The post-election scenarios that the market handles for the dollar, stocks and bonds

Less than a month away from General elections, the market looks at the polls just like political analysts. The possibility that Sergio Massa I managed to enter the runoff with Javier Milei It is one of the most likely scenarios. And, despite the disbelief in the polls, they are an essential factor that economists look at to predict what may happen to the economy. dollar and the markets in general.

Scenario 1: a candidate wins in the first round

One of the most interesting points analyzed is the possibility that one of the presidential candidates – Sergio Massa, Patricia Bullrich and Javier Milei– won in the first round with 45% of the votes. This chance is the one that is most viewed with suspicion, although it is not completely ruled out, especially due to the possibility that the useful vote lean towards one of the candidates.

According to the economic consultancy Delphos Investment“the scenario of a victory in the first round with +40% and 10 pp difference has a certain numerical logic considering the Milei phenomenon and the attraction it generates. The difficulties of his contenders in growing make it even more likely, giving him a 30% probability of occurrence.”

Another consultant, Romano Groupgives you a 20% chance for the libertarian candidate to win in the first round. And, although it is not a significant percentage, if that were to happen, ““It would open a dollarization scenario” with greater political consensus given the legitimacy of the vote.

“Regarding exchange rate policy, in this scenario there may possibly be a immediate devaluation of the official dollar towards the reference value of the financial. We foresee a fall in the demand for money, which would contribute to increasing the inflationary inertia”.

Meanwhile, the financial would rise if there are doubts about the possibility that Milei’s teams can raise the dollars to dismantle the monetary liabilities to dollarize. “The greater the devaluation, the fewer dollars needed to begin the exchange of the monetary base, which is currently around US$9 billion in financial dollars, being one of the lowest in the last 30 years,” said Romano.

According to Delphos, for the market a definition in the first round “would be the best scenario” due to the elimination of uncertainty. This panorama is given a 35% chance. In economic terms, “high volatility, little structural interest in local assets and no inflow of external investment flow” would persist.

Scenario 2: Milei-Massa runoff

For Delphos, a second round between Javier Milei and Sergio Massa is “most likely” with a 50% chance.

“The base scenario, with 50% subjective probability, is the worse for local assetssince a Milei-Massa runoff would further raise the uncertainty future given the doubts raised by a possible libertarian government, and would further compromise the fiscal/monetary/exchange present in the face of new electoral measures by the candidate minister. Therefore, we must continue defensive mode until the electoral political scenario becomes clearer,” according to the consultant.

In another order, a report of Romano Group affirms that the Government will try to avoid at all costs the dollar devaluation official to reach the runoff competitively, “understanding that a devaluation or greater pressure on financial dollars.”

In this sense, they do not rule out new measures such as: a new version of the “soy dollar”, greater restrictions on imports or increasing the positions sold in the futures market by the Central Bank (taking into account that the monetary authority can still intervene in the place with US$8,000 to US$9,000 million, between Matba-Rofex and the MAE).

“If the market perceives that Freedom Advances is going to win the runoff, the pressure towards devaluation It will be greater every day towards the tortuous path of November. Milei has been emphatic in his proposal to dollarize the economy and his guidance regarding the equilibrium value of the dollar sends it in financial dollars, currently in the order of $750. This scenario could find some neater transition if LLA starts knitting political agreements facing the possibility of being a government starting in December.”

Scenario 3: Milei-Bullrich runoff

This scenario, with a 40% probability according to Romano Group, would generate a “power vacuum” in the Government and in the figure of Sergio Massa and only gives him a 30% chance. In that sense, there would be a greater devaluation pressure. “The pressure of the market and we also believe of the Monetary Fund It will be very big to devalue and move towards exchange rate unification. In this case, we believe that the official dollar will likely find a similar value to financial dollars. The cost of the adjustment is continued by the ruling party, but with a high probability of generating a monetary disorder very important short term.”

“If the increase in the exchange rate reaches 100%, Because the market disbelieves in Bullrich’s chances in the runoff, Argentina will possibly have a inflationary peak between December and March, reaching inflation levels higher than 40% monthly,” the report stated.

Finally, although it states that a very difficult moment may arise in the short term, In the long term “it could be positive” for Argentina because it opens the way to a “right-wing” policy.

For Delphos, the best scenario in the eyes of the external investors It would be a runoff between Milei and Bullrich but it has barely 15% chance, which leads to its discard for now. It stands out, curiously, that the +70 voter can make a difference.

Ballot: what if the stage is Bullrich-Massa?

Finally, Romano Group maintains that although this path is the least likely (10%), the balance could tip in favor of Together for Change.

“This scenario could positively surprise the markets, who today assign low probabilities of a JXC government. Once again, the ruling party will try to avoid at all costs the devaluation of the official dollar.”

Meanwhile, Massa would do everything possible to make the runoff more competitive. “understanding that a devaluation or greater pressure on financial dollars would be an Achilles heel” to his presidential race.

For the market, a runoff is almost ruled out. There are four weeks of distance that can create greater tension in the markets adjusting numbers towards a possible candidate. Also, the percentage (the floor) in which each one is positioned and the possibility of increasing the volume of votes in that period will influence which, in the case of Sergio Massa, he could use in his favor. economic measures that help tilt the cake in your favor. In this case, the cards are drawn and the configuration of the legitimacy of the candidates represents a volatility scenario until at least November 19.