JP Morgan’s optimism contrasts with the skepticism of City: dollar, inflation and stocks

The economic situation of Argentina reflects a clear division between the optimism of international analysts, which highlight the progress in macroeconomic stabilization and the potential liberation of capital controls, and the caution of local investors. In recent weeks, market instability showed that Javier Milei’s plan and Luis Caputo still generates doubts.

In a recent report by JP Morganthe firm’s economists were optimistic about the economic perspectives of Argentina. The document highlighted a marked low inflation, a fiscal adjustment that begins to give results and an appreciation of the real exchange rate.

In addition, they pointed out that strong political support to the Government of Milei, together with the recent recovery of economic activity, configure a favorable environment for the implementation of new reforms. In particular, they considered that the ongoing negotiations with the International Monetary Fund (IMF) could facilitate the gradual release of capital controls, which It predicts an improvement in the Argentine economy.

This look contrasts with the uncertainty that reigns these days in the local market, where despite the government’s efforts in denying the delay in the value of the official dollar, there are several indicators that reflect an important delay. What is more under discussion is the sustainability of this level of real exchange rate (TCR); Among the analysis of economists appear Three fundamental factors, related to each other, which account for the little solidity of the exchange scheme.

The look of a City broker

And, for example, local perspectives are more cautious. ADCAP Financial Groupin his last report, he reaffirmed a vision more pessimisticby analyzing that, although global bonds found support in recent weeks, the trend remains moderate, without a clear catalyst for a sustained rally.

In the meetings he had with international clients, including a visit to New York by Eduardo Levy Yeyati, Chief Economic Advisor of Adcap, the tone of the conversations was increasingly negative, reflecting the low performance of global bonds. The firm pointed out that the market seems to be caught in a range without clear signals of improvement, with a proposal of Carry Modesta in global bonds.

In addition, Adcap stressed that the agreement with the IMF It could take a few weeks, which has cooled enthusiasm in the market. The Government remains firm in its program, especially with regard to exchange policy, which makes a flexibility of the exchange rate in the short term unlikely. To unlock the agreement with the IMF, two key issues must still be resolved: “The objectives of accumulation of reservations and the intervention of the Central Bank, as well as guaranteeing the support of the IMF technical team, which faces political pressure from the United States Treasury” , he warns.

At the level of expectations of the agreement with the IMF, the market seems to contemplate a possible EFF agreement in March for US $ 11,000 million to the current program. If the agreement is greater, it could promote prices towards the 2025 peaks, while a more limited agreement could be perceived as a disappointment. However, government exchange policy, “especially after media coverage on the appreciation of weight”, It has generated tensions, since the market expected the lifting of capital controls At the end of the year it was accompanied by exchange flexibility, something that the Government has discarded sharply.

Despite the deceleration in the advancement of negotiations and political tensions, ADCAP considers that the discussion about the overvaluation of weight is not relevant in the short term, since the government has the means to handle the exchange pressure. However, the persistence of “Crawling PEG” (exchange rate sliding) after the elections could generate financial stress if confirmed.

Finally, in the context of currency demand, the dollar showed fluctuations in the market. The MEP dollar rose slightly, while the one counted with liquidation (CCL) advanced 0.4%, and the “Blue” dollar closed with an increase of $ 5. The Central Bank intervened moderately, buying only 4 million dollars, while the country’s reserves fell at 30 million to $ 28,893 million, highlighting the continuous pressure on the change market and the delicate financial situation.