by Juan Pablo Marino

Following the frenzied definition of candidacies last weekend, investors sped up the so-called “electoral trade” on Monday, June 26, after the news that Economy Minister Sergio Massa will lead the ticket. Argentine bonds and stocks saw record rises, in some cases up to double digits, both in Wall Street and the local stock market. Meanwhile, the country’s risk (the EMBI+ index) sank to a four-month minimum, the S&P Merval set a new four-year record, and the financial dollar rates dropped heavily.

The presidential ticket led by Massa and the current Chief of Staff Agustín Rossi for vice president was welcomed with great satisfaction by the market, aside from some doubts that had grown among traders during the weekend.  

But investors cleared those doubts on Monday, and sovereign bonds in dollars flew high on Wall Street: hikes were spearheaded by Global 2030 or GD30 (+7%); Bonar 2030 or AL30 (+6.6%), and Global 2046 or GD46 (+5.8%). At the Buenos Aires stock exchange, progress went up to a mean of 5.7%. The average price of Globals moved to US$31 against Friday’s US$29.86.

Hence, EMBI+ Index sank by 5.7% to 2100 basic points, the minimum mark in almost four months. This indicator reached a historic peak of 1976 points in July last year after the 1083 mark from the debt restructuring of 2020.  

Economist Gustavo Beer said that the Argentine financial market had a “favorable interpretation” of what they considered to be an improved political offer, which then “had a positive effect on the dynamics of local securities”.

The assets “extended the ‘electoral trade’ that was already in the works, in an anticipated wager on a political change of times,” he added.  

Up until Friday afternoon, the Unión por la Patria (UxP) front was heading for primaries between the current Interior Minister Eduardo “Wado” de Pedro and the Argentine Ambassador to Brazil Daniel Scioli. However, only 24 hours before the deadline last Friday, UxP made a U-turn and announced a unified ticket headed by Massa. 

“A divided ruling party was risking that its most-voted candidate in the primaries would end up in fourth place. With the nomination of Sergio Massa, they have a very good chance of getting the most-voted individual candidacy in the primaries,” said analyst sources at IEB. “This way, he would displace Javier Milei, who appeared to be the most-voted candidate in the primaries according to the polls.” 

In turn, the opposition coalition Juntos por el Cambio (JxC) selected Buenos Aires Mayor Horacio Rodriguez Larreta and the former minister Patricia Bullrich as candidates. 

“Faced with Sergio Massa’s nomination, and since they see the current economy minister as the most ‘market-friendly’ figure, financial assets went up strong,” said sources from Portfolio Personal Inversiones (PPI).

The choice of moderate candidates plays in favor of the market, according to traders who also point out that their eyes are still set on the negotiations with the International Monetary Fund (IMF) to obtain disbursements and renegotiate goals. 

“The market had a positive reading of the ruling party’s ticket, since it lowers the probability of a break up with the IMF or any form of radical economic policies in the short term, while also showing a certain loss of power by Kirchnerism,” said economist Roberto Geretto from Fundcorp.

“The local market may look favorably on the electoral scenario which now has moderate, pro-market candidates who are familiar with investors,” said Javier Timerman from Adcap Grupo Financiero. “There could be a rally of financial assets, but I don’t think it will be very strong, mostly because people abroad are more skeptical than before.”   

Meanwhile, with the meager results La Libertad Avanza (Javier Milei’s party) is getting in provincial elections, plus his recent drop in the polls and his potential loss of momentum, the ruling party appears to increase their chances of getting into a possible final round. 

“The scenario of a potential runoff between JxC and La Libertad Avanza is losing ground against a final match between JxC and UxP,” said sources in IEB.  

Within JxC, Massa’s candidacy “appears to favor Patricia Bullrich, since Massa’s potential voters tend to be more similar to Horacio Larreta’s. In summary, Massa’s nomination creates a change of expectations in the electoral board,” say sources from the trading company led by Juan Ignacio Abuchdid.  

Apparently, now “there is a lower risk of a turbulent transition and the market is assigning smaller chances to scenarios of binary results, and bigger ones to moderate scenarios that will seek to stabilize the economy with pro-market policies,” said Adcap Grupo Financiero’s fixed-income strategist Javier Casabal.

S&P Merval y ADRs

At the Buenos Aires stock exchange, the S&P Merval went up by 2.8%, to 432,406.17 points, after a historic peak in pesos of 442,749.42 units. In turn, the stock panel of leading Argentine companies, measured in dollars with the CCL exchange rate, rose 4.7% to 847.44 points — the highest since before the 2019 primaries. 

In the local stock market, highlights included stocks by Edenor (+17.1%); Banco Macro (+7.4%); banco BBVA (+6.8%), and Mirgor (5,2%).

It’s worth mentioning that Massa will continue in office during his presidential campaign. After the ticket was announced, he even held a series of meetings with close collaborators, like Chief Advisor Leonardo Madcur; Central Bank director Lisandro Cleri and Customs director Guillermo Michel. He also reached out to US contacts to speed up negotiations with the IMF.

In the afternoon, Massa spoke together with vice president Cristina Fernández de Kirchner in their first appearance after the definition of the candidates. In his speech, the Economy minister stressed the value of memory and human rights, while the former president explained why he was chosen as the only candidate of their political coalition.   

Officials in the Economy ministry are moving fast to show management progress: “That will be the focus of our campaign,” said a mayor from the Greater Buenos Aires area who orbits around Massa’s Frente Renovador.  

The short-term key for stocks and bonds: the IMF agreement

 A source from trading company Stonex said that “before Friday, they had to pay US$2.7 billion, a few days later it was the interest on Bonares and Globals for US$1 billion, with US$2 billion negative bank reserves.”

“The IMF agreement remains the pending assignment, due to the difficulties in the negotiations between the government and the IMF, with potential effects on the exchange rate gap and inflation in the short term,” said sources from Delphos Investment.  

Last weekend, Massa reached out to his US contacts, more specifically former Senator Chris Dodd, who is close to US President Joe Biden. This is all related to the lobbying that is underway in Washington to speed up the agreement with the IMF. 

Aside from the behavior of stocks and bonds, the curve of the implicit rates of US dollar futures steepened (except for the June contract, which went up by marginal figures). The July rate plummeted 1,128 bps to 120% of TNA (annual nominal rate) while in August it sank 935 bps to 148.7%. 

“We believe the market is recalibrating and lowering their devaluation expectations during the electoral transition, after confirmation that Massa will be a presidential candidate and continue in office as Economy minister,” said sources from PPI. In the Argentine financial market, the US dollar futures has a strong connection with devaluation expectations.

Lastly, sovereign bonds in dollar-linked pesos operated in a mix: while the short end dropped 1%, the long end rose by 0.3%, with the TV24 bond concentrating the volume. Duals showed similar behavior, since the short end lost 1% (we’ve already excluded TDJ23) while the long end rose by 1.2%. Finally, CER bonds went up an average of 0.5% across the curve, and the DICP stood out again, as it climbed by 3%,” according to SBS.  

Originally published in Ambito.com