The market reaction to Javier Milei’s speech was positive, but consumption sinks to minimum levels

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The financial market reacted positively to the president’s speech, Javier Milei, before the National Congress in which he ratified his government plan whose central core is the balance of public accounts.

However, the contrast with the real economy is reflected in the 25% drop in consumption reported by the Argentine Confederation of Medium Enterprises (Came).

On the first day of operations after Milei’s participation before Parliament, the dollar fell in all its versions, especially in futures, while bonds and stocks registered increases. As a consequence, Country Risk fell to its lowest value in 29 months.

The blue dollar sank $35 to trade at $985 for purchase and $1,015 for sale, with the additional data of a reduction in the spread between the tips that was usually $50. In Córdoba, the parallel currency traded at $ 1,026 for sale.

The drop occurred at the beginning of operations this Monday and deepened throughout the round.

The same thing happened with future prices, which plummeted by almost 6%. At the end of March, positions were closed at $873, which implies a devaluation of 3.43%, against the Central Bank’s decision to maintain the crawling peg at 2% monthly. By the end of April, operations were agreed at $933, which means an increase of 6.9%, somewhat further from the official promise.

The official wholesale dollar was set by the monetary authority at $844, with an advance of 0.18% that responds to the sum of the two weekend days without operations.

In this way, the gap between the parallel dollar and the wholesale dollar was 20%.

Meanwhile, the MEP was on the verge of breaking $1,000 by closing the day at $1,029, while the Cash with Settlement (CCL) fell to $1,065.

Likewise, the export dollar fell 0.05% to $882.88.

Positive market reaction to Javier Milei’s speech

Economist Agustín Monteverde considered that this market response responds to “the firmness of the fiscal plan and the monetary plan.” However, he warned that “there is still very hard work ahead” that “will not be short.”

Monteverde spoke out in favor of accelerating the pace of devaluation to prevent the economy from losing competitiveness, an idea that was also proposed in the last few hours by the former Minister of Economy, Domingo Cavallo.

“It may be an appropriate measure as the thick harvest approaches,” said the economist.

Analysts fear that the expectation of a devaluation will delay the liquidation of the harvest and generate additional and unnecessary pressure on the exchange market.

The speed of the devaluation is one of the discussions that continues in the financial market, which considers that the 2% monthly intended by the BCRA is insufficient.

With this drop, the price of the dollar returned to the values ​​​​that were managed before Friday, March 1, when in the hours before the Milei speech a series of rumors had triggered the price of the currency until taking it to the zone of $ 1,050 in the parallel market and $1,070 in the MEP.

Meanwhile, the Central Bank purchased US$303 million this Monday, the most important of the year. In this way, it totals US$ 371 million in the month and US$ 8,860 since December 13. Gross reserves stood at US$27,639 million.

“Another day where a lot of exports appeared, which was also seen in the financial dollars that fell again by close to 2% after the rise they had on Friday with the rumors of a possible exchange rate unification that was not announced,” explained the consultant. ABC Markets.

However, Andrés Reschini from F2 Soluciones completed the picture by pointing out that there was little private access to the purchase of foreign currency.

Analyst Gustavo Ber pointed out that “the favorable expectations of operators have been deflating financial dollars, also in the face of renewed bets on carry-trade, although levels already close to $1,000 could act as a psychological floor, as they have been. threatening, within a context of high background nominality.”

For its part, the sovereign bond market also had a positive day, with general increases. The advance of the AL35 in dollars, which rose 3.7%, stood out. The same title but with national legislation advanced 1.8%.

This good performance of sovereign securities caused a new drop in Country Risk, which stood at 1,583 basis points, the lowest value since September 20, 2021.

Fluctuations were observed in the stock market. The Buenos Aires stock market started with a strong increase of up to 4%, then reversed the trend and the MERVAL closed with a drop of 0.7%

On Wall Street there was a similar movement, but stocks such as YPF and BBVA rose 5% and 4.7%, respectively.

But the positive data on the financial level contrasts with a sharp drop in consumption that is shaking several sectors of economic activity.

“The fall in consumption has to do with the monetary squeeze and that is largely containing prices,” Monteverde said in journalistic statements.

In its latest report, the Argentine Confederation of Medium Enterprises (Came) indicated that consumption fell 25.5% in February year-on-year and 27% in the two-month period. If February is compared to January, the contraction was 7.4%.

“February was pointed out by many businesses as a month to be forgotten, with consecutive days where no sales were recorded. Families made all their financial problems visible and there was lack of savings in households (expenses were greater than income) to make ends meet. Likewise, vacations took away the excess money,” stated the entity’s report.