Argentine financial assets held steady this week even as global markets sold off, with country risk hovering near 490 basis points and the Merval index gaining 1.4% while US Treasury yields climbed toward 4.80% and major world stock indices fell.
The global backdrop was rough: Wall Street's three main indices dropped as much as 1.17%, European markets followed, and sovereign bonds sold off broadly, with German and Spanish yields topping 3.3%, French yields at 4.23% and Italian yields at 4.28%. Oil prices approached $100 a barrel as China's crude imports normalized to roughly 9 million barrels a day, tightening global supply expectations. Argentine dollar-denominated bonds, by contrast, held largely steady with yields of 8-10%, and local equities advanced against the grain.
Country risk -- the extra yield investors demand to hold Argentine debt over US Treasurys -- has spent the past week oscillating around the 490-500 point mark, a level it first broke below on September 2 for the first time in the current cycle. Peso exchange rates moved modestly: the wholesale dollar rose 50 cents to 1,512 pesos, the MEP dollar traded at 1,527 pesos, the CCL (cash-with-settlement) rate rose 1.4% to 1,591 pesos, and the informal "blue" dollar held flat at 1,545 pesos.
Analysts are now watching two events that could reset that calm. The first is August's inflation reading, expected around 1.7%, roughly in line with a Buenos Aires City print of 1.7% for the month (down from 2.9% in July) with core inflation at 2.1% -- a number that will shape expectations for September and the disinflation program more broadly. The second is Friday's Treasury auction, in which the government must roll over 8.1 trillion pesos (approx. US $5.4 billion at this week's wholesale rate) in maturing debt at a moment analysts describe as a fragile equilibrium for peso-denominated financing. Federico Filippini of Adcap called the current peso debt curve a "delicate equilibrium," while noting that financing conditions have been stabilizing overall.
Matias Togni of NextBarrel, discussing the oil-price backdrop, said the sustainability of $100 crude "hinges on China's import normalization and Middle Eastern supply constraints affecting Russian and Iranian barrels" -- a dynamic that matters for Argentina both as a fuel importer and, longer term, as a Vaca Muerta shale producer.