The Bases Law, with which Javier Milei wanted to deregulate the economy and address the fiscal deficit, returned to zero this Tuesday and the market took note.
With the President in Israel, the ruling party lost the vote in Deputies,
withdrew the law and accused the governors of "treason."
Although Milei's legislative weakness was discounted by investors since his arrival at the Casa Rosada, the political setback impacted the prices of Argentine assets.
The bonds and shares of Argentine companies listed on Wall Street move in the red and the blue dollar rises 3.5%, to $ 1,185.
Financial dollars are also advancing: the stock market dollar rises 2%, to $1,210, and the cash dollar rises 1.5%, to $1,272.44.
What are the keys to understanding why the market reacted that way:
Political tension
The market closely follows
Javier Milei's governance,
which is key to being able to carry out the proposed reforms.
In the consulting firm Aurum Valores, they explained: "The fall of the law by decision of the ruling party and the posts from the Office of the President show a decision to
extreme political tension
. The path looks dangerous given the political configuration chosen by society in 2023" .
"It is in this context of
political weakness of the ruling party
and
atomization of the opposition
that
a broad will for dialogue is required
to achieve the profound changes required by the inherited economic precariousness. Not understanding this primordial need can confront us with a critical economic panorama, socially and politically," they added.
Along these same lines, PPI pointed out: "Although strong differences with the dialogue opposition were already known regarding several relevant points of the law, this scenario was not discounted by the market.
Since the market does not like surprises,
we expect a response of Argentine assets. The probability of execution of the plan was always the key behind the market perception of La Libertad Avanza."
Excessive optimism?
In recent weeks, Argentine debt had been appearing very solid and had even managed
to decouple itself from the fluctuations of global markets
.
Dollar bonds have accumulated improvements of up to 15% since the beginning of the year.
"However, the enormous local uncertainty is the reason why we still see our bonds operate between US$35 and US$40, very far from other global comparables," they noted in Delphos and stated: "This 'stumble' does not encounters bond prices that discount a perfect Argentina, otherwise perhaps we could say that they incorporate this type of political disagreements to a large extent.
Country risk, high
The JP Morgan banking indicator has improved marginally since the arrival of Javier Milei to the Government, but it is still at considerably high levels.
This Wednesday, the country risk remains around 1,880 units and at no time since last December 10 did it manage to break the floor of 1,800 points.
Alignment with global markets
The weakness that Argentine assets show this Wednesday coincides with the
uncertainty that has been generated in global stock markets in recent days
since the president of the United States Federal Reserve, Jerome Powell, stated that
a scenario of lower interest rates is further than the market expected.
"In a context of legislative failure like the current one is when we must remember that
the global context matters more than what happens locally,
as long as they are not large deviations. That is, a large part of the rise in Argentine stocks (adjusted by beta) and sovereign bonds since the end of last October is explained by an international context of lower global interest rates, weakness of the dollar and movement of capital favorable to risk assets. This movement began to show some weakness from the beginning this year, but
our assets found local fuel to uncouple and cut themselves
," they said in Delphos.
NE