Market expectations after Javier Milei’s speech: what could happen with the dollar, bonds and stocks

In numbers, For next year, the Government expects the economy to grow by 5%, inflation to slow to 18.3% (1.4% monthly on average), that the The official dollar advances at a pace similar to prices and is located at $1,207 in December, a primary surplus of 1.3% of GDP and a balance in the financial result of the Treasury. These are the main macroeconomic data contained in the budget project that the Executive Branch submitted to Congress. It also confirmed that the PAIS Tax will end, with the fiscal data contemplated in the budget.

One element that, for example, draws the attention of market analysts is the fact that The inflation forecast for 2025 by the Government is much lower than that calculated by the Market Expectations Survey (REM) published by the Central Bank. While the Budget sets it at 18.3%, the City’s rate is around 38%. The market is wondering whether this is due to an underestimation by the Government.

The fiscal result: the central axis of Milei’s Budget

The concrete thing is that the first president promised that “the fiscal result will always be guaranteed”He said that when governments want to spend, the only way to get money is by borrowing it and not making the necessary adjustments, so that the debt becomes unpayable and defaults. Thus, the new budget design methodology proposed by Milei is “to first think about how much we have to save, and then see how much we can spend.”

Milei said that Primary expenditure should always be less than the primary surplus. He said that “current spending is made up of automatic spending and discretionary spending, so the former could grow if income improves.” He considered that the deficit was always a consequence of first thinking about how much to spend, and then seeing how to get the money. “We are going to think first about how much we have to save, and then see how much we can spend,” he stressed.

Thus, he assured that the budgetary methodology they propose will achieve three unprecedented objectives:

• ensuring fiscal balanceend the debt write-off and issuance,
• force the state to take charge and absorb the cost of eventual recessions
• and for periods of abundance such as those of the coming years, it will be necessary to return the excess revenue to society through tax cuts.

“This budget shields fiscal balanceregardless of the economic scenario. Regardless of what happens at the macro level, the fiscal result will be balanced. That default that was unraveled by the ruling class would be the beginning of a populist cycle that has destroyed Argentina,” promised the President.

Good news for bondholders

“In the last month, the markets have been on an upward path, so the expectation is that the trend will continue,” he says. Scope stock market expert Marcelo Bastante said. He pointed out that “the confirmation of the elimination of the fiscal deficit generates the positive expectations”.

Along the same lines, Santiago López Alfaro, President of Dracma Investments, He points out that “the markets will continue to rise because everything indicates that the economy is recovering and the fiscal numbers are very good.” The capital market expert assures that “there is fiscal and monetary solidity.”

At another point in his speech, Milei spoke to the governors: she told them that they have to lower taxes and join what he called “a pivotal moment in our history,” in which “the lions have awakened” and Argentines do not want to be charged more taxes. He also spoke to the members of Congress and told them that “the only path to progress is to end the fiscal deficit and lower taxes” and that, “if we do things right, Argentina will lead the rankings of the greatest economic freedom in the world.”

As stated the economist Federico Glustein“it is a market-oriented budget, with fiscal balance, reduction of expenses and debt repayment, sterilization of the monetary issue and lower inflation.” Thus, JJose Ignacio Bano, economist and capital market expert, points out that, “For bondholders it is good news He said that the first thing is to raise the money to pay them and that the State only spends if there is money left over after paying.”

End of the cepo: the great absentee in the 2025 Budget

However, Bano assures that In his speech, the President repeated “what he has been saying since the campaign”“There were no major announcements,” he said. Glustein added that “he did not discuss budget variables, such as inflation levels, debt and growth.”

And among what he did not mention is also an element that the market believes should be addressed as soon as possible: the end of the exchange rate restriction. “The foreign exchange issue is still pending, but it will be resolved in the coming months,” López Alfaro said confidently.

Along the same lines, economist Elena Alonso points out that, “He did not speak about the ‘crawling peg’ (although the Budget Law does mention it and places it at 1.4% monthly), nor about the end of the cepo, But what will have a positive impact is the promise that the budget will be guaranteed to meet the debts, which can result in a good dynamics for bonds.”

“The announcements are quite in line with what the Government anticipated throughout the year.so there should not be any major movements in the market. The most interesting thing is the set of fiscal rules that the Government is trying to impose to safeguard fiscal balance regardless of what happens with the economy, which in turn greatly nuances the importance that is generally given to the macroeconomic projections of the Budget and the realism of the assumptions on which they are based,” anticipates Yarde Buller.

Thus, in general, although they are well received in the city, the Budget and the President’s speech do not seem to change much in the spectrum of a market that considers that “There was no major news” and he sees “numbers that are not sustainable in practice going forward”an excess of optimism, as many say.

Market expectations after Milei’s speech: what could happen with the dollar

As for the dollar, Analysts expect there to be no major shocks in the coming days“It will tend to stabilise until the debate and analyse whether the votes are there. The conditions are in place so that there will be no surprises, at least with this,” predicts Glustein. To which Alonso adds that “it will not change much,” mainly because there were no major new developments in the official speech.

It should also be remembered that The Government has intervened in financial dollarswhich means that exchange rates will be controlled. More than US$650 million have been disbursed on that front. This will undoubtedly add to the calm that the market expects for today in parallel exchange rates after Milei’s speech this Sunday.

In this sense, the expectation for this Monday is positive regarding the evolution of the markets.However, going forward, they will closely monitor compliance with the slowdown in inflation promised by the Government, especially given the poor data for August, which was 4%, and what the economic team does with the exchange rate restrictions.