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Don't Loosen Up After Tension STEP: High Risks to New Earth and the Dollar



After a historic brawl suffered by Argentine property on Monday, yesterday was not a day of relief, much less. The central bank had to sell $ 150 million of its reserves, but it did not avoid another dollar rise, which closed at $ 58.30 on the retail market. At the same time, a strong punishment for relationships continued, which I still cannot find my word for. Country risk rose sharply again to 1,771 points, indicating a further free fall in public securities prices.

The only positive note was stock growth, but it was insignificant. Just a bit of a rebound after the horrific fall that caused a loss of between 50% and 60% of the dollar between leading stocks. Marginal purchases were discussed in the market looking for quick profits before a possible recovery.

The complications posed by the unprecedented political transition to December 10 keep investors on high alert. No one is clear on what will happen by October 27 between a government that lost a significant share of power by losing STEP by 15 points and a presidential candidate –Alberto Fernández– with plenty of chances to win but he hasn’t won yet.

Nervousness over the complicated political scenario and doubts about the continuation of the economy were reflected in very high yields on dollar bonds and cloud interest rates. Banks paid up to 59% annually for time deposits to tempt depositors and prevent dollar pressure from rising.

After falling 35% on Monday, the bonds suffered another collapse of between 10% and 15%, depending on the type. Current prices practically project a very high likelihood of debt renegotiation by the next government. However, Alberto Fernández said there were no setpoints or similar in his plans.

For example, Bonar 24 closed with a staggering yield of 43% annually in dollars. But the sharpest drop was Bonar 2020, which expires in October next year and is closed at 58%, Like no other, there are huge doubts about the ability to pay for Argentina to fulfill its obligations next year. The shortest bonds in the curve started trading between $ 50 and $ 55, assuming a strong foreclosure in the near future.

Rising the country's risk to 1,700 points, the highest in more than a decade, shows the level of extreme nervousness that exists in the financial markets and in turn is a major challenge for the next president. Anyone who wins must regain access to financing in the international markets in 2020 in order to meet interest payments on debt and other liabilities. But with this panorama it would be impossible to achieve.

These extreme difficulties were manifested yesterday when The Ministry of Finance has suspended the bidding for Letes, which expires in March 2020. Given the fall in prices, I would have to pay stratospheric rates in dollars to get financing after the presidential exchange. Finally, it has only borrowed 105 days and a significantly higher rate than for previous loans, at 7.18% per annum.

For now, it is difficult to find reasons for improving the climate among investors. Unless there is a type of pact or agreement between Macri and Fernández to make this pre-election transition more orderly, nervousness is more likely to increase.

The dollar at the end of the year is already trading at $ 77 in Rofex, and the Central aims to prevent it from exceeding $ 60 in the market calculated in the coming days. In the meantime, the impact of a 25% dollar increase will be felt as early as August inflation, and probably even stronger in September. A scenario that complicates the Government even more if it wanted to keep some chance of turning the results in the October elections.


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