DISINFLATION RETURNS, RE-RATING ARRIVES, AND ACTIVITY REMAINS IN FOCUS. It was a near-ideal week for local assets, supported by a combination of positive developments. The most significant were the May inflation surprise to the downside and Argentina's sovereign credit upgrade, both set against an improved global backdrop. This drove a strong performance across local assets, with country risk reaching its lowest level since 2018 and the Merval closing at its year-to-date high — all in a context where the exchange rate edged lower and passive interest rates continued declining. The Treasury also executed a solid auction, easing its maturity profile. The BCRA continued purchasing FX, though at a slower pace than in May despite stronger agri-sector settlements, which may signal a pickup in import demand or lower inflows from external financing. On the downside, April activity data disappointed again, with both industrial output and construction contracting after a brief March rebound, while private credit shows no signs of recovery — a headwind for the government's public image and fiscal accounts. This week, attention will focus on country risk dynamics and BCRA purchases, while the economic calendar is packed with the fiscal balance, trade balance, wholesale prices, and construction cost index, all for May.

INFLATION RESUMES ITS DOWNTREND, supported by stable meat prices, unchanged fuel prices, and smaller utility tariff increases. May's National CPI came in at 2.1% m/m — 0.5 percentage points below April's reading and below the market consensus of 2.4% m/m, marking the best print since September of last year. Regulated prices rose just 2.4% m/m, down sharply from 4.7% m/m in April, while Core inflation slowed to 1.9% m/m, 0.4 pp below the prior month. Core ex-meat remained at 2.1% m/m, reflecting the persistence of price pressures above the 2.0% threshold. In the first five months of the year, headline CPI accumulated 14.7%, with the twelve-month reading at 33.2%. In Greater Buenos Aires, the monthly reading was 2.3% m/m, with annual inflation at 33.6%.

ACTIVITY REMAINS WEAK AND UNEVEN. After a brief March recovery, both industrial production and construction contracted sharply in April. Industrial output fell 2.1% m/m and 2.8% y/y, accumulating a 2.4% decline year-to-date and sitting 5% below November 2023 levels. Construction dropped 4.0% m/m and 2.8% y/y, though it remains up 2.1% year-to-date — still 22% below 2023 levels. The fishing sector also underperformed, with output falling 17.0% m/m and 23.1% y/y. The standout continues to be mining, which posted a 0.7% m/m and 9.5% y/y gain in April, driven by a 19.0% y/y surge in crude oil production. With these results, the April EMAE (monthly economic activity estimator) is likely to post a new decline, unwinding March's recovery. Weak activity continues to weigh on employment, the government's approval ratings, and fiscal dynamics.

ANOTHER RE-RATING FOR ARGENTINA, as S&P Global followed Fitch's lead and upgraded Argentina's sovereign credit rating to "B-/B" with a stable outlook, from "CCC+/C". The agency highlighted the fiscal surplus, the recovery of voluntary debt financing, and the gradual rebuilding of reserves as the key drivers of the upgrade. With this move, only Moody's has yet to act, and a similar upgrade there would further broaden the investor base for local sovereign debt. S&P noted that Argentina is now better positioned to meet its debt maturities over the next two years without relying exclusively on multilateral organizations. Risks remain: net reserves are still negative, inflation continues to run above the pace of FX depreciation, the economic recovery is uneven across sectors, and the 2027 electoral calendar historically complicates policy consistency. S&P left the door open for a further upgrade in 18–24 months if macro consolidation is sustained and external financing access improves.

THE BCRA CONTINUES BUYING FX. During the second week of June, the Central Bank purchased USD 437M in the FX market, bringing the month-to-date total to USD 873M and the year-to-date total to USD 10.630B. The notable feature of June has been the moderation in the pace of purchases relative to the previous two months — USD 87M/day vs. USD 140M/day — even as agri-sector settlements accelerated to USD 145M/day from USD 130M/day. This divergence likely reflects either a slowdown in FX supply from the energy and mining sectors and/or a pickup in import demand for goods, services, and external assets. Net of a USD 230M weekly loss — and USD 630M month-to-date — from the decline in gold prices and other operations, international reserves closed the week at USD 47.419B, approximately USD 450M below the prior week's close.

THE EXCHANGE RATE AND INTEREST RATES BOTH DECLINED. The official exchange rate fell 0.8% on the week to ARS 1,430.81, now 24.2% below the upper band of ARS 1,776.4. The BCRA again sold Dollar-Linked securities (TZV26) to help contain FX pressure. Financial exchange rates also retreated: the MEP dollar fell 0.6% to ARS 1,452.2 and the CCL declined 1.3% to ARS 1,495.1, with the exchange spread narrowing to 3.0%. FX futures followed the same trend, posting an average weekly decline of 1.4%, with implied depreciation in the range of 1.5%–1.9% m/m. Volume closed at USD 811M, while open interest rose USD 104M to USD 3.368B. On the rates front, the TAMAR rate closed at 21.5%, down 30 bps from the prior week and 80 bps from end-May — the lowest level of the current administration. Lending rates, by contrast, remained unchanged, as private sector credit in local currency continues to show no signs of recovery — in fact, practically flat over the past twelve months.

