Fears that higher world inflation will cause central banks to raise their interest rates, strongly affecting economic growth, together with the challenges of Argentina for the coming months caused a strong selling trend due to unwinding of asset positions.
On the New York Stock Exchange, local papers recorded widespread declines, such as Despegar (-12.1%), Mercado Libre (-9.6%), Cresud (-6.7%), Supervielle (-6 .5%), and Edenor (-6.2%). The stock that fell the least on the day was Bioceres (-1%).
“The aversion to global risk is hitting squarely on the dynamics of domestic assets, having no choice but to accompany them with weakness since they must also withstand political noise and local economic uncertainty, for which the threats of premature electoral ‘trade ´ they are quickly evaporated by the negative flows”, commented a market analyst.
Wall Street’s main stock indices plummeted, with the S&P500 close to confirming a bear market for him fear that aggressive interest rate hikes by the Federal Reserve will push the economy into recession.
The Dow Jones Industrial Average fell 2.5% to 30,602.09 units; the S&P 500 index lost 3.5% to 3,762.95 units; and the Nasdaq Composite lost 4.3% to 10,854.14 units.
The S&P is more than 20% below its closing all-time high on January 3, as worries about inflation, rate hikes and the Ukraine war are pushing it into bear market territory for the second time since Wall Street’s pandemic-driven slump in 2020.
A higher-than-expected inflation data on Friday led traders to pricing in a total of 175 basis points (bps) in rate hikes for September, with many expecting a higher-than-estimated 75 bps hike on June 15. “There are flashing yellow lights everywhere, and maybe red too, suggesting that inflation is going to be around for some time,” said Chris Campbell, chief strategist at Kroll in Miami.
The two-year US Treasury yield curve briefly inverted for the first time since April. a move seen by many in the market as a reliable sign that a recession could come in the next year or two.
In the Argentine stock market, for its part, BYMA’s S&P Merval fell 0.6% to 88,667.sustained by the rise in dollar CCL (+3.9%), after losing 2.9% last week. The leading panel accumulates so far this year an improvement of 4.8% compared to accumulated inflation of 28% in the same period.
The most important casualties were noted in the papers of Cablevision (-4.6%); BYMA (-3.1%); and Cresud (-3%).
Argentina and the IMF closed a credit program last March for some 44,000 million dollars by which the country promised to increase the reserves of the Central Bank (BCRA), lower inflation and cut subsidies to reduce the deficit, among other points. “The margins are shrinking for the Government. It was expected that these problems would be more visible next year, but the markets are always ahead”said Daniel Artana, Chief Economist of Fundación Fiel. “Everything seems to indicate that in this first year of the program it will not meet any of the three goals,” he added.
In the fixed income segment, meanwhile, sovereign bonds denominated in dollars they returned to record lows, losing up to more than 4%, after a week shaken by the liquidation of securities in local currency tied to inflation. The falls were led by the Bonar 2041 (-5.4%); Global 2038 (-3.3%); and Bonar 2035 (-3.2%).
“The Global (bonds) did not offer resistance or refuge in the face of the abrupt massive sale of CER securities, since, although they are different markets, the fall in demand for securities in pesos deteriorates the financing capacity of the treasury from now on. ahead”they commented from StoneX.
Thus, the Argentine country risk carried out by the JP Morgan bank soared 4% to 2,124 units, total record since September 2020, after a millionaire swap of private foreign debt.
In the peso segment, in turn, CER bondsheavily punished last week, they operated with the majority of casualties, which reached up to 2.2% (Boncer 2026), after a slightly bullish start.
For the economist Gustavo Ber, “The sudden selling pressure on the CER securities could complicate the next debt auctions where they must face challenging roll-overs, since otherwise there would be no other alternative than to deepen monetary financing, with inopportune adverse effects on inflation and financial stress”.
“The main thing is to see if the debt market in pesos is closed to the Government or they will be able to issue debt at reasonable rates. If it is closed, the macroeconomic deterioration is going to be very high, since the program with the IMF becomes unfulfillable and the alternatives would be very expensive,” said Roberto Geretto of Fundcorp.
He added that “In this scenario, before a maturity, the alternatives are to issue to be able to face it (more inflation), reshape the debt (affects the solvency of investment funds and banks) or use banking liquidity via regulations (increases banking risk and can generate a run)”.
Source: Ambito
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