Thus, the US central bank projected the equivalent of quarter-point rate hikes at each of its remaining six meetings this year, which would take the fed funds rate to a range between 1.75% and 2.00% at the end of 2022.
The first reaction of the market was positive: Wall Street rose more than 3% (in the case of technology), while in the Buenos Aires Stock Exchange, the S&P Merval also joined the trend and Argentine bonds in dollars showed a majority of rises.
Diego Martínez Burzaco, head of Research and Strategy at Inviu, warned Ámbito that “the scenario that the Federal Reserve was going to favor in the short term was not so clear: if it would try to control inflation by being aggressive, or if it would advance more gradually taking into account that the economic outlook has deteriorated quite a bit due to the war, the consequent rise in commodities and the brake on private investment”.
In any case, the base scenario that Martínez Burzaco manages from Inviu is that of a “more measured” Fed, raising its interest rate, but trying not to give such an aggressive message to the market, despite the fact that inflation in the United States is highest. We believe that it will act in this way until the uncertainty of the war and its impact on economic expectations dissipate.
For Norberto Sosa, director of IEB, meanwhile, “the Fed needs to recreate credibility, therefore, it was obliged to raise the rate by at least 25 basis points.” The central issue for Sosa is what he will do with the balance sheet. “The market thinks it should stop expanding, but at the same time it doesn’t like to hear the idea of a contraction too fast.”
effects
Under the perspective of a gradualist Fed, with rate adjustments in a dosed manner, and at the same time slowing down its plan to withdraw part of the liquidity from the financial system after issuing heavily during the worst moments of the pandemic, emerging assets could react relatively positively on a transient basis, say specialists.
“It will be a temporary relief for emerging markets because a less aggressive Federal Reserve is going to mean that capital does not flow rapidly towards the US. This should support a trend that we saw at the beginning of the year, when Latin American markets were better in relative terms than Wall Street”, analyzes the head of Research and Strategy of Inviu.
On the rebound, due to the so-called spillover effect, this trend also helped Argentine assets, together with the positive effects of the announcement of the agreement with the IMF for the debt. “It was not because of the conviction of foreign and local investors about a change in expectations, it was just the spillover effect. Now, in the same way, this scenario of a gradualist Fed could give some positive support to local stock and bond prices”, adds Martínez Burzaco.
For his part, the director of IEB projects that if the Fed does not stop the expansion of money it will be a negative signal, considering the market that “it will not be able to moderate inflation and therefore, it will affect emerging stocks and bonds ( and Argentine), except for TIPS (U.S. Treasury bonds that adjust for inflation)”. With which, “the best news would be that it stops expanding and that it analyzes in time when it would have to contract”, he affirms.
It is worth noting that Argentine bonds in dollars are conditioned by the performance of emerging debt in general. “Until emerging debt improves in general, it is difficult for Argentine bonds to improve,” Sosa remarks.
Bonds and IMF
Leaving the global situation, Argentina plays its own “game”, linked to the debt agreement with the IMF. If there is no unforeseen event, Congress will approve today the understanding with the agency, which will be endorsed later by the Fund’s board. This could also have implications for Argentine bond prices.
“Taking the main financial variables, we observe that both the alternative exchange market (MEP/CCL) and the stock market echoed this advance, which is positive for the local macroeconomy because it clears the uncertainty that Argentina faces a non-payment ( default) with the IMF”, explains Maximiliano Donzelli, head of Research at IOL.
However, dollar bonds were decoupled from this improvement and their prices were even lower at the time the pre-agreement was announced at the end of January. This situation had its origin in the poor global performance of global fixed income assets, after the Russian invasion of Ukraine, say specialists.
Thus, “in a short-term horizon, we expect dollar bonds to be coupled with the good performance of the rest of the financial assets, with GD35 and GD41 bonds in foreign law presenting the best risk-return ratio,” Donzelli said.
Source: Ambito
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