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JPMorgan FX Forecasts Unaffected For Now

ARGENTINA
  • The unexpected outperformance of Massa should negatively weigh on valuations from the onset. Not only the potential amplification of imbalances in the short run will enhance the credit’s volatility over the next month, but a higher probability of the current policy stance to carry forward for the next term should translate into higher risk premium, according to JPMorgan.
  • However, considering valuations (still somewhat close to historical lows), JPM see limited room for a sustained deterioration in bond prices and thus stay MW Argentina in their EMBIGD model portfolio.
  • On the local markets front, JPM expect uncertainty will remain high and they are keeping their FX forecasts unchanged for now.
  • Massa’s strong performance in this election might, on the one hand, reduce the likelihood of dollarization ahead, thus diminishing upside pressure to the parallel FX. A scenario of a one-off adjustment in the official exchange rate also seems less likely at the time. On the other hand, the potential for increased fiscal spending in the coming days and corresponding inflationary push can generate depreciation pressures on the currency.
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