AGRICULTURE, ENERGY, AND MINING ARE CLEARLY FINANCING THE TRANSITION, driven by the combination of higher activity, strong prices, and a continuous flow of financing that is sustaining growth, widening the trade surplus so the BCRA can accumulate dollars, and containing exchange rate pressure. This was reflected in last week's data, which highlighted Q1 2026 GDP growth that came in above expectations and a notable narrowing of the current account deficit alongside a surplus in the FX market. The flip side is that the rest of the economy is failing to take off, limiting labor market recovery, which is generating only scarce and low-quality employment — even as wages staged an incipient recovery in April. Against this backdrop, local assets had a mixed week: sovereign bonds sidestepped global volatility and continued to improve, with country risk falling below 450 bps, while equities had a week to forget with the Merval posting a sharp decline, hurt by MSCI's decision and falling oil prices. On the FX front, the exchange rate continued to rise as the BCRA bought less. The Treasury navigated a tighter liquidity environment by significantly extending duration, though at the cost of lower rollover. The week kicks off with a new Chief of Staff making his debut, and on the economic calendar the highlights are the April EMAE release and June tax revenue, with the market focused on the exchange rate and interest rates, which have started to rise amid lower liquidity.

EXPORT-LED GROWTH, WITH STABLE CONSUMPTION AND FALLING INVESTMENT. Q1 2026 GDP data came in above expectations, recording growth of 0.7% q/q, well above the 0.3% q/q the EMAE had anticipated. Over the past twelve months, activity expanded 2.3%. On the supply side, most sectors grew year-over-year, with standouts being agriculture (+18.0% y/y), mining and quarrying (+12.3% y/y), and financials (+7.5% y/y), while manufacturing (-1.7% y/y) and trade (-0.3% y/y) contracted. While GDP logged its seventh consecutive quarter of growth, the demand side was marked by weak investment, which posted its fourth consecutive quarterly decline — down 1.7% q/q in Q1 2026 — standing 12.0% below year-ago levels, dragged by durable equipment investment, which fell 18.0% y/y, while construction offset with a 2.0% y/y gain. Private consumption rose 2.7% y/y and public consumption fell 0.9% y/y, while exports were the most dynamic component with a 9.8% y/y gain and imports fell 7.5% y/y.

UNEMPLOYMENT REMAINED STABLE, BUT WITH DETERIORATING JOB QUALITY. In Q1 2026, the number of employed people rose 0.3% q/q and 1.8% y/y, entirely driven by the self-employed segment, reinforcing the labor market trend of declining formal private employment. In fact, since end-2023, private employment has shed 190,000 jobs, while non-salaried workers increased by 300,000 — half registered self-employed (monotributistas) and the rest informal — unregistered salaried workers rose by 70,000, and public sector employees fell by 90,000. With informal and non-salaried workers now representing more than half of the labor market and cushioning the drop in formal employment, the unemployment rate in Q1 2026 stood at 7.8%, slightly below the Q1 2025 level.

WAGES IMPROVED IN APRIL, with registered wages rising 3.5% m/m, beating inflation — which came in at 2.6% m/m — for the first time since August of last year. The improvement was led by private registered sector wages, up 4.0% m/m, driven by new collective agreements in construction (UOCRA), metalworkers (UOM), and the hospitality sector, while public sector wages rose 2.3% m/m, with provincial public wages up 2.5% m/m and national public sector wages up 1.5% m/m. Over the past twelve months, registered wages accumulated a 29.4% gain, while prices rose 32.4% y/y, implying a 2.2% y/y decline in purchasing power.

GOVERNMENT CONFIDENCE IMPROVED, with the UTDT Government Confidence Index rising to 41% in June from 40% in May, marking the first increase of the year after five consecutive monthly declines. Despite the improvement, the index remains 11.4% below year-ago levels. The uptick was led by the Efficiency component (+12.8%) and was concentrated in Greater Buenos Aires (+11.1%), followed by the City of Buenos Aires (+6.3%) and the interior (+0.9%), in line with last month's real wage recovery. At thirty months into the administration, the current reading sits just above the level Macri registered at the same point in his term.

