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Characteristics of a common fixed term and an inflation linked one

UVA fixed term

Argentine bonds opened broadly higher this Wednesday, with country risk falling below 1,500 points on the back of February’s financial output and trade surplus.

Among the biggest increases are AE38, 5.51%, AE38D, 4.12%; AL39, 4.29%; AL29D, 4.48% and AL30, 2.38%.

This comes after knowing the surplus fiscal result in February (both primary and financial), and given the expectation of the DNU treatment in the Chamber of Deputies, dollar-denominated sovereign bonds started the week with a general increase, in line with operations. in emerging markets and globally,” said Puente analysts.

Meanwhile, according to the prepared index JP Morgan, country risk decreases to 1496 points. This measures the gap between US Treasury bond yields and similar sovereign issues from developing countries, including Argentina. That interest rate differential is narrowing and today is at its lowest level since September 2021.

In turn, Javier CasabalThe fixed income strategist of Adcap Grupo Financiero assured: “Basically, the decline in country risk as a result of rising bonds has more to do with politics. The market is becoming very optimistic about the plans Javier Miley. “That’s a real change worth noting, given that most investors weren’t confident in his ability to reduce the deficit just a few weeks ago.”

Gustavo BerAn economist at Estudio Ber said the upward rally was due to “the continuation of greater investor appetite given the enthusiasm generated by the economic policies of the first months of the administration. It just so happens that this economic “road map” receives positive evaluations from foreign investors, which complement the bets of local operators.

He mentioned about the latter. “Until the political impulses regarding the new Omnibus Law and DNU, “Given that this will require negotiations, domestic assets are still strong as investors are excited about the continuation of the economic ‘roadmap’ of fiscal surplus, monetary tightening and reserve accumulation.”

“It so happens that these pillars have been crucial in maintaining the positive expectations that the new administration initially generated among operators, and it will be important that this continues to counter the stagnant inflation that is yet to be felt in person. a social sentiment that should accompany the bet on a better horizon after the sacrifice,” he added.

As for the economic data driving the good performance of Argentine assets abroad, it turns out that this Tuesday Indec published a February trade surplus of $1,438 million, up 581 percent from the positive result. In the same period of 2023, it was 211 million US dollars.

In addition, the surplus recorded in the second month of this year almost doubled compared to January, which reached 797 million dollars.

On the other hand, in February the government received a financial surplus of $338,112 million, while the result. The primary was positive at $1,232,525 million. Thus, the fiscal accounts accumulate surplus for two months in a row, which has not been seen since August 2019.

From LCG they noted: “The basis of the improvement in the fiscal result is fully responsive to the expenditure adjustment, which multiplies by more than 10 the adjustment reflecting the recessionary context and the revenues affected by the elimination of the 4th income tax. category (-38% vs -3% y-o-y, respectively)”.

“The focus of the adjustment of expenses is once again transfers to marzes and public works, with nominal reductions of 40 percent, which implies real reductions of 85 percent compared to the previous year. Expenditure on subsidies was reduced by 43% in real terms per annum, and for social benefits it was an average adjustment of 30% (-38% in real terms per annum for pensions and pensions). Operating expenses (mainly salaries) decreased by 17% in real terms year-on-year,” they announced.

Going forward, the consulting firm predicted. “There are doubts about the social value of this accelerated fiscal convergence. For now, liquefaction remains more common than chainsawing, and the lack of reforms the government is trying to implement raises doubts about whether the adjustment can be sustained over time.

Curbing inflation has been the obsession of governments around the world for at least the past two years. But all this time there was one exception: Japan.

While central banks around the world raised interest rates to curb rising inflation and its impact on people’s purchasing power and living conditions, the Bank of Japan kept them negative to achieve the exact opposite: higher prices.

That is why Japan is the only country in the world that suffered from inflation with negative interest rates. that is, below zero. Until this Tuesday.

On that day, the Bank of Japan announced an increase in official interest rates, from -0.1% to 0 to 0.1%, a small change but crossing the negative interest rate limit.

Japan’s exemption, which is now ending, was due to its authorities’ efforts to stimulate its economy, which had been burdened for years by a low-growth context, reflected, among other indicators, by persistently falling prices.

