What the market expects from Javier Milei, doubts about inflation and rates, and the flight of the “Magnificent Seven”

At a global level there seems to be perceived lower risk appetite and in this global context the lower growth prospects, similar to those of 2008, together with the level of positive real interest rates pose doubts about the performance of emerging market debt.

International experts consider that with moderate long-term growth no commodity boom can be expected, especially because China is growing much less. So, High real rates, higher inflation and lower raw material prices, which discourage the stocking of commodities, is the panorama that Argentina faces, where it is increasingly difficult to exit the exchange rate trap.

In the last furtive meetings between technicians of the International Monetary Fund (IMF) and local economists, “exchanging figurines,” it became clear that There is a coordination problem to lower inflation, which is still reflected in the set of relative prices. Knowing that the political game has intensified, and both the President and his Chief of Staff are not lovers of it, the establishment considers that a chief of ministers is needed to control the management. An old sea dog from vernacular politics explained to a group of businessmen that the Government lacks a functional team for this political moment, so the administration needs to be reorganized, while the President is busy traveling.

Today the situation continues to raise questions in terms of economic activity about whether the worst of the recession is over, what the level of activity will be like in the second quarter and how the economy can continue in 2024 and what it will depend on. In relation to the current situation and the first semester, sectoral heterogeneity persists where it is speculated that a bottom could be seen between the end of the first quarter and the beginning of the second. The losers continue to be construction and its related sectors such as cement, bricks, etc. and commerce, while agriculture, mining and hydrocarbons are separated from widespread malaria.

But to see how libertarian history can continue, everything is in the hands of politics. From deep inside the country, they warn that everything depends on the definitive start of the different structural reforms and the exit from the stocks. That will probably define the speed of recovery of the economy in the second half and in the remainder of the libertarian mandate.

A host manager of a group of international analysts who disembarked to evaluate the libertarian experiment commented that they considered that the monthly inflation rate had returned to a single digit of 8.8% (289% year-on-year) and that the IMF staff approved the latest revision. For them, this boosted optimism about President Milei’s reforms, but The Fund, like the market, wants to see more steps toward macroeconomic stability before increasing lending or doubling down..

In this regard, a regional investor who once again looked towards these lands emphasized, during a dinner with peers in Puerto Madero, that the speed factor is key to waiting for new investments and mentioned the recent case of a Chinese mega company BYD that, due to the slowness of government definitions postponed a lithium cathode plant in Chile citing reasons of uncertainty. The company would have pointed out that the main problem was the slowness and lack of definitions on the part of the Executive Branch within the framework of the lithium strategy. A mirror to look at yourself.

Meanwhile, from the Treasury Palace they celebrate the latest economic data showing that the Non-Financial Public Sector accumulated in the first four months a primary surplus of 0.7% of GDP and a financial surplus of 0.2%, something that had not been seen since 2008. Behind this “success” there is a sharp real drop in capital spending, in transfers to provinces and in the deficit of public companies.

For their part, on the opposite sidewalk, they notice that the tax reform It would barely provide extra resources of 0.2% of GDP for the Nation and 0.2% for the provinces for the remainder of the year, but even so, annual income would fall. It is worth noting that the collection for the first quarter is more than 10% lower, in real terms, than that of a year ago linked to Personal Assets, Profits, Fuels, Social Security, Internal Affairs and Bank Credits and Debits. The only thing that improves is the actual collection of taxes that are not shared, such as the PAIS tax and Export Duties.

Without a doubt, on the board, it was the core inflation the most pleasant surprise for everyone, which at 6.3% was the lowest since January 2023. Thus, with inflation pointing to 6%, the Government brings the rate 2.5 points below inflation and barely above the devaluation rate.

One of the most consulted researchers in the market shared with colleagues at a financial breakfast that the Core CPI is the data that the economic team follows most closely since it is the inflation beacon on which the world’s central banks focus, and It allows the Government to show that the deceleration continues.

In any case, there was consensus among the participants at the meeting that Certain doubts persist regarding the pace of disinflation in the coming months, especially due to the postponement of tariff increases that sooner or later will impact the future inflation rate as long as the Economy prioritizes the rearrangement of relative prices.

These issues were also addressed, more informally, in the midst of a kind of deja vu of the ’80s with the return of a certain “paddle tennis” furor such as the Padel Tour Compass-Ninety One at the World Padel Center Nordelta among clients and officials. . While one and the other compared palettes and the qualities of carbon, some commented, for example, if with the latest steps of the Central Bank (BCRA) what should happen to the CCL dollar. A strategist pointed out that it was not clear why only the Repos rate was cut and there was no reduction in rates, and he advised now monitoring the reference short rate of the short Lecap, which was above the performance of a Money Market or of a bond before the cut. It’s like There was a simultaneous decrease and increase in rates, to encourage the market to modify the composition of the portfolios.

Among the most vicious men in the local market, the data from the last Treasury debt tender was not only that in the end the banks were able to freely auction Lecap but that with the remainder of the net placement, the economic team will not buy dollars from the BCRA but will It will buy back bonds, shrinking the balance sheet and the rest will remain in the official account. A legendary operator explained at a nighttime barbecue in Bajo de San Isidro, after sharing the traditional +60 fulbito at the Jockey, that the solution that the BCRA found so that banks can tender the new short Lecaps for their own portfolio without offering them puts or Nor does removing the exposure limit to the public sector encourage them to transfer to Treasury risk without encouraging the exercise of liquidity options on longer securities that they already own. Now, since the BCRA offers the questioned puts for securities that expire in 2025 and cannot be exercised in 2024, the risk of monetary expansion is eliminated.

What was much commented on was the CNV resolution on the new hard dollar promissory note operation, which will have no maximum term and the minimum amount will be $20,000. About the latest cut of the BCRA rate The reading that he left among these diners was that the crawling peg It does not provide room to step on the accelerator, in addition to the fact that the Cavallista vision of an inertial inflation that is difficult to break the 6% threshold seems to prevail, therefore real appreciation would continue. But in that case, the big question is how the external sector will behave with a lower real exchange rate.

In another financial meeting, a banker recently arrived from Wall Street, who had heard Stanley Druckenmiller’s praises about Milei and Argentina, said that the famous billionaire investor and director of the Duquesne Family Office deemed the artificial intelligence (AI) bubble too widespread so it trimmed some of its holdings in “Magnificent Seven” tech stocks, including Nvidia.

But apparently, the banker noted, “Druck” is not alone, other notable fund managers and insiders are abandoning ship and dumping their shares. According to him, Druckenmiller’s family office sold more than 441,000 Nvidia shares in the first quarter, reducing its stake to just 176,000 shares (about $160 million).

Others exiting the “Magnificent Seven” included David Tepper, David Bonderman’s Wildcat Capital Management and Michael Platt’s BlueCrest Capital Management. All this also spread like wildfire at the Bolton Advisor event at the Four Seasons in Brickell, Miami where the investment fund industry, inflation and regulations were the main ones on the agenda. We will expand.