THE CURRENT ACCOUNT DEFICIT NARROWED. As highlighted in previous editions, the combination of better prices and higher volumes drove a significant improvement in goods exports from the agricultural, energy, and mining sectors, which — together with falling imports (mainly investment-related and energy) — generated a notable improvement in the trade balance and the current account of the balance of payments. Specifically, in Q1 2026 the goods trade surplus reached USD 6.3bn, up from USD 2.1bn a year earlier. The drop in imports was also reflected in the real services account, where the deficit narrowed from USD 4.6bn to USD 4.1bn. Together, the improvement in goods and services more than offset the wider income account deficit — driven by interest payments and profit remittances — allowing the current account deficit to narrow from USD 5.2bn in Q1 2025 to USD 1.7bn in the first three months of this year (the last four quarters accumulate a deficit of USD 4.3bn, or 0.6% of GDP).

AGRO, ENERGY, AND MINING AGAINST ALL OTHERS. May's FX balance data reinforced the dependence on flows from the agricultural, energy, and mining sectors, whose large surplus is sufficient to offset the net demand from all other sectors. In May, the BCRA purchased USD 2.6bn in the official FX market, bringing net purchases for the first five months of 2026 to over USD 9.7bn. As we have been highlighting, this was mainly driven by the settled goods trade surplus, which reached USD 4.3bn in May and USD 13.0bn year-to-date — entirely explained by the combined surplus from agriculture, energy, and mining, which stood at USD 5.3bn and USD 18.5bn respectively. The other source of financing was net loan inflows, totaling USD 3.0bn in May and USD 12.0bn since January — mostly from the energy sector. This was sufficient to offset net outflows from real services and income accounts (interest payments and dividend remittances) of USD 1.5bn in May and USD 7.0bn over five months, as well as net private sector dollar demand of USD 1.7bn last month and USD 7.7bn since end-2025. Notably, FDI and portfolio investment flows were negative — net outflows of USD 800mn in May — and stand at a negative USD 200mn year-to-date.

THE BCRA BOUGHT LESS. In the final week of June, the BCRA purchased USD 240mn in the FX market, averaging USD 48mn per day — the slowest pace of the month. The monthly total came to USD 1.35bn, equivalent to USD 71mn per day, roughly half the USD 138mn daily pace of April–May. The slowdown occurred even as agricultural settlement remained elevated — averaging USD 150mn per day since May — suggesting the lower buying pace reflects weaker net supply from the energy sector combined with higher demand from import payments. These interventions did not offset valuation losses on gold and other operations, so gross reserves fell USD 292mn on the week, closing at USD 47.1bn, USD 1.1bn below the start of the month.

THE EXCHANGE RATE CAME UNDER PRESSURE. The official exchange rate advanced 1.0% on the week, closing at $1,474.72, accumulating a 4.6% gain for the month. Financial dollar rates rose at a faster pace, with the MEP rate up 2.6% to $1,517 and the financial rate up 1.6% to $1,542; the spread compressed to 1.6% from 2.6% the prior week. While the week was marked by the fixing of the TZV26 bond — which matures Tuesday — and associated volatility, the underlying FX pressure reflects the month's dynamics: stronger dollar demand in an adverse international environment with depreciation across emerging market currencies, not offset by agricultural settlement or financial loan inflows, with an appreciated real exchange rate providing no cushion. FX futures tracked the official rate, with an average weekly change of +1.0% and implied depreciation of 1.8% m/m for July, rising to 2.0% m/m toward October–November, with implied NAR in the 22%–24% range. Traded volume closed at USD 1.37bn and open interest at USD 3.86bn, up from USD 3.33bn the prior week.

THE TREASURY EXTENDED DURATION. Unlike May, when ample system liquidity allowed it to roll over more than its maturities and cut rates, in June the pressure on short-term rates forced it to issue less and return pesos to the market, even as duration was extended significantly. On the monthly balance, rollover reached 91% of obligations and $2.01 trillion was returned to the market, with the average maturity closing at 711 days, well above the 473 days of May. The first auction, held on the 10th, concentrated flows in new CER/TAMAR Dual bonds maturing in 2028, 2029, and 2030, which dominated the composition and pushed the average term to 938 days. In the second auction, held on the 26th, rollover was 81% with $3 trillion injected into the market amid some stress in overnight rates; the diversified menu saw flows redistribute toward the November LECAP (32%), the TXMD9 Dual (28%), the TAMAR 2027 (18%), CER (16%), and dollar-linked (5%), sustaining the average term at 614 days thanks to the weight of the dual. In dollar terms, the Treasury reopened the AO28 bond, placing USD 457mn in the month — with USD 1.79bn issued to date, to which up to USD 100mn more could be added in a second round today. Year-to-date, the Treasury has rolled over 107% of its maturities and absorbed $7.95 trillion in net financing.

