Shielding the Course.

‍Amid a more adverse global backdrop —long-end rates rising on the back of oil—, local assets responded calmly. The dollar eased after the month-end close, hard-dollar debt proved resilient, with country risk moving sideways around 430 bps, and the Merval extended its recovery. On the institutional front, the Government announced a package of reforms that seeks to enshrine into law the pillars of its program —zero deficit and the end of monetary financing—, aiming for fiscal and monetary discipline to outlast the current administration. The flip side remained the real economy: confidence in the Government fell to lows for the administration, in line with activity that has yet to take off. In pesos, the Treasury rolled over its maturities comfortably, though at the cost of greater hedging, and curves decompressed in a week in which it absorbed pesos from the system. Next week's attention will turn to the start of debate on the Central Bank reform in Congress and to the first price signals of the month, with the market watching how the dollar navigates the beginning of August.

Milei goes for the BCRA reform.

The overhaul of the BCRA's Charter was the centerpiece of the set of bills the president presented in a national broadcast last Thursday. Its core is to ban monetary financing of the deficit: temporary advances and Treasury assistance are eliminated, gains from FX or financial operations may only cancel debt and not finance current spending, and Non-Transferable Bills are ended. The BCRA's mission becomes singular —preserving the value of the currency— and its independence is shielded: removing the board will require two-thirds of both chambers. A permanent fiscal rule is added —the "fiscal shackle"—, with automatic shutdown in the face of sustained deficits. The package also includes a liberalization of the capital markets —with foreign-currency negotiable obligations and more flexible crowdfunding— and a deregulation of insurance, where insurers will be able to offer products without prior authorization. The BCRA reform has already entered the lower house: the ruling bloc is aiming for approval on the floor around August 19 and the Senate in early September.

Confidence in the Government fell.

The UTDT's Government Confidence Index (ICG) retreated 6.5% in July and stood at lows for the administration (39%). In the 31st month of the mandate, the level was 3.9% below that recorded by Mauricio Macri and 73.3% above that of Alberto Fernández at the same stage. The decline was to be expected after the drop already shown by consumer confidence the prior week, amid a generalized deterioration in expectations and in line with activity that is not taking off.

The BCRA kept buying.

The BCRA purchased USD 226 M in the week, with a single round without intervention: on Tuesday, the day of the D31L6 dollar-linked fixing, it refrained from buying, probably to avoid adding pressure on the exchange rate. July closed with purchases of USD 2,163 M, a pace of USD 103 M per day that recovered versus June (USD 68 M), though it remained below the May peak (USD 137 M) and unevenly: the bulk was concentrated in a few rounds. So far this year it has accumulated some USD 13,300 M. Gross reserves, on the other hand, closed July at USD 47,596 M, USD 1,591 M below the prior Friday, a decline that responds to the end-of-month seasonal pattern driven by reserve-requirement dynamics.

The dollar eased after the month-end close.

The official exchange rate fell 0.4% in the week and closed at $1,488.5, giving back part of the prior rebound and accumulating a rise of just 0.4% in the month. Financial dollars also eased: the MEP retreated 0.6% to $1,519.2 and the CCL 1.4% to $1,575.8, with the swap (canje) compressing to 3.7%.

The Treasury sustains the rollover at the cost of greater hedging.

Against maturities of some ARS 8.5 trillion, the Treasury awarded ARS 12.21 trillion —a rollover of 144.5%—, absorbing ARS 3.76 trillion from the system and placing ARS 5.5 trillion at 2028. July closed with a monthly rollover of 154.5%, reversing June's 91%, though the average term shortened to 325 days —335 in the month versus June's 711— on demand for the short end. The cost of that renewal was greater hedging: dollar-linked instruments concentrated almost the entire awarded amount. The DL/TAMAR dual was the largest, with a cut-off rate of 6.6%, followed by the D15E7 dollar-linked bill, which cut at 5.51%. The S16O6 Lecap cut at an EMR of 2.05%, with a premium of some 20 bps over the curve, and the CER/TAMAR dual was awarded for ARS 0.87 trillion, with an estimated premium of 10 bps. The AO29 came in line with the curve, awarding USD 459 M at an NAR of 8.02%, between the first and second rounds.

Decompression in peso curves.

After Wednesday's auction, which absorbed pesos from the system, peso curves traded with rising yields and higher prices in dollar terms. Fixed-rate rose 1.5%: Lecaps were left yielding around 2.0%-2.1% EMR, versus 1.8%-2.0% the prior week, after decompressing between 50 and 190 bps. CER gained 1.5%, though with higher real rates —increases of 70 to 130 bps—, with the short end around CER+3% and the long end near CER+8.5%. Among the rest, TAMAR bonds led with +1.7%, followed by the duals (+1.6%), while dollar-linked lagged with a 1.2% gain.

Sovereigns resilient; the Merval extended the rebound.

Despite the adverse global climate —with the 10-year Treasury at 4.75%, its highest since January 2025 on the rise in oil—, hard-dollar debt held resilient. Bonares eased just 0.6% and Globales advanced 0.3%, with country risk moving sideways around 430 bps. The Merval, on the other hand, extended its recovery and rose 2.2% in dollars, to USD 2,101, driven by energy names on the back of the oil rally: Edenor (+5.0%), TGS (+4.4%) and YPF (+2.6%), along with Banco Macro (+4.3%). At the other extreme, those tied to agriculture and construction lagged: AdecoAgro (−6.4%) and Holcim (−3.8%).

WEEK AHEAD

  • The week kicks off with July tax revenue, which has yet to rebound in real terms.
  • On Thursday, the BCRA releases the July REM survey.
  • On Friday the City reports the Buenos Aires City CPI for the same month, the first price signal ahead of the national CPI to be published next week.