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The risk factors in which the market and the Government should be alert

The risk factors in which the market and the Government should be alert
The risk factors in which the market and the Government should be alert

Even with the recent news, which relieves the government after the week prior to 6/10 was marked by volatility, we maintain the view that there is still much to do in macro matters and that there is several risk factors to which both the market and the government must be alert in the coming weeks.

Firstly, although the government finally managed to approve the initiatives in the Senate, it did so at the cost of granting many points with respect to the original project. Although it is positive that he is open to negotiating, we believe that the key to the two initiatives approved in the Senate last week is the fiscal one. As we have been arguing for some time, a solid and sustainable fiscal anchor over time is essential to be able to think about an environment of lasting macro normalization.

In that sense, We consider that we should look closely at what ultimately ends up happening in the Deputies in relation to the articles on Income and Personal Property Tax., taxes that imply strong support for income and that are key for fiscal year 2024, in which the recession led to a significant reduction in taxes associated with activity and employment. Thus, one of the risk factors continues to be politicalsince, as was seen with the half-sanction in Deputies of the opposition project for a retirement formula, the opposition, having a numerical advantage, finds it relatively easier to promote initiatives and limit those of the ruling party.

Secondly, the renewal of the swap with China gives some relief in the sense that it won’t have to be canceled anytime soon. That is to say, the adverse thing would have been non-renewal, in a context in which the BCRA’s reserve purchases are beginning to diminish. In this sense, we highlight that Another risk factor is a continuity in the drop in inflows from the liquidation of exports., which has taken place since May even despite the improvement that agriculture showed (due to seasonality). We say this because, although demand factors contain exchange pressure in a recessionary context, peso liquefaction and exchange controls, if supply were reduced even more than in the February-April period, the free dollar could come under pressure. This was clearly seen in May, with an increase in the CCL that occurred in the context of a drop in the liquidation of total exports.

Containing exchange pressures is key to limiting the risks of stopping disinflation which continued in May, but which, with rate increases planned for June, could have a pause that month. Exchange factors could put pressure on prices both via upward pricing and via devaluation expectations, which are at low levels today. This, together with inertial factors in public spending and salaries with indexed components could limit disinflation in the future.

Thus, we believe that the focus of attention in the coming weeks should be on the political and exchange level. In relation to the latter, we also mentioned that the government’s announcement regarding the end of the stage of negative real rates could give some indication that perhaps it will seek to contain nominal pressures in this way, although we are still waiting for greater details.

Finally, thinking about investment options according to different investor profiles, we highlight that, for very conservative profiles, we see value in dollarizing portfolios at this level of real exchange rate.

Meanwhile, moderate profiles can opt for a mix between debt CER section 2026, MEP dollar, GD35 and GD41.

Riskier profiles could see value in the equity of the energy sector, on which we are bullish in the medium term, and in a mix of bonds in dollars of the Globales curve (GD30, GD35 and GD41), which would be favored by finally deepening the very challenging economic normalization.

Chief Economist SBS Group.

Source: Ambito

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