The tone of the week was set by the financial and external sectors, which once again proved solid, while the real economy continued to lack momentum. Moody’s upgraded the sovereign rating, bringing the three major agencies into alignment—a recognition of macroeconomic stabilization that also expands the pool of funds eligible to invest in Argentine debt. At the same time, the trade balance once again posted a solid surplus, driven by agriculture and energy, and the BCRA continued to build up reserves. The flip side was the same as always. Economic activity lost momentum and posted yet another decline. Wages barely outpaced inflation, and consumer confidence fell sharply. As we have been anticipating, the recovery remains two-speed: it needs consumption and investment to keep pace with the sectors that are already driving growth. In the asset markets, the initial boost from the credit upgrade faded toward the close, and country risk retreated after approaching its lows. The Merval, on the other hand, broke its losing streak. In pesos, the official dollar rate rebounded, and interest rates eased. With inflation easing and nominal rates barely rising, the real interest rate is beginning to recover gradually. This week’s focus will be on the Treasury auction and how the dollar performs as July comes to a close.

Moody's upgraded the sovereign rating. Moody's raised Argentina's local- and foreign-currency debt ratings from Caa1 to B3, with a positive outlook, bringing them in line with Fitch's and S&P's B- ratings: for the first time in more than a decade, the three major agencies are in agreement. The agency attributed the upgrade to a material reduction in default risk, as macroeconomic stabilization progressed beyond the initial adjustment phase. The upgrade also has a technical implication for demand: many institutional mandates cannot hold debt rated in the CCC range and require that at least two of the three agencies rate the issuer in the B category. With all three now aligned at B-, a broader range of funds is gradually being allowed to invest in Argentine debt, although it is still far from investment grade. The initial boost to sovereign bonds, however, faded toward the close as the global economic climate deteriorated.

Economic activity lost momentum. The EMAE fell 0.5% s.e. in May, marking its second consecutive monthly decline following the surge in March (+3.5%) and the drop in April (–1.5%): after peaking in the first quarter, economic activity has been slowing. Support continues to come from the primary sectors and energy, while industry, commerce, and everything related to the domestic market have failed to contribute. With June’s data still weak, the second quarter is expected to close on a downward trend.

Income and confidence lack the boost needed to drive consumption. The wage index rose 2.2% month-over-month in May, narrowly outpacing inflation (2.1%), but the improvement was concentrated in informal wages (unregistered private sector, +3.5%), while formal wages lagged behind: registered private-sector wages (+2.0%) rose just below the rate of inflation, and public-sector wages (+1.5%) declined again. With collective bargaining agreements settling near the inflation rate, real wages have yet to recover the ground lost at the end of last year. Meanwhile, the UTDT’s consumer confidence index fell 4.8% month-over-month in July to 40.7 points, ending two months of improvement and remaining 12.3% below the level of a year ago—the largest year-over-year decline since the pandemic began. Consumption and income remain the missing engine of the recovery.

Solid trade surplus. The trade balance for June posted a surplus of USD 2,194 M, marking the 31st consecutive month of a positive balance: exports rose 24.5% year-over-year (USD 9,055 M) and imports rose just 7.3% (USD 6,861 M). The surge in exports was concentrated in agricultural and livestock-based manufactured goods (+31.6%), industrial manufactured goods (+31.4%), and fuels and energy (+31.1%), while primary products grew by only 3.6%. In the first half of the year, the trade balance climbed to USD 13,923 M, well above the USD 2,762 M recorded a year earlier, with exports rising 24.4% and imports falling 3.9%. The composition of imports, however, reinforces the assessment of weak economic activity: declines were seen in capital goods (–8.0%), parts and accessories for capital goods (–9.4%), and vehicles (–10.6%)—all linked to investment—while the increase was concentrated in fuels.

The BCRA added to its reserves, and the dollar rebounded. The Central Bank purchased USD 492 M during the week and accumulated USD 1,937 M in July (USD 13,111 M year-to-date). The monthly pace—about USD 121 M per day—is higher than the USD 67 M recorded in June, although this is driven by a few large one-off transactions, as the daily inflow remains modest. Gross reserves rose by USD 393 M to USD 49,183 M. Meanwhile, the official exchange rate rebounded 1.0% to $1,494.4 (+0.8% for the month), a limited move that was also influenced by increased demand from the BCRA itself toward the end of the week. Financial dollar rates followed suit: the MEP rose 0.4% to $1,527.9 and the CCL 1.3% to $1,597.5, with the swap spread widening to 4.6%.

The peso yield curve flattened. Rates rose across the board, in line with the rebound in the official exchange rate. Lecaps closed nearly unchanged on the index, but with the TEM up about 10 basis points, to 1.9%–2.0% monthly: the short end rose while the long end fell by up to 0.7%. Among the adjustable-rate instruments, dollar-linked bonds led the way with a +0.8% gain—boosted by that same movement in the official exchange rate—followed by CERs (+0.6%) and TAMAR (+0.4%), whose benchmark rate approached 23% TNA. For CERs, the rise was concentrated in the long end, which yields up to CER+8% compared to CER+2% for the short end, and where the greatest decompression occurred. As we have been anticipating, the real rate is beginning to recover: inflation is easing and nominal rates are rising only slightly, with implied inflation in bonds around 1.8% m/m for July. Ample liquidity is preventing further tensions, although a rebound in credit could shift the balance.

Sovereign bonds fell, and the Merval rebounded. After an initial surge following Moody’s upgrade, hard-dollar debt ended the week lower due to renewed geopolitical tensions: Globals fell 0.9% and Bonares 0.4%, with the steepest declines in the long-term segment (GD46 –2.1%, GD35 –1.5%, AL41 –1.4%). At these prices, Globals yield an average of 5.7% in the short end and 8.5% in the long end, while Bonares offer 6.6% and 9.0%, respectively. The country risk spread reversed part of its previous narrowing and returned to 437 bp, up from 418. BOPREAL bonds, on the other hand, closed with slight gains (+0.4% in MEP). Likewise, the Merval broke its losing streak and gained 3.0% in dollars, reaching the USD 2,081 range, with energy stocks (YPF, Vista, Pampa) benefiting from the rise in oil prices.

What’s Ahead. The local economic calendar is light on data, with the focus on the financial front and the end of the month. Today, the Government Confidence Index and the terms of the Treasury’s auction scheduled for Wednesday will be released. Maturities total $8.5 trillion, mostly held by private investors—including $2,247 million in dollar-linked securities, whose fixing could boost demand and put pressure on the dollar toward the end of the month—amid a context of still-ample liquidity but with rates that have begun to ease. The focus this week will be on the outcome of the auction and how the dollar performs at the end of July.