Decisive hours: Dollar bonds resume decline

The main US stock indices open slightly higher as they continue to digest yesterday's press conference and changes in monetary policy from the Federal Reserve.

Argentine bonds open lower, in the middle of key hours in relation to the agreement with the IMF.

Dollars leave banks due to the rise in the blue and uncertainty

Blue dollar today: how much is it trading this Thursday, January 27

Debt payment

Hours away from having to pay more than US$700 million to the IMF, bonds continue to operate under pressure. All sections of the local sovereign curve operate in red. The shortest part falls 0.71% in the case of Global 2029 and 0.83% in Global 2030.

In the middle part of the curve, the falls are 0.95% in Global 20335 and 0.96% in Global 2038, while the debt for 2041 and 2046 shows losses of 0.91% and 0.79% respectively.

The lack of an agreement with the IMF makes the market nervous, especially considering that Argentina must pay US$730 million to the IMF this Friday and another US$371 million next Tuesday.

In the last month, the debt fell 10% in different sections of the curve and the bonds operate with parities below 35%, so the market remains nervous and mistrusts the capacity and /or will of the Government to pay in relation to its debt.

From Criteria they point out that the recent circumstances in relation to the negotiations with the IMF, which lead to an expectation of an agreement, had a negative impact on the market.

"Dollar bonds made new price lows, yields on the shortest tranche even exceed 25%," they said.

In addition, in relation to the next payment from Criteria, they warn that, although it may be a good sign, it also puts the Central to the limit in terms of its reserves.

"Naturally, if the government were to make the payments it could be interpreted as a sign of goodwill. However, only these first maturities put significant pressure on the BCRA since they represent close to half of the net reserves in the BCRA, estimated at US$2,185 million," they said.

Capital Markets Argentina (CMA) analysts stated that ambiguous political signals do not help at a time of definitions.

"Dollar bonds discount very negative scenarios, with parities around 28% for local law assets and 30% foreign law. The Downside is limited in the event of default, which could see them at levels around 25 %. In the event that there is an agreement, or at least the pending payments are met in a timely manner, a rebound could be seen from very depressed levels," they commented.

In addition, they argued that although an agreement with the IMF is the most logical scenario, one of going into arrears for a short time with the IMF is beginning to gain greater preponderance.

"The outlook for an Extended Facilities deal looks more difficult with the taking on of a new Western Hemisphere managing director at the IMF who is known for his orthodoxy, and will not accept too loose fiscal paths< /u>", they estimated from CMA.

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Yesterday, bonds were able to recover thanks to speculation about a possible deal.

This allowed the country risk to move away from its recent highs of 1,972 points and return to operating below 1,900 points, settling at 1,887 points at the beginning of Thursday.

In this way, the indicator rises 75% since the debt swap carried out by Minister Guzmán in September 2020 when at that time he restructured US$ 65,000 million with private creditors.

In the case of shares, these operate with the majority of increases led by the technology giant, MercadoLibre, which rises 4.4%, followed by IRSA, Tenaris, Globant and TGS, which gain 2.5% and 4.2% .

For their part, the shares of YPF and Vista Oil advanced 1.1% while the shares of the financial sector operate unchanged or slightly down.

Wall Street accommodates the Fed

Globally, stocks rehearse a rebound on Thursday. The Dow Jones rises 1.2%, the S&P500 gains 1.8% and the Nasdaq rebounds 1.7%.

In Europe, stocks show little change, with the Stoxx600 rising 0.72%, with the FTSEMIB in Milan and the FTSE100 in London rising the most, 1.42% and 1.42% respectively.

Stocks are under pressure globally asinvestors are adjusting their portfolios amid changes in Federal Reserve monetary policy from rising inflation (7 % annual) and the drop in unemployment in the US (3.9%).

Finally, and as economic data, it was known before the opening that the US economic growth accelerated in the last three months of last year, driven by the reconstruction of inventories and a rebound in spending on the consumers.

Gross domestic product expanded at an annualized rate of 6.9% after a pace of 2.3% in the third quarter, the preliminary estimate from the Department of Commerce.

The personal consumption expenditures price index excluding food and energy, a measure of inflation closely watched by Federal Reserve officials, grew an annualized 4.9% last quarter. The median forecast in a Bloomberg survey of economists called for a 5.5% GDP increase.

Adjusting to the Fed

Yesterday, the Fed's Monetary Policy Committee wrapped up its two-day meeting with a slightly more hawkish than expected statement.

Fed says rate hikes will "soon be appropriate"; pointing to March, but without providing further signs and with a less restrictive tone than expected.

However, the Fed released a statement explaining that Quantitative Tightening will begin after the rate hike process begins and will be implemented primarily while assets mature.

Grupo SBS analysts added that as expected, the Fed kept the reference rate in the 0.00-0.25% range, while making no changes to the rate of tapering, which would end in March .

Nevertheless, the statement clarified that "it will soon be appropriate" to raise rates, paving the way for the first rate hike in March.

"The Fed stated that "it is appropriate at this time to provide information on the planned approach to significantly reduce the balance sheet", in which they assured that this reduction would begin once the tightening began. Yes Although the initial market reaction to the statement was not bad, the statements at a press conference by Fed Chairman Jerome Powell put uncertainty in the investing world", they clarified from Grupo SBS.

Specifically, Powell spoke in favor of withdrawing the stimuli while affirming that the conditions of the economy are today better than those of 2015 at the time of starting the tightening of that time, something that was perceived by certain part of the market as an indication that the rate hike could be greater than the 25bps expected by the market.

With a similar vision, Adrián Yarde Buller, chief economist and strategist at Facimex Valores, stated that everything was going relatively in line with expectations until the press conference of Fed Chairman Jerome Powell began, which surprised him by being very hawkish.

"Powell confirmed that the FOMC "has the vision" to raise rates in March, did not deny the possibility of raising 25 basis points in consecutive meetings (instead of one increase per quarter) and also did not rule out more aggressive hikes of 50 points Although very restrictive, he referred to the labor market as "historically tight" and indicated that there is plenty of room to raise rates without affecting activity, while he was comfortable with the recent tightening of the financial conditions," he said.

In addition, the specialist stated that after Powell's words, the market discounts rate increases in the next 2 meetings (March and May), 80% probability of a third increase in the next meeting (June) and 78% probability that there will be 5 rate hikes this year.