for these products from 31% to 33%, crushed the volume operated in the formal market and prevented the monetary authority from rebuilding reserves at the rate it had done in the first tranche of March.

On the other hand, the official inflation figure for February, at 4.7%, was disappointing and placed a limit on the downward price of the dollar alternative to exchange control, which had pierced the floor of 200 pesos.

The free dollar ended the week at $202.50, while the “liquidated spot” dollar and the MEP converged at $196, prices that could be marking a close to the correction phase that began on 28 January, when President Alberto Fernández announced the understanding with the IMF.

“Inflation is increasingly worrying and unfortunately, the worst is yet to come, because for the CPI for March, no one expects a better figure, with war as the backdrop, increases in fuels and the fact that, seasonally, it is a difficult month,” said Ariel Manito, commercial manager of Personal Portfolio Investments.

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