:quality(85)//cloudfront-us-east-1.images.arcpublishing.com/infobae/4WLKH3NXQXA4YLSEBQSBAEIW5U.jpg "Again the external front: in addition to the drought, the rise in rates in the United States complicates the government at a key moment")
While the state of the economy is decisive for any election in Argentina, the government faces complications. Not just because of triple-digit inflation and falling real wages. The drought could rob the economy of more than $10 billion over last year’s revenue. But already in recent days another storm front has appeared: the new cycle of rate hikes in the United States and the threat of further hikes to come.
Yellow lights are coming from the US: Bonds and stocks have fallen and the dollar is getting more complicated
Yesterday’s US holiday brought relief to emerging markets, but on Tuesday Fed minutes will be released, which will likely confirm that there will be more rate hikes
Argentinian bonds are feeling the impact directly. Yesterday, when the market reopened on Wall Street, they suffered falls of between 2% and 3%, deepening the losses of recent weeks. This weakness squarely hits the Economy Ministry’s strategy of getting out and buying back debt, for which some $510 million of reserves have already been used. Of course, in the future, the operation could continue at lower prices, since the prices are again below $30.
The impact for Argentina is mainly financial, with weak bond prices and increased country risk
The 10-year US Treasury yield rose sharply yesterday and ended very close to 4% pa. On the other hand, it is estimated that further increases in short rates will reach around 5.5% per year, values that have hardly occurred since the 1980s.
Bankers have promised the government and the opposition to refinance the debt in pesos until 2025
Interests are aligned to no longer “play with fire” and avoid at all costs a new reprofiling of bonds in pesos. The possibility of a candidacy for Cristina Kirchner returns to the ring and worries investors
In this scenario, risky investments are hit hard, as it has been for the past year and it is happening again now.
The impact for Argentina is mainly financial, with weak bond prices and increased country risk. In addition, it would also be affected rally Argentine stocks, which over the past six months have achieved increases that in some cases have exceeded 200% in dollars.
Markets: Argentinian bonds and stocks fell in New York on day of nervousness over the future of the US rate
In a financial day with no local market trades due to the carnival holiday, Argentine stocks listed on Wall Street closed with the majority of results in the red
It is difficult to gauge now whether or not this will have a direct effect on the pockets, but it is clearly not good news for the economy, especially if the international scenario becomes more recessive. The international headwind comes at the worst time for the government, as the time to define the candidacies approaches. Without an economic recovery, for example, Massa’s chances are dim, even though he has said he is not in the presidential race.
The new rise in rates in the United States given the problems of fighting inflation has already affected bonds and could also impact the level of activity
The fall in the parity of the bonds can also have an impact on the reserves, since it complicates the closure of the “repo”, that is to say the lending of the international banks against collateral in title. The sharp fall in the parity of the bonds complicates the closure of this operation which was to bring in more than 1,000 million dollars.
Another central issue to watch closely is the impact of upcoming rate hikes on commodity prices, especially Argentine agricultural exports. In this case, the answer is not so simple. In the short term, there is an appreciation effect of the dollar against the basket of the main world currencies. In principle, this should work against commodity prices and affect export prices.
However, it is expected that amid high global uncertainty, commodities will once again be a safe haven, similar to what has been happening throughout 2022. Therefore, this factor may at least not play against the estimated foreign exchange earnings for the year, beyond the already inevitable decline due to the drought that affected much of the country’s arable land.
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