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Dear ArgenGrowther,

It was a short week with not much activity and relatively stable.

Financial ArgenGuide: Stability in Argentina? What's that?

Data:

• USD MEP: -1.94%

• Country Risk: 1439; +0.49%

• AL30: +1.33%

• BCRA (Central Bank of Argentina):

  • Purchased foreign currency amounting to USD 261 million.

  • Reduced Reserves by USD 889 million in the last week. Currently at USD 27,146 million.

• EMAE (Monthly Estimator of Economic Activity) January:

  • Monthly: -1.2%

  • Year-over-year: -4.3%

  • Since October: -5.8%

Now, what does all this mean?

Positive or negative? Spoiler alert: we see stability as something positive in a country where everything changes week by week.

Dollar. A week with little volatility, slightly appreciating the peso and continuing with the null gap (discounting PAIS tax). We insist that the rate cut is already established, and the market increasingly believes in the 2% crawling peg.

Greater stability = Greater predictability

Greater predictability = Improvement in economic expectations

BCRA Reconstitution. The BCRA continues buying foreign currency and facing the payment of obligations. This week, the reserves fell mainly due to a payment of USD 616 million on March 26 for the bond of the GDP Coupons lawsuit.

We have yet to see how reserves will behave when imports normalize. As we can see, the paid imports of the last months have been well below the historical average.

Unpaid imports = Higher dollar obligations

We also see how accrued imports fall, which negatively impacts activity.

Fewer imports = fewer inputs for economic activity

Fewer inputs for economic activity = Greater recession

Less activity = Lower inflation. The country is experiencing a total decline after the third consecutive month of economic activity contraction. This point plays very much in favor of the battle the government is playing against inflation.

High-frequency data continue to show a deceleration of inflation. We had a week with an average inflation of 1.3%, the lowest weekly inflation of the year.

Real-term contraction of the monetary base + recession = Brake on price increases

Capital Markets - Actionables

There's not much change, given the stable scenario of the last week. Opportunities in sovereigns and carry trade as an option continue, closely monitoring the government and its actions with the peso.

Brief Reflection

It's been a long time since we saw a week with so little news and almost no volatility, a positive aspect in a country that gives us no rest.

Expert Outlook: We see that inflation continues its downward path, a fundamental aspect for anchoring expectations that the government seeks as the axis of economic policy.

Argentina needs a highway for doing business, not a street full of potholes. Are we getting closer? Today, yes.

See you next week, Vamos Argentina!

Nau Bernués
Founder, ArgenGrowth

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