Friday , December 3 2021

Still dollar, high land risk, what if today the US rate goes up? – 12/18/2018


The US President, Donald Trump, He asked the federal bank for his country for two consecutive days, not to "make the mistake" to raise the interest rate, a decision that the agency would announce in the next few hours.

Trump's argument is that he does not see inflationary risks in the United States, China is planning to grow less and that a credit increase at this time would affect growth.

The Federal Reserve is a body with a long history of Independence to make decisions and that it should now be required to raise interest rates (at 2.25% per annum), at least to show that you do not put pressure on the head of the US management.

As a result, the markets are moving forward and there is one "Flight to quality" of the capitals taking refuge in US government bonds (2.83% salary) pending a more predictable situation.

The flight "to quality" translates into the outflow of money from emerging markets that are intended "Vacuum cleaner" what are the American titles to be very low risk.

The process comes from the beginning of the year and, as Argentineans know, Argentina was the country's region who paid more for suspicion.

In its column on Sunday i bugle, the economist Ricardo Arriazu, put on the table the result of that movement: "since February, it average price of shares In emerging countries, it fell by 13.8%, the average country risk increased by 26.2% and the currencies depreciated by an average of 5.7%. In the Argentine case, the shares fell 44.5% land risk increased by 77.2% and the weight is written off 89.7% ".

The case was caused by dry which affected the countryside, the reduction of funding and the stamped resulting from the dollar led to recession and distrust for investors.

In the balance sheet for 2018, Econviews consultancy Miguel Kiguelstresses that "the most affected have been wage earners with a 10% reduction in real wages, especially for small and medium-sized enterprises, industry in general and mass consumption and durable goods". Who is "They saved" of the widespread fall?

Energy sector, mining, "certain regional economies and export of services". And who can improve 2019?

In addition to agricultural exports, "Everyone who needs less credit and whose demand is less elastic at the level of wage levels ". All very limited.

Argentina arrives at the end of 2018 at a rate of land risk in 780 points(It should pay 7.8 points more than the United States if it is credited) and, within and outside the government, recently allocate the increase in questions of election policy (improvement of Cristina Kirchner in the polls) as operators major third parties lost a lot of money from Argentina .

None of these two reasons would have a short-term solution and meanwhile, mistrust of financial issues continues to show signs of vitality.

Argentine bonds show that there are a very marked step when they expire after 2019. Yields jump to 11 or 12% per annum and in the case of DICA's return reaches 14% in dollars.

Such high returns fail to seduce investments even when Argentina meets the normal payment of the debt and in December it will pay between US $ 5000 and US $ 6000 millionis to pay for coupons of bonds.

The opposite of mistrust is the calm of the dollar that made it possible reassessment of the weight Since October, the system of mobile exchange bands was supported by the IMF.

Another fact is that 29,000 million US dollars of dollars deposited in banks. Today, investments in foreign currency represent more than pesos, but in both cases they generate a small amount of loans.

The money deposited in dollars can only be loaned to exporters who generate foreign currency for repayment of the credit. And the high interest rates serve as an insurmountable obstacle for companies to think about getting into debt.

And without a credit expansion It is hard to think of a reactivation of economic activity: the fall of 3.5% of GDP in the third quarter is also a reflection of the reality.

Improve export of wheat, corn and soybeans, which contributes with the gas, that wage tax begins to recover from a decline in inflation, which makes its contribution to consumption the update of retirement and that dollars follow a path of calm are the behaviors expected of the officials to think that the 2019 election is restored on the right track.

From 2018 of poor economic results, the financial doubts of the election year do not show reliable levels or even in the surveys that give it an improvement of the president's image Mauricio Macri. For the short term, the Federal Reserve and the decision on the interest rate will have the word.

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