The consensus of economists says that In a healthy economy, prices should not decrease, but should increase moderately. The world’s major central banks aim to make it around 2%.

But preventing a price slump has long been an elusive goal for those in charge of the Japanese economy.

“Japan was one of the few that experienced negative interest rates. Others who applied to them, such as the Bank of England or the European Central Bank, left them a long time ago,” explains Ken Kuttner, an expert on the Japanese economy at the University of Massachusetts, USA. BBC Mundo.

The abandonment of the Bank of Japan’s “ultra-loose” policy, which had negative interest rates as one of its most effective tools, represents a before-and-after for the world’s third-largest economy, which is now entering a new scenario.

The establishment of negative interest rates is an illegal and considered radical measure, which implies that instead of receiving interest on money deposited in banks, the most common: depositors must pay interest to hold these funds.

The aim is to encourage the movement of money by favoring investment and consumption to the detriment of savings.

Although in practice it did not affect the savings of ordinary Japanese, it affected banks and other financial entities, which were penalized if they did not mobilize their funds through loans, investments and spending.

Global inflation has been rising steadily in recent years, fueled by injections of public money as governments try to keep families and businesses afloat amid the Covid-19 pandemic and supply chain problems that have worsened in key commodities such as oil and grains. , from the beginning of the war between Russia and Ukraine in 2022.

Although its effects have been felt more slowly and mildly in Japan due to the specifics of its economy, the central bank has been signaling for some time that interest rate hikes are on the way.

Its governor, Kazuo Ueda, argued for a “virtuous cycle” where rising prices were accompanied by rising wages.

After a prolonged period of deflation, prices rise above the ideal target of 2% for more than a year;which has encouraged Japanese companies to accept around 5% wage increases in collective agreements for this year.

Along the same lines, GDP growth forecasts have been revised upwards, and a recent report from the International Monetary Fund showed that inflation in Japan is now driven by rising demand, which is particularly encouraging when it comes to such consumers. the Japanese.

All this led Bank of Japan officials to believe that Ueda’s “virtuous cycle” had “become more robust” and they decided to finally cross the zero interest rate threshold.

The decision and the moment of its adoption reveal the peculiarities of the Japanese economy.

While in most of the rest of the world monetary authorities have decided in recent years to aggressively pump the brakes on the economy and steadily raise interest rates, in Japan they have only now decided to at least take their foot off the accelerator.

According to Kutner, “It took Japan much longer than other industrialized countries to end its post-pandemic expansionary policiesThe Bank of Japan already tried to tighten its ultra-loose monetary policy in the early 2000s and in 2006, and both times it turned out to be a mistake that they had to quickly correct.

“I suspect that this time they wanted to be completely sure before starting to raise interest rates,” says the expert.

It was the Great Recession of 2008 that forced economic policymakers around the world to consider such an unusual and extreme measure as setting negative interest rates.

So Encouraging the movement of money and investment was supposed to promote growth in developed economieswhich had entered a phase of contraction and stagnation.

Thus, the European Central Bank, which manages the euro, the Bank of England, Sweden and some others set interest rates below zero, which is hard to imagine before the crisis.

In Japan, it wasn’t until 2016 that rates entered negative territory, but the reasons for its weak or no growth in Gross Domestic Product and its continued and damaging deflation came even before the crisis.

The country had lost much of the dynamism that characterized it after the Second World War, when it experienced rapid industrial and technological development.

Starting in the 1990s, it kind of started to suffer economic anemia which experts attribute to various factors.

With a very aging population more concerned with saving than consuming, Japanese companies had to compete in a constant downward spiral of prices that undermined their ability to generate profits and therefore invest.

That was the trend until 2013, when then-Prime Minister Abe Shinzo launched an ambitious plan to stimulate the economy and the central bank began rolling out a “base of stimulus,” most notably interest rate cuts and purchases. bonds issued by the government.

Economists give a global contradictory assessment of negative interest rates.

A review of published academic articles on the topic does not lead to a definitive conclusion, even in the case of Japan, where they have been around longer than anywhere else in the world.

Most experts agree that they were not sufficient by themselves to increase economic growth, which was the primary concern when they were created.

