Argentina Diverges from the Region. Dollar bonds and equities closed the week in the red, with country risk climbing to two-month highs. The regional backdrop didn't help, with Latin American equities stringing together losing sessions while the U.S. was the exception, hitting records. But the magnitude of the local decline had its own explanation, with all political spaces holding meetings ahead of 2027 and polls showing the ruling party losing ground, which began pricing in the electoral scenario. The FX front showed a different picture: the official exchange rate eased session by session, FX demand kept softening, and the BCRA took the opportunity to accelerate its purchase pace, though it intervened in futures and dollar-linked instruments to sustain the reference level. The data point of the week was July inflation, which accelerated again. That was felt in hedging demand and in curves that traded with very tight liquidity, leading the Treasury to roll over maturities by shortening tenors at the latest auction. Next week the focus will be on the exchange of the dollar-linked bill maturing at month-end, which will gauge how much hedging demand the market shows, along with the activity and wage data batch.

Inflation rose in July. National CPI posted a 2.1% m/m increase in July, 0.2 pp above June's reading and slightly above market expectations of 2.0% m/m. With this result, it accumulates a 19.3% rise year-to-date and 33.8% y/y. The increase was driven by seasonal prices, which jumped 4.5% m/m on vegetables, tourism packages, and lodging services during the winter vacation season, while regulated prices moderated to 2.1% m/m. The figure to watch is core inflation, which came in at 1.8% m/m after three consecutive months of deceleration. For August we expect some moderation from the reversal of the seasonal component, though core inflation marks a floor that isn't giving way.

Dollar credit for all companies. The Government eased foreign-currency lending regulations. Until now banks could only lend dollars to hard-currency-generating companies or those with exporter guarantees. Under the new scheme, the BCRA enables financing to any legal entity, capped at 15% of dollar deposits. The prudential framework accompanies this: 125% capital requirement relative to comparable financings and FX stress tests. Companies must settle dollars through the MULC and convert them to pesos, adding supply to the FX market and limiting currency mismatch. The goal is to cheapen corporate funding versus the cost of peso credit, with explicit demand from the construction and auto sectors. With private deposits above USD 40 billion, the room for expansion is wide, though it will depend on banks' appetite amid rising delinquency.

The exchange rate eased over the week. The official exchange rate fell 0.7% and closed at $1,488.7, leaving it practically unchanged month-to-date versus July's close. It started around $1,498 and lost ground session by session, with demand weakening as the week progressed and agro supply holding around USD 130 M daily. Against that backdrop, the BCRA bought USD 218 M over the week (USD 44 M daily on average), doubling the prior week's pace (USD 22 M daily), with purchases accelerating toward the end in line with lower FX demand. The official strategy centered on sustaining the $1,500 level via intervention in futures and dollar-linked bonds. Financial rates followed with somewhat steeper declines: the MEP fell 1.1% to $1,506.6 and the CCL 1.2% to $1,560.4, with the implied spread at 3.6%.

Treasury rolls over while shortening tenors. Against maturities of about $4.5 trillion, the Treasury awarded $4.49 trillion, a 100.3% rollover. The news was the sharp shortening in tenors: average issuance maturity plunged to 111 days (3.7 months), from 325 days at the prior auction, with the entirety awarded in the short end. The menu returned to fixed rate, with the Lecap S30N6 taking 73%, complemented by CER (15%) and dollar-linked (12%) instruments. The decision to offer a short-dated menu comes as long duals were already trading around TAMAR+9%. The Treasury avoided adding further to the long end and prioritized rolling over amid very tight liquidity: the BCRA's repo stock stood at $0.83 trillion on auction day, well below July's average of $2.52 trillion. Rates cleared broadly in line with the secondary market, with a somewhat higher premium on the dollar-linked segment. In hard dollar, the Bonar AO29 reopened, this time with a maximum amount of USD 100 M between the first and second rounds, and filled the quota at a yield of 8.72%. In parallel, the Treasury Secretariat is offering an exchange on Tuesday of the August Lelink (D31G6) for the new D30S6 or D30O6, aiming to ease pressure on the month-end fixing. USD 4,439 M in face value of the August Lelink remains outstanding, almost double the USD 2,247 M that reached July's fixing, a record at the time.

