Following the recent government announcements regarding economic policies, the market exhibited a significant loss of confidence, reflected not only in bonds and stocks but also in the volatility of financial exchange rates. In light of this situation, we reached out to Sebastián Azumendi, Head of International Sales & Trading at Adcap Grupo Financiero.
“The outcome of the government’s meeting with the banks was already factored into the bond prices; not reaching an agreement would have been very negative. So, achieving a resolution is a victory for the government,” said Sebastián Azumendi. “It alleviates some of the pressure, or potential pressure, on the contado con liquidación (exchange rate), which could have led to price increases if it couldn’t be controlled,” he added.
The market did not react well to announcements by Santiago Bausili and Luis Caputo.
Azumendi continued, “This all traces back to the meeting on June 28 with Bausili and Caputo, where the market was expecting concrete signals regarding the exchange rate and a potential lifting of restrictions.” He further noted, “The technical discussions between the Central Bank and the Treasury were poorly received by the market, causing an increase in the exchange rate and country risk.”
“The recent weekend measures generated uncertainty in the market,” the interviewee explained. “Typically, when the exchange rate decreases, bond prices go up, and vice versa. However, the opposite occurred this time: the exchange rate appreciated significantly, yet bond prices fell by 2 or 3 points,” he added.
Expectations of Foreign Investors
Additionally, the specialist indicated, “The Central Bank’s message was misinterpreted. Foreign investors want inflation to be controlled according to Argentine standards.” He emphasized, “Now, the question is about the exchange rate and what will happen with the crawling peg. The decision to use reserves to lower the exchange gap, leading to a loss of reserves, has signaled weakness.”
Azumendi expressed, “A few months ago, foreign investors were celebrating each of Milei’s victories, the initial inflation rates, tax collections, and surpluses, but now they want concrete signals.” He concluded, “The market rose from 20 to 60, then retracted by about 15%, and now comes the hardest trade decision: what to do in Argentina.”