The obvious consequences were the loss of the value of the yen, Japan’s currency, which allowed the country to make exports cheaper and increase competitiveness, as well as a reduction in the cost of financing the government, which paid less interest on the debt it issued. .

But in the same way A weaker yen has had a negative impact on the purchasing power of Japanese families and companies.

In any economy, when rates rise, there are winners and losers. In Japan, the government will face higher debt servicing costs, while mortgage payers will see higher interest rates.

And while banks will make more profit on the loans they make, it will cost more for companies and families to access them.

In any case, the majority of analysts and the moderate reaction of the markets to the announcement of the interest rate hike suggest. It won’t have a dramatic or exaggerated effect In the economy.

It should not be forgotten that although rates are no longer negative, they remain at or very close to zero, nor that The Bank of Japan has indicated that it will continue its pro-growth policies.

What no one believes is that the Bank of Japan is going to follow a path of continued interest rate hikes like the US Federal Reserve maintains to keep prices and the economy from overheating.

This is due to the most endemic diseases associated with a possible return to the Japanese economy: deflation and lack of growth.

As Kuttner notes, “the deflationary years seem to be behind us, but we cannot forget that it has been many years,” a conclusion that Bank of Japan officials seem to share.

As expected, the UVA deposit boom has not only waned, but now the stock of these placements has started to decline even in nominal terms. This is an expected dynamic. a slowdown in inflation combined with the minimum six-month term set by the central bank, and the expectation of an eventual rally in stocks in the shorter term, which could lead to growth. The price of the dollar has discouraged these types of deposits over the past month and has encouraged their withdrawal since last week.

From a peak of $1.1 trillion worth of stocks in January of this year, it is now down 18% to $900 billion. Savers who bet on price adjustments after the December devaluation and its inflationary flare-up are now choosing other alternatives. The main thing, financial analysts warn, is the dollarization of these portfolios.

The point is that several changes have taken place since mid-December until now, which prompted this decision. In principle, at the end of last year, the Central Bank changed the minimum period of CER-regulated deposits from 90 to 180 days, which implies greater risk. While traditional fixed-term rates remain in clearly negative territory and there are few alternatives currently beating inflation, the truth is that price growth has slowed. In addition, the possibility of progress in the elimination of exchange restrictions is closer today. This event, which many believe could happen in less than three months, would mean another correction in the exchange rate that could wipe out the inflationary gains accumulated from March to that date.

Specifically, in December, the UVA fixed term was the only option available to savers and investors. escape from the intense process of weight loss which was launched by Economy Minister Luis Caputo. The $1,000,000 fixed term in December, which was equivalent to $1,010 after adjusting for an estimated 80% inflation between mid-December and mid-March, will reach $1,800,000, equivalent to $1,747 at today’s close. Earnings over $700. As a result of the strong appeal of this alternative, the banks asked the Central Bank to issue a standard. extend the minimum period Installation of UVA fixed dates from 90 to 180 days. The event, along with lower inflation expectations for weeks, curbed gains in the instrument.

From now on, free dollar quotes and financial indicators may have a new element of pressure. “The stock of these deposits is decreasing in real and nominal terms. That is, those allocations have not been updated since then has lost some appeal as inflation is expected to no longer be as high and longer-term“, said the Romano Group analyst Salvador Vitelli, who emphasized that in real terms, however, the dollar is at its lowest levels in the last four years. “It was expected that this flow would be dollarized, which does not mean that it will be enough to raise the price.” He explained that given the $100 million daily flow of dollar supply compared to UVA’s fixed-term stock, the amount is relatively small to exert too much pressure. “This is as long as that one factor is taken into account. But if we add others like the re-dollarization of crop exporters or even the planned action of Bopreal (a bonus for importers), then we can see more upward pressure,” the operator said.

While countries love Norway are up to speed 82% of zero-mileage electric car sales in the general market, for example Netherlands they begin to suffer the collapse of their electrical grids due to the high energy demand of its fleet of connected vehicles. It’s not about the number of chargers, it’s about the electric capacity of cities, and it’s not even limited to electric cars, but the power of cities in general.

