May 19, 2022 2:17 am

Finance: external context data adds to own problems

The FED began to focus on inflation in the US The latest data on retail prices, 7%, buried the temporary hypothesis. This Wednesday, the statement from the FED meeting, in which it stipulated a first rate adjustment in March and explained a guide for disarming the balance sheet, brought calm to the market. But Powell took it upon himself to erase the smiles: he said that they could trigger more increases than the three projected, and warned that the reduction of the balance sheet will be more aggressive than that of 2018/2019.

Wall Street is heading to close a month to be forgotten. The more aggressive tone of the Federal Reserve caused sharp declines in benchmark indices. Both the S&P500 and the Nasdaq are down 8.8% and 14.4% so far this year. In the S&P500, the technology sector was the hardest hit by the expectation of rate hikes, while the energy sector (driven by the rise in oil) and the financial sector were the best performers. The volatility index –VIX– is close to 32 points, with intraday highs of 39 points.

The FED’s change in attitude deteriorates the outlook for emerging markets, especially the weakest in exchange and financial terms. That’s where Argentina appears. The weighted average price of the country’s debt marked a new post-restructuring low this week, but improved on Friday after learning of the principle agreement with the IMF. Beyond the external climate, without a true and sustained change in expectations internally, the country will continue without solving its problems.

There is no doubt that the seasonal decline in money demand is a known headache this time of year. If we add to this that there was uncertainty regarding the agreement with the IMF, the reappearance of the demand of some players from abroad and the phenomenal load of pesos that 2021 left, the jump that the cash with liquidation experienced was not surprising. The excess of pesos for the assistance of the Central Bank to the Treasury in 2021 reached 4.6% of GDP in 2021; removing the year 2020, the highest level in 20 years.

The author is Research Manager at PPI

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