After a quieter week in the city of Buenos Aires, these are the economic and financial variables that the market should closely follow
By Juan Pablo Albornoz
08/05/2023 – 07,30hs
As we anticipate, Expected inflation rose: the market consensus raised its projection to 126% per year for 2023, 16 points more than what was projected in March. In addition, inflation would not fall below 7% per month in the next six months.
The expectation for the coming year was also corrected upwards (107% annual), but the key is in the dynamics: the market sees inflation accelerating to almost 150% per year by mid-2024. Has the time come to be honest about the official exchange rate and regulated prices (energy, transportation)? The magnitude and speed of the adjustment are unknown, but surely the economy will sooner or later release pent-up inflation.
Has the optimism of the second semester returned? The market assumes that inflation will slow down in the second half of 2024. Is it possible? Like everything in economics, “it depends”. In my opinion it looks very optimistic and difficult. It will depend on the success of the necessary stabilization plan that the country will have to face and, crucially, the magnitude of the inheritance received.
Then the economic and financial “traffic light” of the week:
Red lights: inflation and reserves
The inheritance in terms of prices continues to be complicated. Today the CPI of CABA will be known and on Friday the national inflation for April. Almost eight? All private measurements were above 7% and food prices continue to spike, the most painful factor for the pocket. The recent escalation of the dollars triggered price remarks that should have an impact on the April record. Otherwise, it will be necessary to make a personal mark on the May report. The last time the government missed the gap (June-July 2022), quarterly inflation jumped from 90% to 120% annualized. The April bullfight already caught us with inflation running at 120% annualized: Does inflation go up another notch? Let’s hope not.
Net reserves are at the limit and under the IMF methodology they are already negative. While the Central Bank has approximately 1.3 billion (M) SDRs left, in June there are maturities with the Fund for more than 2,000. There is not enough cash to pay and the supply of dollars, through drought, continues to be strongly affected. It transpired that the Government wants to advance future disbursements. Let’s not kid ourselves: the country does not have a problem of timing in disbursements, you have a flow problem. What does this mean? Unlike 2022, this year the disbursements that the Fund lowers us are less than the maturities that we have to pay. Advance disbursements already planned will bring very short-term oxygen to the reserves, but be careful with the dribble: the same doubts will return recharged. However, if the Government obtains additional financing it is another song. there is the key.
Yellow lights: industry and construction
On Wednesday, the INDEC will publish the activity of the construction and manufacturing industry for March. Construction lost dynamism in the first two months (-4.6% January-February 2022) and according to Construya, it also suffered in March, despite the fact that cement shipments went well according to AFCP. Until March, with the blue dollar still relatively calm, the cost of construction was not as encouraging as at other times: if we take the index prepared by INDEC and measure it in blue dollars, compared to 2021 materials became more expensive on average by 16% in banknote dollars (+40% vs 2020).
Regarding industry, according to FIEL, activity fell by 0.7% seasonally adjusted monthly in March, mainly by Metalworking and Chemicals and Plastics. Automotive production brings some optimism: almost 30,000 more units were produced in the first quarter than in the first quarter of 2022 (vehicles for export gain weight).
Green light: fixed terms and MEP dollar
The Central Bank will publish today the monthly monetary report for April. Private fixed terms had a good performance in April: the monthly average stock grew 8.7% versus March without seasonal adjustment, running above inflation and the “endogenous” growth generated by the mere accrual of interest. With the rate hike, a 30-day retail fixed term yields 7.48%. A wholesaler yields 7.03% per month.
The risks of making a rate in pesos, the misnamed carry trade, they are very tall. However, The Government once again made it clear that it will try to contain the gap “however”. Through interventions, the “gap gap” returned: the implicit dollar in shares, CEDEARs and those traded in SENEBI (the OTC market of the local stock market, similar to the blue but legal) exceeds the MEP that arises from the bond operations most common (GD30, AL30). That MEP is around $433. If you think that by June 7 the ticket will cost less than $465, a fixed term would pay more… although I don’t know how peacefully you would sleep.
