Argentine financial assets held steady this week as global markets sold off: country risk stayed near 490 basis points and the Merval stock index gained 1.4%, while US Treasury yields climbed toward 4.80% and major world stock indices fell.
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 held largely steady with yields of 8-10%, and local equities advanced against the grain.
Matias Togni of NextBarrel 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.
Country risk, the extra yield investors demand to hold Argentine debt over US Treasurys, has oscillated around the 490-500 point mark for the past week. It first broke below that level on September 2, for the first time in the current cycle. The peso moved modestly: the wholesale dollar rose 50 cents to 1,512 pesos, the MEP dollar, a legal stock-market rate, 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.
Two events could test that calm. The first is August’s inflation reading, expected around 1.7%, 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%; the number will shape expectations for September and for the disinflation program more broadly.
The second is Friday’s Treasury auction, in which the government must roll over 8.1 trillion pesos (about 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.