Investors return to a market marked by the US, while in the country there is talk of deflation and more optimistic reports appear

The business climate in the United States does not improve, except for the drop in the rate of return on North American Treasury bonds, which dropped to 4.59 percent. After the two-day meeting the Federal Reserve yesterday left interest rates unchanged. The head of the entity, Jerome Powell, dispelled the illusion of lowering rates, but promised that he will not raise them throughout the year. North American rates are at the highest level in the last 23 years.

Argentine sovereign bonds abroad barely moved and had imperceptible declines. The climate for bonds from emerging countries is not the best; You cannot compete with the yield of American bonds.

There was also no good response in soybean prices, which rose just 0.60 percent.

The local holiday was conducive to drawing some conclusions after the half-sanction of the Bases Law. As tempers cool, serious thought is now being given to what may happen in the Senate.

The consultant’s report Salvador Di Stefano He assures that “the minister is not going to devalue, there are rate arbitrages or a great deflation is coming.” He believes that the dollar will remain flat.

Di Stefano points out that “while bonds in pesos adjusted for inflation fell, sovereign bonds continue to set records. For example, the AL29 bond is worth USD 62 and yields 20.6% annually. The AL30 bond is worth USD 59 and yields 20.6% annually. The AE38 bond is worth USD 53.20 and yields 16.7% annually. The country risk is already at 1,208 points, and we should not be surprised if it soon reaches 1,000 points. For this to happen, bonds like AL29 and AL30 should be worth between USD 65 and USD 68, with a 10% rise ahead.”

“The approval of the basic law would be a great boost for Argentina to achieve a country risk of 1,000 points. Something that would allow the government to reopen international financial markets,” he adds.

If something like this were to happen, it would be easier for the Government to alleviate the adjustment because it would have international financing instead of resorting to Treasury tenders.

Another issue that the report warns about is that April reflects a drop in economic activity that could be greater than that of March. “Formal employment has been falling and informal employment has been increasing, but to a lesser extent. It would seem that unemployment would soon become the biggest concern of Argentines,” he explained.

The conclusions of the report are:

• The peso market is disarbitrated, since bonds in pesos adjusted for inflation have neutral or positive rates, while the effective fixed-term rate is located at 63.2% annually, at a level similar to the implicit dollar rate future.
• The statement in the previous paragraph is probably wrong and perhaps the market is discounting that inflation in 12 months’ time would be around 63.2% annually, and we will see price deflation in the economy.
• The value where future inflation will be placed will be settled by the market as the months go by. Meanwhile, Argentina’s sovereign bonds continue to increase and the country risk rate would soon pierce 1,200 points.
• Shares measured in dollars have grown 82.6% in the last 12 months. The AL30 bond rose 186.4% in dollars in the last 12 months. Bond yields more than doubled those of stocks. This seems logical for a Government that ensures fiscal surplus and says that it will honor contracts. Shares in this context rise, but they cannot be left out of a recessionary scenario, without investment in public works, and higher costs of public services.

The Libertad y Progreso Foundation estimated that April inflation will be 8.4%, which implies a slowdown of 2.6 points compared to March. “In this way, in the first four months of the year the CPI accumulates a rise of 64.4 percent. The interannual variation reaches 287.8%, similar to the previous month’s data,” they said.

The report indicates that “it is important to highlight that the annual variation of the CPI has stabilized at around 290%, reflecting that the monthly variations of 2024 are comparable to the same months of 2023. In this way, the CPI for April leaves a drag of 1 percentage point for May, about 0.8 points less than in March.”

The foundation calculated inflation for the month that begins “at around 7%, with a core CPI moving around 5% monthly. In this way, the price index is moving at a speed similar to that it sustained during the first half of 2023.

Eugenio Marichief economist of the Foundation, He pointed out that “there is no direct link between low inflation and recession. This can be easily seen by looking at the last years of Argentine history; In 2022 and 2023, the country experienced a drop in activity and real wages and, in the same period, inflation quadrupled. What’s more, stabilization plans that are credible are expansive. This is precisely one of the main challenges that the Government has today: ensuring that its program is perceived as sustainable over time and that this promotes the externalization of savings, credit and investment.”

For Lautaro Moschet, economist of the entity, “with the rapid deceleration of inflation we are beginning to see a recovery in salaries in real terms, which are adjusted with past inflation data. According to Indec salary data, we can see that the salaries of the registered sector were higher than inflation in February, while the Average Taxable Remuneration of Stable Workers (Ripte) in March grew 2.7% in real terms. As the economy recovers, so will the purchasing power of salaries, increasing social well-being.”

Everything that was heard and seen on the Labor Day holiday indicates that investors will be cautious and will not change course: they will continue to be positioned in sovereign bonds, they will go after the most lagging stocks and they will continue to get rid of the CER-adjusted bonds that They have lower returns than fixed rate securities, which are the most sought after because they give a rate of 4% per month.