Country risk hits its highest level since October
Argentina's country risk, the JP Morgan indicator that measures the yield gap between US Treasuries and emerging-market peers, climbed 41 units on Friday to 791 basis points, after an intraday peak of 790, the highest reading since October 24 of last year. Dollar-denominated sovereign bonds, both Bonares and Globales, averaged a 1% decline on the day, in line with losses across external markets.[S1]
The cautious mood among investors followed a broad retreat in the world's main stock exchanges, driven by concern that heavy spending on artificial intelligence may not deliver adequate returns. The Max Capital consultancy linked the sharp falls in US equities before the month's final session to results from Amazon and Alphabet published during the week, which revived worries about capital expenditure at the largest technology companies.[S1]
Oil prices also weighed on equities, rising close to 1% at the close to record a fourth monthly gain. The move reflected the possibility of an escalation in the conflict between the United States and Israel against Iran, four days before US midterm elections, together with a recent attack on oil facilities in the Strait of Hormuz.[S1][S2]
The combination of geopolitical uncertainty and anxiety about technology markets reinforced investors' cautious stance and deepened pressure on risk assets. The financial week had opened with the impact of elections in Brazil and ended shaped by a fresh fall on Wall Street, particularly a retreat in semiconductor shares.[S2]
Central bank purchases and the debate over reserves
On the local front, the Central Bank of Argentina returned on Friday to its usual purchases of foreign currency in the market, absorbing USD 96 million, which added to USD 47 million the previous day. The entity thus ended a run of three sessions without participating. The accumulation of net reserves is one of the factors underpinning the prices of Argentine public debt.[S1]
The clearing and settlement agent Cohen described the most relevant development as the Central Bank's resumption of currency purchases after three sessions without intervening. Even so, that element was not enough to prevent losses in sovereign securities during Friday's session.[S1][S2]
The economist Gustavo Ber argued that with dollar financing closed internationally and now also locally because of high interest rates, the possibility is consolidating that among the tools available to meet upcoming financial commitments is the acquisition of dollars from the Central Bank, funded with local debt, which would add further buying pressure for the entity.[S1]
GMA Capital indicated that progress on the external front is still not enough to clear the market's doubts: country risk keeps rising and reserve accumulation, though necessary, does not appear sufficient to dispel questions about the sustainability of the economic program going forward.[S1]
The fiscal anchor under scrutiny
A report from the economic research department of Banco Provincia warned about the challenges facing the so-called fiscal anchor, one of the pillars of the economic scheme of Javier Milei's administration. According to information published by the Finance Secretariat, interest payments on Lecap and Boncap bills total 38 trillion pesos.[S1]
The study noted that incorporating those payments into the fiscal result, as the IMF did in its review last May, turns the surplus into a deficit of 35 trillion pesos, equivalent to 3% of GDP.[S1]
During the presentation of the third-quarter monetary policy report, Central Bank president Santiago Bausili said on Thursday that the USD 5 billion tranche of the swap with China remains activated and that the USD 20 billion agreement with the United States is in force, though operating under a different modality.[S1]
The official acknowledged that in an election year external and internal risks may generate new disturbances, but maintained that the economy is better prepared than in earlier episodes. He cited the current account surplus, record exports and, in his diagnosis, the absence of significant monetary imbalances.[S1]
