STABLE WEEK FOR THE LOCAL MARKET, country risk was unchanged, the peso curve saw a slight pullback while equities retreated. Inflation slowed further, the Treasury comfortably rolled over maturities, the Central Bank stepped up its purchase pace on higher inflows from financial dollar operations, and the exchange rate and interest rates held stable. The negative note came from June's fiscal result, which suffered from falling tax revenue and fell short of the fiscal target with the IMF. This week's focus will be on June's goods trade balance data and May economic activity and wages data.

DISINFLATION CONTINUES, June's National CPI slowed again from March's peak of 3.4% m/m, posting a 1.9% m/m increase, the best reading since August of last year. The month's push came from seasonal prices, up 3.4% m/m, followed by regulated prices at 2.3% m/m, while Core CPI rose just 1.6% m/m, the lowest reading since May 2020 at the height of the pandemic. With this result, retail inflation over the last twelve months stood at 33.5%. The wholesale price index (IPIM) followed the same trend, rising only 1.1% m/m in June -vs. 2.5% m/m in May-, with domestic goods up 1.0% and imported goods up 2.3%. The Greater Buenos Aires Construction Cost Index (ICC), meanwhile, held at 2.6% m/m -barely below May's 2.7%-, driven by all three components: labor (+3.3%), general expenses (+2.8%) and materials (+1.8%).

DEFICIT IN JUNE, the National Public Sector's primary result posted a deficit of 0.06% of GDP, versus a surplus of 0.1% a year earlier. This deterioration was driven by an 8.5% y/y real drop in revenue -explained by lower export duties, income tax and VAT collection- while primary spending grew 3.0% y/y, the largest increase since February of last year -mainly driven by higher subsidies and pension payments, while other components kept declining-. With this result, in the first half of the year the national government posted a primary surplus of 0.7% of GDP, almost identical to the same period last year, while the overall result showed a surplus of 0.1% of GDP, versus 0.3% of GDP in the first half of last year. With spending having reached a limit in terms of GDP, sustaining this performance will require an improvement in activity to boost revenue and meet the annual IMF target.

THE CENTRAL BANK STEPPED UP PURCHASES, buying USD 1,154 M in the FX market this week, averaging USD 231 M per day -with a peak of USD 532 M on Tuesday- well above the USD 40 M daily pace of previous weeks. The acceleration reflected higher inflows from corporate bond (ON) issuances in prior months, while agricultural settlement remains firm, even better than in June. With these operations, the Central Bank has accumulated purchases of USD 1,444 M so far in July and USD 12,619 M year-to-date. Despite the strong volume purchased, gross reserves closed the week at USD 48,784 M, just USD 60 M above the prior week, as purchases were offset by other public-sector operations.

THE EXCHANGE RATE EASES, the official exchange rate fell 0.7% during the week to close at $1,480.12, down 0.2% so far in July and 23% below the band's ceiling ($1,828). Financial dollars were mixed with little change on the week: the MEP fell 0.2% to $1,522.33 and the CCL rose 0.3% to $1,576.43, though for the month they are up 0.5% and 0.9% respectively, with the exchange spread ("canje") at 3.6%. Futures tracked the official rate, down an average of 1.1% on the week, implying a 0.7% m/m devaluation in the July contract and a range of 1.4%-1.7% m/m for the following months, with implied NAR between 17.5% (August) and 23.7% (June 2027).

THE TREASURY COMFORTABLY ROLLED OVER ITS MATURITIES, taking advantage of ample liquidity, the Treasury achieved a 183% rollover rate, issuing $5.44 trillion against $2.97 trillion in maturities, thereby withdrawing $2.47 trillion from the system. Demand concentrated in fixed-rate instruments -the November Lecap S30N6 accounted for 44%- rounded out by dollar-linked (25%), CER (20%) and Tamar (11%) bonds. Rates cleared slightly above the secondary market across all tenors: the Lecap S30N6 at 1.92% EMR (vs. 1.84%), the CER TZXM8 at 8.07% (vs. 7.97%), the Tamar TMG28 at 8.06% (vs. 7.76%) and the dollar-linked TZVD8 at 9.08% (vs. 8.69%). The average tenor shortened to 358 days, the lowest since February, on stronger demand for shorter maturities. Separately, the Treasury reopened dollar financing with the new Bonar AO29 at an 8.29% yield, allotting USD 620 M between the first and second rounds after receiving USD 1,046 M in bids in the first.

