Categorical libertarian victory returns confidence to the market and causes a drastic turn in the dollar, stocks and bonds

With more than 95% of tables scrutinized, Freedom Advances was imposed with the 40.8% of the votes at the national level in Deputies, compared to the 31.6% of Homeland Force and its provincial variants. The most resonant data occurred in the province of Buenos Aireshistorical bastion of Peronism, where the ruling party achieved a surprising 41.5%narrowly surpassing the 40.8% obtained by Fuerza Patria.

The key to US aid

Several factors converged behind this result, for the market. On the one hand, the rejection of Kirchnerismenhanced by the lack of renewal in their leadership. Also influenced by helpful vote of independent sectors that, in the face of opposition fragmentation, chose to reinforce the ruling party to guarantee governability.

But, without a doubt, the US financial aid It was decisive, especially in the last two weeks. Washington’s support was not limited to rhetoric: it included the currency swap for up to US$20,000 millionhe maintenance of liquidity lines and coordination with the North American Treasury that gave air to the Central Bank to maintain parity within the band scheme. In practice, that external support was the containment network which prevented the exchange rate pressure from leading to a major crisis during the campaign.

The warnings of donald trumpwho had pointed out that “if Milei lost, the US was not going to be generous with Argentina”, had been interpreted as a direct signal that the continuity of North American support depended on the electoral result. That political and economic support worked like trust anchor for investors, it allowed sustaining the exchange band regime and prevented the dollar from skyrocketing in the middle of a lawsuit for unpublished coverage. “Washington’s support was decisive: it allowed the market to reach Sunday alive,” they agreed at a money table.

The economist Aldo Abramexecutive director of Freedom and Progressconsidered that the results “They reflect great support for the change of course towards normality that the Government is leading”. In his view, the market had operated for weeks under a scenario of doubt about whether or not society would endorse this correction process, and the vote cleared up the mystery. “There was a bet on uncertainty: savers sold Argentine assets, dollarized portfolios and fled from local risk. This result reverses that dynamic; now the savings that were gone can begin to return, the dollar is going to give way and local assets are going to recover value,” Abram explained, highlighting that political validation reinforces the conditions for a faster economic recovery.

In the same line, Martin PoloHead of Strategy Cohen Financial Alliesinterpreted the result as “a positive black swan”capable of causing a profound change in financial mood. “The market was very loaded with pessimism, with bond and stock prices that discounted an adverse scenario. This result not only improves governability, but also gives the Government time to consolidate its program without any problems. In the short term, a stage of relief and euphoria is coming; in the medium term, the possibility of a more stable cycle if fiscal discipline is maintained,” analyzed the strategist, who defined the moment as “a honeymoon between the Government and the markets”.

Added to this was the change of tone by Javier Mileiwhich in recent months he moderated his speechshowed greater openness to dialogue -something that he reflected again in his post-election message. and projected a image of more pragmatic leadershipwhich expanded its electoral base and reinforced the perception of institutional stability.

From trauma to relief: they bet on a realignment of asset prices and greater stability in the dollar

The market had reached 26-O “in psychiatric mode”with prices punished by political uncertainty and a climate of total dollarization. The election result turned that sentiment around: operators anticipate a strong price adjustmentin a favorable international context and with the explicit support of the United States.

The exchange band is consolidated as new short term anchor. At the financial tables they maintain that came to stayand that the total lifting of the stocks will only take place “for the good, not for the bad”as summarized Leonardo Chialvapartner of Delphos Investment. “With victory in hand, the Government gains margin to maintain exchange stability and give predictability to the market,” explained the analyst, who considers that the band scheme “It was an effective containment tool in a context of high dollarization and mistrust”, and that now “can become the axis of the new monetary policy if administered prudently.”

For Chialva, the electoral result “takes pressure off the dollar and returns rationality to expectations“, which opens space for the Central Bank to “start buying currencies above the band floor and not just at the lower end, as was planned until now“. In his reading, the wholesale dollar around $1,500 represents a reasonable balance levelwhile the most extreme projections – of $1,800 or $2,000- “They were stuck in times of pandemic and do not reflect the new scenario of trust”.

In this new context, the sovereign debt in dollars could compress yields towards the 8%-9% zonein line with a country risk more contained and a growing flow towards local assets. Analysts predict a general rise in bonds and stockswith a compression of country risk towards 800 points in a first stage, and even towards 500 points if the accumulation of reserves is strengthened.

Improved expectations could also relax rates in pesos and open the door to new debt issues in the international market. “With the result in hand, the Government has the opportunity to capitalize on this new confidence,” he stated. Pablo Reppettodirector of Aurum Values. The key, he added, will be sustain fiscal discipline and consolidate the flow of foreign exchange.

In the run-up to the election, the coverage demand had risen strongly: it is estimated that between June and October the private sector channeled about US$12,000 million towards dollarized positions, between dollar linked futures and bonds. With the result in sight, this process will begin to be reversed today. According to Pedro Siaba Serrate (PPI)the hard dollar debt could advance up to 19% compared to Friday’s close, driven by the global appetite for emerging and the Washington endorsement. “After the event, it is logical to expect a disarmament of dollarized positions,” he analyzed, which would open a window of exchange stability in the coming weeks.

A new starting point

The electoral result also has a immediate political impact: the Government wins bargaining power with governors and in Congress, in a context where the ruling party is consolidated as first minority. In the city they interpret it as a “short-term honeymoon”in which the Executive will be able to sustain its economic roadmap, but not without negotiating with Congress. In turn, the minister Luis Caputo will maintain the current band schemewhile the economic team should take advantage of this window for reinforce reserves and stabilize flows.

From Adcap Financial Group They highlighted that “the result gives the Government a strengthened position to negotiate with the governors and advance a reform agenda that until now seemed blocked.” “If the political climate is favorable, the ruling party could resume the drive for structural changes in labor and tax matters, key to improving competitiveness and attracting investments,” they highlight.

In the market they also observe that the return of confidence opens the possibility that the country gradually resume access to international creditas the accumulation of reserves and exchange rate stability are consolidated.

He political shock mark like this a turning point: with reinforced legitimacy, key external support from the US and the IMF, and a more receptive global market (the Fed lowers the rate again this week)Argentina has a new opportunity to stabilize and face fundamental reforms. If the Government manages to capitalize on the clean and jerk, the libertarian triumph can be transformed into the beginning of a stage of confidence, financing and economic normalization. The inevitable question hovers over the City: Will it happen this time?