In a shortened week, the local market displayed a more fragile tone. Sovereign risk continued to move sideways around the 500 bps area, while equities failed to gain traction—even after the Lower House approved the Labor Reform. Meanwhile, the peso yield curves showed weakness for most of the week and only recovered toward the close, amid tighter liquidity conditions reflected in upward pressure on rates. However, higher rates, combined with agricultural FX supply and financial dollar inflows, allowed the Central Bank (BCRA) to extend its reserve accumulation streak, even as the exchange rate deepened its decline. On the macro front, January data delivered positive signals, with a significant improvement in the trade balance and public accounts maintaining a surplus. Higher rates, a stronger peso, and fiscal surplus remain the government’s policy mix to bring down inflation, which is proving stickier than expected, with economic activity acting as the adjustment variable. This week’s focus will be on the Treasury auction and its ability to roll over maturities at rates aligned with the secondary market, without exacerbating liquidity tensions. In parallel, December’s EMAE (monthly economic activity index) will be released—a key data point to assess whether activity is stabilizing after two consecutive months of contraction—along with January’s FX balance sheet, which will provide greater clarity on the origin of the dollars purchased by the BCRA.

Lower House Approves Labor Reform. The ruling coalition advanced the Labor Reform in the Chamber of Deputies, approving the bill that had already received Senate approval. The initiative passed with 135 votes in favor and 115 against, with no abstentions. Support included 95 deputies from LLA, alongside backing from PRO, segments of the UCR, MID, and provincial blocs. During the debate, Article 44—which proposed reducing wages during sick leave or non-work-related accidents—was removed, preserving the current 100% wage payment regime in such cases and requiring the bill to return to the Senate for final approval. The remaining key provisions include more flexible frameworks for working hours, incentives for employment formalization, and adjustments to severance calculations and employer contributions.

Fiscal Surplus Narrows. In January, the National Public Sector recorded a primary fiscal surplus of $3.13 trillion (0.3% of GDP) and a financial surplus of $1.11 trillion (0.1% of GDP). It should be noted that the latter excludes interest payments corresponding to capitalizable bonds and bills. The result was supported by extraordinary revenues of $1.04 trillion linked to the auction for the private operation of the Comahue hydroelectric dams. In real terms, primary spending declined 0.7% y/y, while total revenues fell 1.2% y/y, reflecting weaker tax revenues and a marked increase in non-tax revenues driven by those extraordinary inflows.

Trade Balance Improvement Continues. In January, the trade balance posted a surplus of USD 1,987 M, compared to USD 162 M in the same month of 2025, marking 26 consecutive months in surplus territory. Exports rose 19.3% y/y to USD 7,057 M, driven by an 18.5% increase in volumes and a 0.7% rise in prices. By major category, industrial manufactured goods expanded 37%, primary products grew 35.4%, and agricultural manufactures increased 10.1%, while fuels and energy declined 14.1%. Imports fell 11.9% y/y to USD 5,070 M, with volumes down 12.1% and prices up 0.2%. Declines were recorded in capital goods parts and accessories (-32.4%), intermediate goods (-23.4%), fuels and lubricants (-21.0%), and capital goods (-8.3%), while passenger vehicles (+106.6%) and consumer goods (+5.8%) increased.

International Reserves Increase. The BCRA continued purchasing foreign currency in the official FX market (MLC), acquiring USD 323 M during the week (USD 107 M per day on average), bringing month-to-date net purchases to USD 1,255 M and year-to-date purchases to USD 2,413 M. As previously noted, the FX surplus is supported by an improved trade balance—solid agricultural liquidation and lower imports—and stronger financial inflows from external loans and likely reduced demand for foreign assets, supported by higher peso interest rates. During the week, FX inflows from dollar-denominated provincial bond issuances—estimated to include Santa Fe—were also reported. In this context, gross reserves increased by USD 1,097 M to USD 46,261 M. However, net reserves remain negative at approximately USD 19,000 M under the IMF definition, and around USD -2,100 M under the traditional definition.