A TOUGH WEEK FOR PESO BONDS, in a week in which the Treasury withdrew pesos from the market, peso assets traded weak, with limited moves and a slightly negative bias. CER bonds led with a 0.2% decline, with real rates ranging from CER -3.8% on the short end to CER +8.1% on the long end, and breakeven inflation at 1.8% m/m for July, easing to 1.4%-1.5% m/m from August onward and totaling 27.8% for 2026. Duals fell 0.2%, yielding Tamar+1.4%, with a breakeven TAMAR of 20.7%-21.9% on average through maturity. Lecap notes fell 0.4%, with the curve trading in a range of 1.8%-1.9% EMR. Dollar-linked bonds were the worst performers, down 1.0%, in line with the drop in the official exchange rate, yielding devaluation +2.4%/+8.2%, with an implied devaluation of around 1.3% m/m toward September (implied FX rate of $1,530) and 1.7%-1.9% m/m toward the 2027 tranche ($1,740-$1,790).

DOLLAR BONDS KEEP GRINDING HIGHER, sovereign hard-dollar debt closed another positive week, with the index up 0.3%, a notable result considering peers fell 0.1%. Bonares led with a 0.4% gain, while Globales rose 0.3%. The AE38 was the top performer, up 1.1%, followed by the GD46, up 0.9%, while the AL41 was the worst performer, down 0.3%. Country risk closed at 418 bps and the spread versus the EMBI Latam widened 12 bps to 166 bps, reversing part of the compression of prior weeks. At these prices, Bonares yield between 5.8% and 8.9%, while Globales yield between 5.3% and 8.4%. BOPREAL bonds rose 0.3% on the week, with the Bopreal Series 1 A leading gains, up 0.8%. The rest of the curve traded within a tight range, with the Bopreal Series 4 A the only bond in the red, down 0.4%. At these prices, the Central Bank's curve yields between 2.9% and 7.1%. Provincial bonds closed the week with a slight 0.2% gain. Rio Negro 2028 was the top performer, up 1.4%, while Entre Ríos 2028 was the worst performer, down 0.1%. In yield terms, the segment offers rates of between 6.0% and 10.4%. Corporate bonds closed the week unchanged. Argentine Law bonds again outperformed New York Law bonds, up 0.2% versus no movement for instruments under foreign law. Under local law, the top gainer was Pan American Energy 2029, up 2.0%. Under foreign law, YPF 2034 posted a 0.3% gain. In yield terms, New York Law corporates offer an average yield of 7.2%, versus 4.5% for local law bonds.

EQUITIES DECLINE, the Merval closed a negative week, down 2.8% in pesos and 3.1% in CCL dollars, pulling back to USD 2,022. At the sector level, energy was the only one in positive territory, while banks, materials and consumer stocks led the declines. Among local shares, YPF (+3.6%) and Telecom (+0.4%) traded higher, while BBVA (-7.8%), Galicia (-7.0%) and Central Puerto (-6.2%) led the declines. For New York-listed shares, the average decline was 2.0%, with Globant (+8.1%) and YPF (+3.8%) as the positive exceptions, while BBVA (-8.1%), Galicia (-8.1%) and Central Puerto (-6.4%) posted the steepest losses.

WEEK AHEAD

  • On Monday, May's wage index comes out—it should confirm the pickup seen in April—along with June's trade balance result.
  • On Wednesday, May's EMAE (economic activity index) is released, which will show whether activity rebounds after April's decline, in a recovery that remains uneven across sectors.

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