The awakening of the dollar against measures that do not materialize

After three weeks of currency tranquilityguaranteed by the attempt to change the economic course that Sergio Massa’s arrival at the Ministry of Economy meant, the great novelty is that the financial dollars woke up from their nap in particular the dollar counted with liquidation (CCL).

Apparently intending to launch a special dollar for the field ran into the opposition of the president of the BCRA Miguel Pesce. For now, the dollars have not arrived to increase the international reserves that the minister promised when he began his administration.

A rumor that circulated in the market is that after a meeting between the Director of Customs Guillermo Michel and the president of the CIARA CEC oil business chamber Gustavo Idigotas An agreement would have been reached for a price of the Soybean Dollar of about 180 pesos starting next week.

In recent days, the meeting was revived by the rise in prices of financial dollars and the CCL dollar that yesterday it was negotiated again above 300 pesos for the first time since last July 28. It must be remembered that the CCL reached a record of 349 pesos on July 24 when the rumors of the departure of Silvina Batakis began.

The CCL dollar rise which is the one used to withdraw foreign dollars was deepened last Thursday in which there was the biggest advance of the Massa era, rising 2.1% or $6, from $288 to $294.

A recent work by Portfolio Personal explains that “put into perspective, this CCL is markedly lower than Massa’s pre-inception peak ($347 in pesos today on 07/27) although it is relevant because it could imply a change in trend.”

The awakening of the dollar against financial measures that do not materialize

Which is the driver behind this rise? The work explains that from the side of the flows, it was noticed investors leaving TO26 that could have pushed the CCL in the market the rumor that circulated is that the Templeton fund began to sell its positions in Argentina.

In parallel On Friday, the deadline for the readjustment to the holding of CEDEARs in the hands of Legal Entities expired. (since 08/19 they cannot exceed US$100,000), so the sale of this instrument (which, by arbitration, sank the CCL) could have begun to disappear in recent days. From the side of macro perspectives, it could be price that the new minister is wasting precious time without announcing concrete measures.

The concrete thing is that the majority of the analysts consulted by iProfessional think that more signs of fiscal consolidation needed, after a tariff segmentation that left with pleasure little by meaning a cut of less than 0.1% of GDP to the deficit this year.

At the moment the oldest uncertainty is that no news on exchange policy with a stock of net reserves that remains below US$1,000 million and an exchange rate gap that is close to 120%.

The biggest question in the market is whether the CCL dollar is expensive or cheap. According to the projections of Personal Portfolio, the indicator, which compares the evolution of the monetary aggregates (M3 Private) with that of the CCL since Alberto Fernández took office, would be AFFORDABLE.

While the exchange rate “convergence” (that the gap between these variables is zero) was around $310, so even in a control situation, it would not be unreasonable to see it at those levels.

The increase in the CCL dollar, which is the one used to withdraw foreign dollars, deepened last Thursday

For now it is observed that the economic team would have controlled the situation so that the financial dollars do not rise as it happened in the period of Silvina Batakis where the value of the CCL dollar exceeded the evolution of the Private M3.

Apparently and according to the recent announcements of reduction of economic subsidies to electricity, gas and water rates, Massa would have the political power to give the necessary fiscal signals and it depends on himself that the honeymoon with the financial market and with the businessmen who listened to him on Thursday at the Council of the Americas be prolonged.

Many put an expiration date on it that is next spring after Massa returns from his tour to the United States. to be present at the annual meeting of the United Nations Organization and to meet with the IMF authorities. In Thursday’s meeting, several businessmen agreed with the definition that “if Massa continues like this, it ends up as the “Tren de la Costa.” The explanation is because that train ends its journey in Tigre.

The clearing of the horizon of debt maturities in pesos and the halt in the loss of reserves have generated a little more confidence and calm in the financial market and in the economic agents, but the biggest concern is the new rise in the value of financial dollars.

The IMF contributes money to pay its debt. Exports bring in dollars that go with imports of goods and services, but dollars also come out to pay debt, interest and private imports.

For now the government cannot achieve a fiscal surpluswith which it is condemned to issue or finance itself with the market, this fuels the recession more, either due to the scarcity of credit to the private sector, such as higher inflation that takes away purchasing power from wages and others should have raised the interest rate strongly to prevent the pesos from going to the dollar.

We entered a year of drought where the harvests will not be very good, there will be a lack of wheat and corn

Although signs of monetary contraction were also expected, since the rise in rates is a late response and remains below the acceleration of inflation, it is likely that it will not act as a sufficiently aggressive signal. This leads to a increase in the quasi-fiscal deficit of the BCRA with low capacity to align expectations and with increasing certainties of future issuance.

In turn, as this rate hike is not accompanied by a truly rational fiscal policy, raising interest rates simply puts a floor on future inflation without correcting any of the underlying problems. If during the last two years the economy has already suffered the inflationary consequences of having doubled the monetary base, knowing that from now on for each peso invested in Leliqs the Central Bank will have to return approximately double it’s not encouraging at all.

In addition, it must be considered that it entered a year of drought where the harvests they will not be very good, there will be a lack of wheat and corn, which are products that we consume, and we would have left over soybeans that we do not consume. This implies that the prices they could grow more than expected, which is why our inflation projections one year ahead are in the triple digits.

“Under these conditions it will be difficult to avoid a devaluation of the peso in the medium term in the official market we have fiscal and quasi-fiscal deficit, there is no investment, imports are closed, and exports will be low, investment says absent and consumption is low with wages reaching a fortnight. The best thing is to bet on assets, if you are not sure what assets to buy, put together a mix of fixed term adjusted for inflation and the dollar,” expert Salvador Di Stefano explained to iProfesional.

It is difficult to understand that a country where activity grows at a rate of more than 8 percent per year and with record exports have so much trouble accumulating dollars in your reserves.

The concrete thing is that for the third quarter of 2022, an improvement of 3.4% of GDP is expectedfor the fourth quarter of 2022 a drop of 1.1%, while for the first quarter of 2023 a drop of 3.2% is projected. If materialized, Argentina would enter into recession in the midst of the 2023 election campaign but that is another story to analyze later.

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