Dollar: the market warns about reserves in the second half and focuses on inflation

City analysts give their opinion on The future of the economyafter three holidays that limited financial activity last week and with a focus on inflation and bonds. Investors’ attention is once again focused on political issues, especially in Congress since the Chamber of Deputies will once again discuss with modifications a package of reforms promoted by the ruling party that returns from the Senate.

The Lower House is expected to begin discussing the changes in committee on Wednesday. Law Bases and the fiscal package, which They must be ratified to become law. “The delay in securing congressional approval of key fiscal and structural legislation could limit stabilization and recovery efforts“said the International Monetary Fund (IMF) in a report.

What is going to happen to inflation and bonds

“As long as we do not have a defined monetary and exchange policy, our impression is that bonds in dollars and pesos adjusted for inflation are taking into account a high inflation in dollars that will operate in the Argentine economy,” he estimated the analyst Salvador Di Stefano.

While, Pedro Siaba Serrate, from Portfolio Personal Investments, pointed out: “One of the market’s doubts is whether The exit from the stocks may or may not cause some inflationary jump“.

“In this context, and if one considers the levels of the sovereign curve at the beginning of May as a target, there is still room and we continue to like the bond GD35 to increase portfolio sensitivity“he explained.

BCRA: concern about reserves in the second half

“For seasonal reasons, the second part of the year is more demanding in terms of dollars, but with a fall in the economy projected at 3.5% of GDP and 6% if the countryside is excluded, that need for foreign currency is diminished“, previous analyst Christian Buteler.

“The semester is approaching where seasonality for both the treasury and the central bank is not the best. There will be more payments for imports, in particular energy (depending on the weather) and derivatives of activity to go towards the rebound. All this with a shortage of foreign currency,” said a market analyst.

“If there were a large inflow of foreign currency, the rest could be accommodated; if it does not occur, andThe current scheme could not last long“, they estimated from VatNet Financial Research.

“This speaks of cost reduction and devaluation, carried out in various ways: change in the exchange rate mix (for exports), increase in the monthly devaluation rate, greater market liberalization, specific financing or a mixture of several alternatives. The deadline to implement it cannot exceed the next semester.”they completed.

Key market data

• The manufacturing activity of SMEs It fell 19% annually in May and accumulates a decline of 19.1% in the first five months of the year compared to the same period in 2023, according to CAME data.

• The consulting firm Econviews said that “our survey of prices in supermarkets shows a average increase of 0.1% in the third week of June for a basket of food, perfumery and cleaning.
• The FIEL Industrial Production Index registered a year-on-year drop of 10.9% in May, cutting the pace of contraction observed in the previous two months according to preliminary information.

• In April, industrial activity registered a drop of 14.2% in the year-on-year measurement and an improvement of 4.5% in the month-on-month comparison without seasonality, according to the Argentine Industrial Union (UIA). “The advance data for May reflect that the year-on-year decline persists and a plateauing in the production level compared to April data,” he said in a report.