SteadyThe largest electricity distributor in the Netherlands issued a warning, saying the state is unstable. the city of Utrecht already has a higher demand for electricity than the overall grid capacity, and such situations can occur in a very short time; Rotterdam, Amsterdam and The Hague.

But the problem is not exclusively European. Elon Musk, CEO of Teslahe said in his recent speech at the Assembly conference Bosch Connected World, that “first there was a lack of neural network chips. Later, the availability issue was related to step-down transformers. This sequence of events makes me think that The next problem will be the lack of electricity.”

Supporting Musk’s statements, a recently released report New York Times points out that the current enormous demand for electricity not only limits electrical networksbut therefore risks climate goals which have been raised in the most developed countries, both individually and as a whole in the case European Union.

The NYT document states that only c USAdata centers, Crypto mining and AI expansion from such giants Amazon, Apple, Google or Microsoft they catapult weak electrical network. In some states, like Georgia, the demand is now there 17 times more than a decade ago.

It is also estimated that the energy is produced in a few specific places of the country, but must be distributed throughout the territory. So they are high voltage network and normal voltage, those that receive overload because they are still cables and have limited capacityThe more power it carries, the hotter it gets, and when that happens, system crashes start to happen.

“Simultaneous growth electric mobility and AI “It creates excess demand for electricity generation,” Musk said, linking the problem to the world battery operated vehicles.

In electric, connected and smart carsamount of technology based Artificial intelligence (IA), which will increase consumption and therefore require more energy from electrical networks, which will have to respond with greater capacity and speed. But at the same time, microchip and battery factories They also consume much more energy due to increased global production, and all of them inevitably end up on power plants that start to collapse.

In this scenario, the only solution is to build new power generation centers, which cannot be exclusively ecological, because the demand is greater than the possibility of production. So there will be no other solution but to go back to the generators they work with gas, coal, nuclear and hydroelectric power. And this is where carbon neutrality goals for the environment will come into crisis.

Three years ago, an Argentinian physicist Juan Carlos Bolcic via Infobae had raised its concerns about ambitious plans to convert global car companies to electric mobility on a massive scale, even before the 2035 deadline proposed by the European Commission.

“It’s the topic harvest that energy to use as needed, because it is diffuse energy, it is not concentrated in a well like oil. Electricity It should not be more than 50% of the power which can occur directly because the problem is the electrical network. Although we have large high-voltage power lines, they are like an avenue. When there is more traffic than the number of cars that can circulate, the avenue narrows and traffic slows down. The same thing happens with electricity. Here’s why “Connected electric cars are not the future”he said in June 2021.

Bolcic is considered “The father of hydrogen in Argentina”and at the time he had stated that hydrogen could not only be a source of energy to drive engines but also as electrical energy storage during peak demand times. This is done through a process called electrolysis, the same process used to convert electrical energy from a windmill to split the water molecule, leaving the hydrogen separated from the oxygen.

“What you have to do is use them infinite natural resources but changeable, intelligently. Because there is no sun at night, the wind doesn’t always blow and the rivers don’t always flow. Moreover, demand is also variable and seasonal. If the demand is direct and the electrical energy produced is consumed as it is generated, There will be times when it will not be enough and times when there will be excess production. What needs to be done is a mattress. Convert that energy from natural resources hydrogen by electrolysis and store it so that you can turn it back into electrical energy when needed,” explained the Argentinian scientist with a clear short-term vision that is confirmed today.

“Electric cars will not completely replace combustion cars”., because the highways through which the electricity passes will not give enough response. These engines can be electric through a hydrogen fuel cell, but there will be waste, which is the battery. On the other hand, direct injection hydrogen will allow combustion engines to maintain, the only gas being burned will be hydrogen and What will come out of the exhaust pipe will be water vapor. and not greenhouse gases,” said Bolcic.

It global automotive industry is realizing this situation with significant redesigns of its electrification strategy. Both in Europe and the United States hybrid cars as a reasonable option to reduce polluting emissions at an affordable price for consumers and without collapsing electricity grids, which are still somewhat scarce. Toyota:The only brand that has always chosen multiple mobility platforms that think about electricity, but not abandoning thermal engines combined with electric assistance and the use of hydrogen, can say once again that they were not wrong.