LOWER LIQUIDITY AND RISING RATES. The overnight repo rate averaged 24.8% NAR — with peaks above 27.0% NAR — reflecting tighter peso market conditions: the stock absorbed by the BCRA via Repo fell to $1.2 trillion, compared to a monthly average of $2.8 trillion. Dollar-linked instruments led the peso curve on the week, falling 0.2% — with the best individual names posting gains of up to 0.5% — while also leading for the month of June with a 4.9% gain. At current prices they yield devaluation +3.5% on average, with the implied exchange rate at $1,499 for July (1.5% m/m depreciation) and $1,560 toward September (1.8% m/m). Dual instruments fell 1.3% on the week and gained 1.3% in June, yielding a spread of 1.6%–2.1% above the Tamar rate. LECAPs fell approximately 1.6% — with the short end less impacted and the long end under greater pressure. The curve currently trades in the 1.8%–2.0% EMR range, compared to 1.8%–1.9% at the start of the month, accumulating a 1.4% gain in June. CER bonds fell 2.0% on the week — with individual long-end names down as much as 3.3% — while gaining 1.4% in the month. At current prices, real rates are positive across the entire curve, ranging from CER +1% at the short end to CER +8.5% at the long end, while implied inflation holds at 1.6% m/m through October before decelerating to 1.5% from November through April 2027.

HARD DOLLAR SOVEREIGNS HELD FIRM, with the sovereign hard dollar debt advancing 0.7% on the week, outperforming peers, which fell 0.4%. The move was driven by Globals, up 0.8%, led by the GD41 (+1.1%), while Bonares advanced 0.6%. Country risk closed at 438 bps and the spread over EMBI Latam held at 181 bps. In yield terms, Bonares offer rates between 6.5% and 9.0%, while Globals yield between 5.1% and 8.5%. BOPREAL bonds advanced 0.2% on the week, with a homogeneous performance across the different series. BOPREAL Series 4 was the best performer with a 0.9% gain, followed by BOPREAL Series 1 C, up 0.4%. At current prices, the BCRA curve yields between 3.5% and 6.9%. Provincial bonds closed the week flat. Among individual names, Mendoza 2029 was the top performer with a 0.2% gain, while Buenos Aires 2037 fell 0.4%. The segment offers yields ranging from 6.1% to 10.9%. Corporate bonds fell 0.3% on the week, with New York law paper leading the decline at -0.4%, while Argentine law instruments closed slightly positive at +0.2%. Under foreign law, the energy sector saw the largest declines, with Pluspetrol falling 1.0%. Under Argentine law, YPF 2028 fell 1.8%. In yield terms, New York law corporates average 7.3%, compared to 4.8% for local law paper.

EQUITIES FELL. It was a poor week for the Merval, which declined 6.2% in pesos and 8.4% in dollar terms, retreating to USD 2,023. The Merval underperformed both LatAm (-0.3%) and Brazil (+2.7%), weighed down by MSCI's decision to keep Argentina as a stand-alone market. All sectors declined, led by energy, banks, and utilities. Among local shares, Supervielle (-16.8%), BBVA (-12.3%), and Edenor (-12.2%) led the losses, with no stocks closing in positive territory. ADRs followed suit, falling 7.1% on average. Supervielle (-16.8%), BBVA (-11.9%), and Galicia (-11.7%) posted the steepest declines, while MELI (+3.0%) and AdecoAgro (+2.0%) bucked the trend.

WEEK AHEAD

  • All eyes open on the political front, with a new Chief of Staff making his debut — a move that could mark a de-escalation after nearly three months of a stalled political agenda.
  • On the economic calendar, today brings the April EMAE, where another decline is expected following March's bounce, reflecting ongoing weakness in activity — particularly in manufacturing, trade, and construction.
  • First private inflation estimates for June will also be released, expected to come in close to 2.0% m/m. Wednesday brings June tax revenue, whose dynamics will be tied to the pace of activity.
  • On the financial side, attention will remain on the exchange rate and peso rates, as the market closes out a June marked by FX pressure and tighter liquidity.