Wall Street bets on a Fed rate cut are growing: how could it impact Argentina?

After the historic crash of financial markets caused by the disarmament of the major “carry trade” of the world in yen, the main markets registered a rebound that, for some analysts, was due to investors buying at bargain prices with the fall, markets saw a sign of calm on Tuesday.

However, the rally was decidedly more tepid than the crash, and does not prove that the collapse is overso the operators suggested the possibility that the Federal Reserve (Fed) be pressured to intervene with an emergency rate cut, which would have an impact on the emerging markets, like Argentina.

That emergency withdrawal, however, will not happen for the time being. “There is nothing in the Fed’s mandate that has to do with making sure the stock market feels comfortable,” said Chicago Fed President Austan Goolsbeein an interview with the New York Times on Monday in the middle of the crash.

But bets on a cut in September are already in place and, in that context, there are analysts in the city who suggest that the possible recession in the US could mean a rate cut of 0.50% by the Fed, which would be good news for Javier Milei’s Government. “This would usher in a period of greater global liquidity, which would lead to cheaper debt and interest payments,” market sources say.

And as he explains well Nicholas MaxDirector of Asset Management at Criteria“basically, what is happening in the United States is that the market had assumed the story of the ‘soft landing´, but with the transition to a more abrupt one The flames of recession were fanned. He argues that before the recent “risk-off”the Sahm Rule (a tool that helps identify economic recessions) warned of a greater probability of recession in the US.If this financial scenario deepens, it will be more difficult to maintain the current policy.” of the Argentine government.

The analyst points out that in the US we cannot yet speak of a recession, Well, about the Sahm Rule, he analyzes that these indicators have been infallible in the past, but they are not necessarily exact and unequivocal about what is to come.. Although he admits that the American economy is on the verge of this episode, “not in the best way, since the economic slowdown is beginning to be felt.” After growing at an average of 2% in the first half of the year, The expectation is that by the second half of the yeargrowth is closer to 1%.

A rate cut, a breath of fresh air for Javier Milei?

In dialogue with this medium, Roberto Del Giudice, CNV producing agent, states that, currently, There is an 83% chance that the Fed will cut 50 basis points at its next meeting (September). But the odds have been changing rapidly in recent days, with four adjustments in expectations due to the most recent data that have been published.

Del Giudice believes that a cut in monetary policy in the north improves the rate in Argentina, reduces debt and interest costs. Although he remembers that in previous years this was not the case, but “The political and economic context, both local and international, was different.”.

The strategist highlights that the main advantage for the country would come on the investment income sidesince reducing the cost of local debt facilitates financing, but the effect remains limited if liabilities continue to be managed in the same way: “You lower the cost of local debt, but you keep rolling around the same“, he slides.

For its part, Andres Reschinianalyst at F2 Financial Solutionsshared in a report to clients that if the global market mood worsens, At the local level there may be more pressure on the gap and There are growing fears that this will force a messy exit from the currency controls and an inflationary jump. And although it is not yet clear that this will happen, “given the complexity of the panorama, the protection via currency hedging (dollar linked) with virtually no premium above the peso curve, It doesn’t look bad at all”.

Likewise, in line with Del Giudice, Reschini comments that the scenario of a rate cut in the north It could be positive for Argentina, but to capitalize on the tailwind, the country will need to have access to international debt markets.. Therefore, he analyzes that, first, we must end the imbalances, generate the confidence that is lacking and achieve that open the doors to us in the world so that we can place at lower rates.

Although there are very important advances of the Government in these areasdoubts persist in the market. There is a lack of clarity regarding the exchange rate framework and the accumulation of reserves, as well as the path to lifting all restrictions.

Therefore, as Max points out, the global financial situation and political uncertainties, such as the US elections and the situation in the Middle East, could negatively impact emerging marketsFor the Criteria analyst, Argentina must continue to strive to maintain economic stability and “pray” that a crisis does not appear on the horizon. “black Swan”.