Exchange Rate Deepens Its Decline. Over the past week, the official exchange rate fell 0.8%, closing at $1,384.21, standing 15.3% below the upper band ceiling. Financial dollars recorded sharper declines, with the MEP down 2% and the CCL down 2.3%, closing at $1,394.1 and $1,436.7, respectively, while the CCL-MEP spread remains elevated at around 3.1%. The exchange rate decline persisted despite the BCRA’s reserve purchases, supported by strong agricultural FX settlement, financial dollar inflows from corporate bond issuances and external loans, and a context of elevated interest rates that continue to fuel carry-trade strategies. Lower hedging demand is also reflected in FX futures contracts, which fell 1.5% during the week, with sharper declines in February (-2.2%) and March (-2.0%) contracts. Average daily trading volume remained stable at USD 904 M, while average open interest increased by approximately USD 150 M to USD 5,291 M. Futures contracts price in an implied monthly depreciation of around 2.2%–2.3%, while implied rates remain in the 27%–30% NAR range.

Rates Under Pressure. This week, rates remained under strain following the February 11 auction, in which the Treasury absorbed $1.7 trillion. Both the overnight repo and the one-day caución rate increased relative to the previous Friday, reaching around 40% NAR, up from 34%–35% NAR the week before.In this context, peso curves traded weakly for most of the week, although they showed more momentum on Friday. CER bonds led performance with a 2,9% gain for the week and are yielding CER +5% in the 2026 segment and CER +7% in the rest of the curve, while pricing in implied inflation of 2,1% MoM between February and April and 26,2% cumulative in 2026. Dual bonds followed, rising 2,8%, and offer a 4,2% spread over the Tamar rate. Meanwhile, the fixed-rate curve advanced 2,6%, yielding 36% NAR (3% EMR) at the short end and 31% NAR (2,6% EMR) at the long end. Finally, dollar-linked bonds also posted gains of +1,7%. At current levels, they yield an average devaluation +3,2% and price in an implied 5% step devaluation through April and 11% through June.

Dollar-denominated Debt Consolidates After Recent Gains. Dollar-denominated sovereign debt closed the week down 0.1%, outperforming comparable credits (-0.7%), though slightly lagging the broader LatAm index, with the spread widening to 231 bps from 228 bps. As a result, country risk ended at 518 bps, despite legislative progress on the labor reform and the continuation of BCRA reserve purchases. The adjustment was concentrated in the Global bonds, which declined 0.2% on average, with larger drops in GD41 (-0.3%) and GD30 (-0.2%). The curve remains positively sloped, with yields ranging between 5.6% and 9.0%, while Bonares yield between 7.5% and 9.5%. Within the BCRA segment, Bopreal bonds fell 0.5%, with more pronounced declines in Series 3 (-2.0%), partially offset by gains in Series 1-A (+2.3%), offering yields between 3.8% and 7.8%. Subsovereigns showed greater stability, rising 0.1% on average, with yields between 5.6% and 11.3%. Tierra del Fuego 2027 stood out (+0.3%), while Buenos Aires 2037 declined 0.3%. Finally, corporate bonds advanced 0.1% during the week. Vista 2035 (+0.9%) was among the strongest performers. Yields range between 6.0% and 9.5% under foreign law and between 4.5% and 9.0% in the local market.

Merval Moves Sideways Around 2,000 Points. The Merval fell 6.2% in peso terms, while in CCL dollar terms it remained unchanged, closing at USD 1,999. The banking sector, which had been hit the previous week, and the energy sector, supported by higher oil prices, pushed the index upward, while industry and materials were once again under pressure. In dollar terms, the strongest gains were posted by Galicia, ByMA, and Banco Macro, rising between 11.9% and 14.1%, while Aluar declined 3.9%. Argentine stocks listed on Wall Street gained 2.7% for the week, showing greater alignment with global equities, led by Vista, Galicia, and Adecoagro, which rose between 6.6% and 8.5%. Meanwhile, Globant (-7.9%), Edenor (-2.3%), and LOMA (-1.7%) recorded the sharpest declines.

WEEK AHEAD:

• This Wednesday, the final Treasury auction of February will take place, with maturities totaling $7.2 trillion, mainly concentrated in the S27F6 Lecap. With liquidity somewhat tighter following the previous placement, the Treasury will likely aim to roll over most of these maturities without further increasing peso absorption.
• On the macro front, December’s EMAE will be released on Tuesday, against a backdrop of weak economic momentum, with activity posting two consecutive monthly contractions.
• Equally important will be the publication of January’s FX Balance Sheet, which will help clarify whether the current FX surplus reflects an improvement in the current account, stronger financial dollar inflows, or a combination of both.