Local assets posted a mild improvement on the week. The news flow did not help: a favorable August inflation print was offset by indicators pointing to very weak activity. Disinflation has yet to find a counterpart in employment or real wages, a picture that also weighs on the political climate ahead of the elections and helps explain why country risk still resists a decisive compression. The official exchange rate closed flat and rates drifted lower, a backdrop the Treasury used to roll over its maturities without validating long-end rates. Hard dollar debt and equities lagged.
1. Activity data turned sharply negative in July
Industrial production fell 5.0% m/m, the weakest print since March of last year and back to June 2024 levels, and 4.9% y/y, accumulating a 2.6% y/y contraction over the first seven months. Construction retreated 4.6% m/m and 4.5% y/y, though it still holds a 1.7% gain year to date. Mining lost 0.9% m/m, yet stands 3.7% above July 2025 and accumulates 7.7% growth in the year. Fishing was the only sector with a strong increase, heavily influenced by seasonal factors. The EMAE likely contracted again at the start of 3Q26, confirming the previous quarter's trend, and two consecutive quarters of GDP contraction would put the economy in a technical recession. We see that risk as material rather than hypothetical, and it hinges on August and September.
2. Inflation slowed to 1.7%, but the core remains sticky
National CPI rose 1.7% m/m in August, down from 2.1% m/m in July and the lowest print in 14 months. Seasonal prices shifted from a 4.5% m/m increase to a 0.9% m/m decline, on falling apparel and travel package prices and the stabilization of vegetables. Regulated prices rose 2.2% m/m versus 2.1% previously, while core CPI advanced 1.8% m/m, broadly in line with July. CPI accumulates 21.3% year to date, 2 pp above the same period of 2025, and 34% y/y. The headline improved but the composition did not: the entire deceleration came from a seasonal component that is by definition reversible, while the core stayed put. We see disinflation resting more on weak demand than on a change in the price regime, which supports the peso curve in the short term but caps the upside for equities levered to the domestic cycle.
3. The FX market is tightening even with the agro settling
Excluding Monday's thin session due to the U.S. holiday, over the last four days the agro sector settled at a pace of USD 130 M per day while the BCRA purchased barely USD 10 M per day, the weakest week of the year. At this pace the BCRA would buy USD 300 M in September, the weakest month of 2026. Interventions did not offset net payments on other accounts and international reserves fell USD 290 M on the week, closing at a gross stock of USD 50,469 M. The supply side is not the problem: agro settlements are solid and international oil prices are favorable, which implies rising export inflows from the energy sector as well. If the BCRA is still buying less against that backdrop, net demand from other accounts is growing. We read this as a yellow light, with the stock of reserves still absorbing the drain but the accumulation path deteriorating precisely when the sovereign curve needs the opposite.
4. The exchange rate held and rates drifted lower
The official exchange rate closed the week virtually unchanged at ARS 1,510, marginally above the prior Friday and identical to the August close, with some volatility along the way. With ample system liquidity, rates showed a mild downward trend, with the Tamar at 23.8% nominal annual and the repo rate at 20.2%. Calm in the spot market and easing rates gave the Treasury the most comfortable setting it has had in weeks to come to market. We would not extrapolate the rate decline yet, since the auction absorbed liquidity and the coming sessions will show whether the drop reflects a structural improvement or a temporary surplus of pesos.
5. The Treasury rolled over 103.5% and kept its tenor short
Against maturities of roughly ARS 8.13 trillion, the Treasury received bids for ARS 14.17 trillion and awarded ARS 8.41 trillion, a 103.5% rollover that absorbed some ARS 0.28 trillion. The average tenor was 4.3 months with the entire allotment maturing before 2028, split between fixed rate (49%), Tamar (32%), dollar-linked (12%) and CER (8%). With the BCRA absorbing some ARS 2.6 trillion in repos the previous day, the Treasury cut off broadly in line with the secondary market in fixed rate, CER and Tamar. The exception was dollar-linked, where it paid a premium over the curve across the entire tranche, coinciding with the September 4 conversion in which ARS 2.29 trillion of face value of the October Lecap was swapped into dollar-linked notes, of which USD 4,397 M correspond to the D30S6. The next auction faces maturities of approximately ARS 13.6 trillion on September 30. We read the short menu as a deliberate choice rather than a constraint: the Treasury is unwilling to validate high rates at the long end, which works while rates fall and becomes expensive if they do not.
6. The peso curve extended its gains
Duals led, with the DL/TAMAR up 0.7% and the CER/TAMAR up 0.6%. Lecaps and Boncaps rose 0.4%, as did fixed rate/TAMAR duals, leaving yields between 2.0% and 2.2% TEM. CER instruments advanced 0.3% with yields nearly unchanged: the 2026 tranche trades between CER+0% and CER+5%, the 2027 tranche between CER+6% and CER+8%, and 2028 onward near CER+9.5%. TAMAR (0.3%) and dollar-linked (0.2%) lagged, the latter yielding an average of 6.4% over devaluation. Breakeven inflation between CER and Lecaps stands at an average of 1.8% m/m for September and October, decelerating to 1.6% m/m from November. The inflation print came in line with market pricing and cleared the outlook, so the curve extended a move it was already carrying rather than reacting to the data. We see the peso curve as the best relative performer in this configuration, though breakevens now embed a disinflation path the core CPI has not yet delivered.
7. Hard dollar bonds gave ground at the long end
Hard dollar debt fell 0.6% on average, with Globales (-0.5%) holding up better than Bonares (-0.6%). The short end closed positive, with the GD29 up 0.5% and the AL29 up 0.3%, while the long end concentrated the entire decline: the AL41 lost 2.1%, the AL35 1.2%, the GD38 1.1% and the GD41 1.0%. Country risk closed at 485 bps, 5 bps below the prior Friday, and accumulates a compression of close to 30 bps since the August close. Bonares yield between 3.8% and 10.7% and Globales between 5.2% and 9.6%. The move was one of curve and not of level, with the market pricing near term payment capacity while discounting the medium term scenario. We believe country risk will not compress decisively while activity keeps deteriorating, and the 30 bps gained since the August close look more like technical stabilization than a re-rating.
8. The Merval gained little and closed the week soft
The Merval advanced 0.5% in dollars to USD 1,942, though the figure conceals a poor final session: it had topped USD 1,980 on Thursday before shedding 1.9% on Friday. It accumulates a 2.5% gain in September and remains down 3.8% in the year. Energy led with 4.2% on the week, driven by YPF (4.6%), Transener (3.7%), TGS (2.6%) and Pampa (2.2%). Construction lost 4.6% and materials 3.1%, with Loma Negra (-5.2%) and Ternium (-4.3%) leading the declines. Financials fell 0.8%, with Supervielle (-2.9%) and Banco de Valores (-2.7%) the hardest hit within the panel. What rose and what fell tracks the macro almost perfectly: energy trades against the world, construction and materials against the domestic cycle, and financials, the asset most levered to an improvement in sovereign risk, lagged again. Until the banks join the move, we would treat the advance as sector rotation rather than as a re-rating of the equity market.
What's ahead
Wednesday brings August wholesale prices (IPIM) and the Construction Cost Index (ICC), which run below and above CPI respectively. Thursday brings the advance estimate of second quarter GDP and UTDT consumer confidence, which has been posting consecutive declines. Friday closes with the trade balance and the fiscal result, following tax revenues that again fell behind inflation.