THE TREASURY SUCCESSFULLY EXTENDED ITS MATURITY PROFILE. At Wednesday's auction, the Treasury achieved a 120% rollover, absorbing ARS 1.04 trillion with a weighted average tenor of 940 days — roughly double the prior month. The auction did not include LECAPs (as the maturing amount was small at ARS 5 trillion), with demand concentrated in Dual instruments (72% of total) and Dollar-Linked bonds (28%). In the CER-linked Dual tranche, cut-off rates were in line with secondary market levels (TXMD8 at CER +4.76%; TXMD9 at CER +5.86%; TXMJ0 at CER +6.34%), while the TAMAR-linked Dual tranche offered a spread premium. Dollar-Linked bonds also priced with a premium in the long end. The AO28 completed its USD 300M cap across both auctions at a yield of 8.64%, slightly above secondary market. In the second auction, the Treasury received bids equivalent to 16x the offered amount, reflecting the rate compression seen on Thursday following the sovereign credit upgrade. On a year-to-date basis, the Treasury has achieved a 112% rollover, absorbing ARS 11.0 trillion, with the composition shifting progressively away from fixed-rate LECAPs — which fell from 63% in Q1 to 52% accumulated — in favor of Dollar-Linked and Dual instruments. Looking ahead, the remainder of June represents the highest-pressure month of the year, with ARS 20 trillion in maturities; the profile eases between July and November before a new peak of ARS 37.2 trillion in December.

FIXED-RATE INSTRUMENTS LED GAINS IN THE ARS CURVE. Following the inflation surprise, LECAPs outperformed, rising an average of 1.0% — led by the long end, which advanced 1.5%. After the CCL adjustment, the short end yielded approximately 3.0% EMR, the mid segment around 3.1%, and the long end around 3.2%. CER bonds advanced an average of 0.7%, led by 2027 and 2028 maturities with gains of 0.8%. The market is now pricing average monthly inflation of 1.7% for June–October and 1.4% for November 2026–April 2027. The CER curve offers real yields averaging -2.6% for 2026 maturities, +2.7% for 2027, and 6.9% for 2028. Dual bonds gained 0.5%, offering an average spread of TAMAR +0.5%. Dollar-Linked bonds declined 0.7%, consistent with the fall in the official exchange rate — partly driven by BCRA sales of FX hedges through TZV26. Dollar-Linked instruments yield Depreciation +4.0%, with the market pricing an average monthly depreciation of 1.5% through September 2026, implying a forward exchange rate of ARS 1,512.

COUNTRY RISK HITS CYCLE LOWS as hard-dollar sovereign debt posted a strong week, advancing 2.3% — well above the 0.5% gain in comparable EM peers. The primary driver was the credit rating upgrade, set against a backdrop of continued BCRA FX purchases. Country risk fell 58 bps to 437 bps, the lowest level of the Milei administration, with Argentina's spread over the EMBI Latam narrowing 59 bps to 183 bps. Globals led the way with a 2.6% gain, paced by GD35 (+2.9%) and GD41 (+3.6%). At current prices, Bonares yield between 6.4% and 9.4%, while Globals yield between 4.9% and 8.7%. Bopreal bonds rose 0.4%, driven by the Bopreal Series 1B (+3.4%), with Bopreal yields now ranging from 3.8% to 7.1%. Sub-sovereign bonds advanced 1.2%, with the Buenos Aires 2037 bond leading the move (+2.7%); sub-sovereigns now yield between 5.4% and 10.9%. Corporate bonds gained an average of 0.5%, led by New York law instruments. Under foreign law, YPF 2031 stood out with a 1.1% gain; under local law, Tecpetrol 2027 rose 1.8%. NY law corporates yield an average of 7.2%, while local law corporates yield 4.7%.

THE MERVAL CLOSES AT A YEAR-TO-DATE HIGH, rising 8.9% in pesos and 10.5% in dollar terms on the week, significantly outpacing Latam (5.2%) and Brazil (3.0%). Year-to-date, the index is up 12.4% in dollars, closing the week at USD 2,250 — its highest level of the year and just 9% below the all-time high of USD 2,450 reached in January 2025. The re-rating drove broad-based gains across all sectors, led by banks, communications, and utilities. The top performers were BBVA (+19.0%), Macro (+18.1%), and Supervielle (+16.9%), with no stocks posting declines. Among NYSE-listed ADRs, the average weekly gain was 8.4%, also led by BBVA (+17.5%), Macro (+17.1%), and Supervielle (+16.5%). The relative underperformers within the index were Vista (-3.1%), Globant (-1.7%), and MercadoLibre (-1.3%).

WEEK AHEAD

The economic calendar is packed with key releases. On Wednesday the 17th, the May fiscal balance will be published, along with INDEC's Wholesale Price Index (IPM) and Construction Cost Index (ICC) for the same month. On Thursday the 18th, the May trade balance will be released alongside June's consumer confidence reading.