All days became erratic: from Scott Besent tweets that the market interpreted as “signals”, capable of provoking abrupt movements in the prices of sovereign bonds in minutes, to the interventions of the economic team in the MAE and a demand for coverage that increased. Undoubtedly, for investors and for the government, the current dynamics represents A very different panorama than expected.
The suspicions of corruption on two central figures of the government, doubts about governance and poor margin of maneuver to contain market pressure intensified when it was evident that the treasure failed to comply with the Expectations of accumulation of currencies, even after zero to agriculture.
This combination of factors increased uncertainty and led operators to reduce risk positions, privileging exchange coverage, with the premise that the current scheme seems unsustainable.
In this context, Only two factors could contribute some relief:
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Concrete announcements about the assistance of the United States, which allow to trust that the Government will have the necessary dollars to comply with the upcoming debt maturities.
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An eventual government victory in the legislative elections, which contributes to decompress political and economic tension.
In both cases, the reactions expected by the market are intertwined: An output of exchange bands scheme And therefore, the acceptance of a higher exchange rate. At the same time, a turn towards greater political pragmatism is expected, which allows the government to reach agreements with the opposition and advance in an agenda of structural reforms.
In short, it would be a 180 ° turn with respect to the current dynamics, marked by an official rhetoric that seeks to sustain an exchange rate that the market considers unbelievable, and by a defensive political strategy, which limits the possibility of building consensus.
The signals waiting for the market
This was explained by LCG in his latest report in relation to these two points: “Only with those clear signs the exchange issue could begin to be administered, and eventually resume economic recovery, today suspended until new notice. Without those signs The change market will be directly uncontrollable. In any case, everything indicates that, post-elections, we will go to a more flexible exchange scheme. “
In this framework, Econviews contributed two paths that the Government has to cross the uncertainty: either to leave the scheme of bands or more exchange restrictions.
“The market asks for more concrete definitions about the aid, and it would be key to arrive soon to clear the way in these three weeks. Difficult to imagine, anyway, that the United States or the IMF are willing to finance the burning of reserves to sustain this type of change. The other alternative in the radar is to harden the exchange controls. The economic team has already suggested that it prefers that path before devaluing. More obstacles could appear for retailers or new restrictions on import payments. In any case, it seems clear that after the elections we will have to go to a different exchange scheme. “
In this context, the economic team is in a dilemma according to Grupo IEB: “We do not observe a problem on the offer in the money market. However, If we notice a demand for money that is gradually weakened, partly caused by the pause in the activity, the political uncertainty and feedback by the rise of the exchange rate. It is from this contraction that exchange problems arise and, potentially, a temporary rise in inflation. This does not favor treasure to accumulate reservations, Its participation in the dollar market would generate an increase in demand that would raise the price of the dollar and Consequently, the demand for money would further erode. “
Along the same lines, from ADCAP Financiero Grupo were overwhelming: “The real exchange rate seems sustainable, provided that new financing is ensured. But a renewed pressure on the weight next week, or an unfavorable result in October, could undermine trust and turn the vicious cycle again. In other words, the policy and reservations surveillance will continue to dominate the short -term agenda. “
Specifically, the “plan to get” is already underway. The market is more impatient and demanding due to the lack of definitions and claims specific ads that dissipate uncertainty. At the same time, observe with growing attention on October 26, date that is emerging as a true plebiscite on government management.
Source: Ambito
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