Future dollar and country risk on the rise: does the market lose confidence in Javier Milei?

The Minister of Economy, Luis Caputois also faced with emerging problems that threaten to put in check the sustainability of the ambitious economic plan. A January financial surplus, which is a fantasy that will be sustained over time, clouds confidence that fiscal policy is going in the right direction. Furthermore, the income of dollars from the gross harvestwhich would not reach record levels, still sows more doubts on the ability to sustain said strategy in the long term.

The icing on the cake came with the outbreak of the conflict with the provinces, which led to the fall of Argentine titles that had been enjoying a good performance. So, Dollar futures wake up and country risk rises again. Which means that the initial enthusiasm It is colored by the economic and political reality and there is concern in the City about this trend.

Future dollar, crawling peg or devaluation, that is the question

For Salvador Vitellihead of Research at Romano Group, “Although the behavior of the future dollar market is on the rise” does not present sudden movements, so, according to their analysis, it is a recomposition of implicit rateswhich are in annual terms “very negative”. This is how he explains it to Ambit and adds that “it is more a recomposition of rates than an increase,” the product of a market that is beginning to look again with more credible eyes at the question of accelerating the crawling peg.

Vitelli believes that the Government is committed to avoiding a sudden appreciation of the currency and would opt, instead, for a more rapid increase in crawling. “The idea would be to keep the real exchange rate curve flatter, avoiding abrupt fluctuations”, he describes.

For its part, Andrés Reschini, from F2 Soluciones Financieras, believes that dollar futures have accumulated increases of up to 9% in the case of the JUL24 position “in a week”. For the expert, the Government’s bid with the provinces “It is a risk factor and may be influencing” in this trend, but considers that it will rise in the future, “for now, It is more associated with the approaching thick harvest”.

And it explains that, in this way, the real exchange rate appreciates and “Argentina needs to accumulate reserves”. In addition, it highlights that the futures market is growing hand in hand with greater access to the official private exchange rate and that generates greater demand for coverage. Therefore, as explained, it could be intuited that the rise in futures It is unrelated to the conflict between the Nation and the provinces.

Country risk and conflict with the provinces

Sovereign bonds in dollars do suffer the impact of political tensions and, consequently, they gave way for the third consecutive round this February 28th. So, on Monday, the Risk country It ended a positive streak of six falls in the last nine sessions and today exceeds 1,700 points.

In this regard, Vitelli maintains that the political noise that all the confrontation with the provinces brings “obviously” has its consequences. The analyst maintains that to have a good economic program, it is necessary that it be “not only consistent,” but also include a political consensus. That gives it greater solidity“which would explain a little what we are seeing.”

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Dollar quote today.

For Vitelli, one of the main shortcomings of the current management lies regarding the search for consensus and possibilities of generating agreements. And, in his opinion, that “it hurts quite a bit”. So there is the main negative factor that impacts the country risk and, consequently, “in the weakest bonds, even trading in negative territory these days”.

Thus, the lack of consensus and political agreements emerges as the main obstacle that Argentina has today to begin this path of growth. “or at least recovery” and then think about growth, says Vitelli. “It seems to me that it is also a bit of Milei’s plan, to always be in campaigngenerating that confrontation against what he calls the caste“, says.

Reschini, meanwhile, indicates that in Country Risk The bidding with the provinces has been causing increases“so much so, that the emblematic AL30 in dollars accumulated a fall of 4.7%” in one week and, given the insecurity it generates in investor sentiment, very much in line with what Vitelli proposed.

Argentine equity: another indicator of legal uncertainty

For analysts, the dynamics of equity, in short, also shows a bit of legal uncertainty and the lack of agreement on where Argentina should go, which is why it also ends up “taking its toll” and goes backwards.

For the producing agent of the National Securities Commission (CNV) Abel Cuchiettiit is extremely strange that the country risk has not fallen below 1,000 basis points with the change of Government, which is why it is assumed that the index is waiting for the key aspects of the omnibus law to be addressed, with the expectation that this measure will reduce possible judicial obstacles.

For the analyst, once the law is approved, The country risk could be adjusted, generating an increase in the value of equity assets and sovereign bonds in dollars. However, it raises the possibility that, after the approval of the law, “there will be a sale with the news and that the assets will remain sideways or even correct.” That is to say, the possible dynamics are very broad.

Regarding the current behavior of equity, Cuchietti attributes it to a technical correction rather than “fundamental factors”considering that some ADRs have experienced declines, while others have remained relatively stable. “The reading of the S&P Merval in pesos suggests that there could be support and an upward trend,” she adds.

In general, Cuchietti interprets the current drop in equity as a technical correction after the increases in December and part of January“more than as a direct reaction to the omnibus law and the conflict with the provinces.”

As it is, there are endless interpretations in the market about what is happening in the City and the reading of the Government’s constant confrontation “against the so-called caste” and its impact on national assets. However, the consensus is that Without a doubt This strategy generates resentment in the market and no benefits for Argentina. And analysts agree that, “regardless of who the winner is in political terms,” ​​what interests the market most It’s what happens at the country level and how that affects the investment climate..