The enormous mass of pesos released by the Central Bank to repurchase Treasury bonds altered the fragile balance of the financial circuit and drove the prices of alternative dollars to the “stocks”, in the zone of nominal maximums. On Thursday, the dollars traded on the Stock Exchange climbed sharply following the BCRA restricted the possibility of paying in installments with cards for consumption in the “free shop”, which added more pressure and on Friday, the “counted with liquidation” exceeded 300 pesos.
The free dollar ended trading at $273, with a weekly gain of 14.2% or 34 pesos. The informal currency reached an intraday record of $280, in a new historical record.
In contrast, the official dollar, according to the reference wholesaler, advanced only 1.36 pesos or 1.1% in five wheels, with the insistence of the Central Bank to sustain the gradual devaluation. Naturally, this divergence catapulted the exchange rate gap above 100 percentnow at 115.3%, the highest level since October 2020.
The leading role, however, was held by the stock market dollars, those prices that are obtained through the sale of shares and bonds and that is used by more sophisticated companies and investors when they cannot access the official dollar. The “cash with liquidation”, finished at $300.89, with a weekly gain of 19.3 percent.
A month of currency shock
From the June 8, when the disarmament of private funds that were positioned in Treasury bonds began in pesos, the “counted with liqui” climbed 41%, from 210.31 pesos. In addition, the move by the BCRA, which on June 16 raised the interest rates of fixed terms by five percentage points, to leave them above the Monetary Policy rate, complicated bank balance sheetswho were pressured to demand more Treasury bonds and less Liquidity Letters (Leliq), another signal that was weighed negatively by market agents.
In the last month, the BCRA injected $1.5 trillion and the dollars traded on the Stock Exchange climbed 40%
The “tsunami” of pesos used by the BCRA to redeem the bonds in pesos plus direct assistance to the Treasury were complemented by the bad political sign of the unexpected resignation of Martín Guzmánin a combo that was lethal for the weight. Today all expectations are placed on an imminent devaluation and acceleration of inflation to the threshold of 100 percent per year. That’s why the dollarization reaction was logical although it was surprising due to its magnitude.
According to Personal Portfolio Investments“the monetary authority issued the whopping sum of 2% of GDP to finance the treasury in just a little over a month”, when counting some $432,000 million for Transitory Advances transferred to the Treasury, plus $1.1 billion issued by the BCRA to repurchase Treasury bonds.
In addition, the rise in financial exchange rates occurred in part amid rumors regarding a departure of the Renovating Front from the ruling coalition, following a version that Sergio Massa wanted to replace Juan Manzur as head of the Cabinet and have direct interference and decisive on the different economic portfolios.
In the last week, these events were joined by the leliq’s apportionmentof the order of 44% and 65% in the first two auctions in July, which flooded the local market with pesos and caused sharply lower market ratesespecially those of surety, which reached levels below 20% per year -on Friday they were rearranged at 34%-.
In the week, the country risk rose 300 basis points, above 2,700 basis points, a maximum since the debt restructuring
“Consequently, investors are encouraged to leverage themselves in pesos and buy financial dollars, motorizing your quote. Additionally, on the political spectrum, the inaction of the Government and the lack of signs four days following Batakis took officecoupled with some controversial statements regarding the availability of dollars, they are fuel for a cash with liquidation that is sensibly overheated”they explained from Personal Portfolio.
The market “waits for the appointment of the finance secretariats and, above all, the dependency that will have to deal with the growing maturities of debt in pesos,” indicated a report from StoneX. He pointed out that for the BCRA “the risk lies in the expansion of the monetary aggregates taking into account the recurrent transitory advances and the mega printing of banknotes to support the peso curve.”
Stocks Rise and Bonds Crash
The local stock market showed a strong rise in pesos, driven largely by the rise in financial dollars at times of hedging once morest exchange rate risk, and managed to test new all-time highs above 100,000 points.
the leading panel S&P Merval of the Buenos Aires Stock Exchange reached over 106,000 points and ended this Friday in 105,850 units, with a weekly gain of 17.5%, consistent with the rise of the implicit dollar. But in dollars it trades in the area of 350 points at a minimum level in 14 months, with a fall of 2 percent in the next week.
Dollar bonds hit new lows in the week, as investors maintain great political and economic uncertainty. The downside deepened an extra 14% for Global bonds (with foreign law) and 10% for the Bonares (with Argentine law). Some of these titles are paid for less than USD 20 per USD 100 sheet, which implies a rate of return of over 40% per year in dollars. Far from being good news for investors, such a high rate is difficult to accept, given the high risk of default.
“Sovereigns are listed at very low parities and still cannot find a floor, with returns that exceed 40% -in the case of short-term securities duration– and discounting the possibility of default on debt commitments. The uncertainty regarding the political course that this Government adopts and the one that will come next year, continues to be present in investors”, they stressed from Research for Traders.
The market remains attentive to the decisions made by the new minister Silvina Batakis in economic matters, but more than anything they will look at the designation of the officials in charge of the Ministry of Finance, which is the one that will mainly have to deal with the growing maturities of debt in pesos.
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