Tight liquidity and hedging demand. The decision not to drain pesos came amid liquidity that remained tight, with overnight repo trading pinned near 23% NAR, showing no signs of easing. On the peso curve, TAMAR-linked instruments led gains with a 0.7% weekly rise, in line with the TAMAR rate, which closed near 24% NAR. Behind them, inflation-linked instruments advanced 0.5%, pulled by the July print, which showed an acceleration versus June and reignited hedging demand, with the strongest real-rate compression in the short end. Lecaps also rose 0.5%, with the curve trading around 2.0% EMR and somewhat more demand in the long end, which gained 0.8% versus 0.4% for the short end. Among duals, fixed-rate/TAMAR instruments matched the 0.5% gain while CER/TAMAR duals lagged slightly at 0.4%. At the other end, dollar-linked instruments closed unchanged and the dollar-linked/TAMAR dual fell 0.2%, in line with the exchange rate's weekly decline.

Political noise spills into asset prices. Outside the peso curve, which traded largely insulated from the noise, the week's focus was on the political front. Within the ruling coalition, teams from Milei and Macri met to coordinate the legislative agenda and advance a possible alliance for next year. On the opposition side, there was a summit between Kicillof, Máximo Kirchner, Massa, and Peronist governors to narrow differences and avoid internal splits. The backdrop is July's polls, which showed weaker support for the Government: Milei's voting intention has held stable for two months and remains in first place, but his approval rating has been declining throughout the year, and the margin toward a competitive 2027 scenario has narrowed. Adding to this is last week's precedent in the Senate, where the ruling party secured preliminary approval of the Private Property Inviolability Law but had to concede on the Fire Management chapter. Against this backdrop, the market began pricing in higher risk of non-reelection, which spilled over into Argentine asset prices.

A red week for bonds and equities. The external backdrop moved at two speeds, with U.S. equities at record highs following an in-line inflation print, while the region strung together losing sessions, dragged down by Brazil. Argentine assets were on the weak side, but with a decline that comfortably exceeded the rest. Dollar debt closed the week in the red, with the local-law curve falling 1.2% and foreign-law 0.7%, with the damage concentrated in the long end, which fell as much as 2.2%, while short-dated bonds were practically unchanged. Country risk climbed to 480 bp, the highest since June 10, after closing the prior week at 451 bp. The Merval matched the weakness, falling 4.5% in both peso and dollar terms to close at 1,870 points. Banks were the hardest-hit sector, down an average 6.8% in dollar terms, with BBVA (-9.5%), Banco Macro (-7.7%), and Galicia (-6.3%) among the largest declines, joined by BYMA (-9.3%) and Loma Negra (-9.4%). Utilities fell 4.6%, led by TGN (-8.3%), Transener (-6.5%), and Central Puerto (-6.1%). On the positive side there were few exceptions, with Ternium (+1.8%) and YPF (+1.1%) the only gainers on the blue-chip panel. With this result, the index has accumulated a 12.1% decline in dollar terms over the past month and 7.8% year-to-date.

WEEK AHEAD

  • Today, the Wholesale Price Index (IPIM) and Construction Cost Index (ICC) for July will be released, along with the fiscal result for the same month.
  • Thursday 20th brings the bulk of releases: the July trade balance, which continues to show a surplus; the June EMAE, which will confirm whether activity remains flat; and the June wage index, a key figure for consumption and delinquency dynamics.
  • That same day, the UTDT Consumer Confidence Index for August is released, which has been deteriorating.
  • On the financial side, the focus will be on the exchange of the LELINK maturing at month-end (D31G6), called for today, offering two new dollar-linked bills for September and October.