The S&P Merval Plummeted 12% in Dollars in August and Country Risk Rose 80 Points, the Largest Jump Since February

The correction of Argentine assets deepened during August, marking the worst month since February, even though the dollar showed limited movements and the international context was favorable on several days. In this context, the S&P Merval fell nearly 10% in pesos and 12% in dollars, while country risk jumped around 20%, over 80 points, closing at 512 units. At the same time, sovereign bonds also came under pressure, with greater losses in the medium and long-term segments, while the wholesale dollar and financial rates advanced only about 2%.

Throughout the month, the dynamics also shifted focus. In the first weeks, the market was conditioned by liquidity shortages and a sharp rise in rates, with the TAMAR rising from 22.8% to 25.2%, a jump of 2.4 percentage points (over 10%), while the Government sought to keep the dollar around $1,500. Later, attention began to shift towards electoral risk, which started to be reflected more clearly in the curves extending to 2027, while bank balances added pressure on stocks due to the deterioration of credit quality. Finally, towards the end of the month, the BCRA allowed for slightly more liquidity and exchange rate flexibility, although the rebound in the last week was not enough to reverse the accumulated punishment.

In parallel, the international front combined a very solid corporate earnings season with increased pressure on the U.S. debt market. On one hand, most S&P 500 companies exceeded earnings forecasts, with technology, health, and energy among the standout sectors, while Nvidia reinforced expectations about the investment cycle in artificial intelligence. However, at the same time, long-term Treasury rates climbed to nearly two-decade highs, pressured by the U.S. deficit, increased issuance, and growing financing needs.

Additionally, a new focus of tension in the Middle East emerged, with the Strait of Hormuz still affected by the conflict and the United States expanding sanctions against Iran, particularly on networks linked to oil trade, transportation, and financing. Although crude shipments continued to operate and avoided a greater supply shock, the combination of sanctions, logistical risks, and doubts about demand kept oil volatility high and added uncertainty about inflation and global rates.

August left strong tension in pesos and forced the BCRA to recalibrate its strategy

For much of August, the Government sought to preserve exchange rate stability through stricter liquidity management, a strategy that allowed the wholesale dollar to remain around $1,500, but which transferred much of the tension to the peso market. In this context, short-term rates surged, with the collateral near 30% TNA, the interbank rate touching levels close to 28% during the third week, and the TAMAR remaining at high values.

However, as the scarcity of pesos began to create greater distortions, the BCRA partially modified that strategy and began injecting liquidity into the system. From then on, rates began to compress, although this relief came with greater exchange rate flexibility, which led the wholesale dollar to exceed $1,500 towards the end of the month and the CCL to approach $1,600.

In this process, the fixing of the Lelink D31G6 on August 26 also gained relevance. According to Matías Migliore, Team Leader of IFA Desk at Balanz, that date was crucial because it defined the exchange rate at which the instrument would be paid at the end of the month, and as dollar-linked maturities grow, such events increasingly weigh on exchange dynamics.{#p-1788202143409-63734}

At the same time, the Treasury also adjusted its financing strategy. Migliore noted that in the last auction of the month, it concentrated the offer on instruments maturing in 2026 and 2027, temporarily sidelining the extension of maturities beyond 2027. The decision was due to the higher yields demanded in the medium and long-term segments, which made it more expensive to place longer debt.{#p-1788202143409-37886}

Meanwhile, the BCRA bought more than $550 million during August, although it was the lowest monthly balance of the year. Nevertheless, reserves remained above $50 billion for much of the period, while the trade balance showed a surplus of $2.115 billion in July.{#p-1788202143409-40430}

On the other hand, inflation slowed down again in August. According to C&T, retail prices in the GBA rose 1.6% month-on-month, the lowest record since August last year, mainly due to the decrease in seasonal components related to tourism and clothing. In contrast, household equipment and maintenance led the increases, while housing rose about 2.5%, health 2%, and food and beverages 1.7%.{#p-1788202143409-58817}

Inflation in August is estimated to have fallen below 2%, according to private estimates.{#p-1788205972392-19618}

Bonds deepened the correction and country risk exceeded 500 points again {#p-1788202143409-76752}

Fixed income closed August with a more marked deterioration in the long segments. After all segments ended July on the rise, in August only the short segment in pesos remained positive, with an increase of 1.2%, while long debt fell 2.2% in pesos and 2.7% in dollars. Measured in U.S. currency, the correction was even greater, with declines of 3.4% and 3.8%, respectively.{#p-1788202143409-9505}

At the same time, country risk rose more than 80 points, nearly 20%, and closed around 512 units, its largest monthly jump since February. According to Matías Migliore, Team Leader of IFA Desk at Balanz, the deterioration was not solely due to the external context. Even on days with a better international climate, Argentine sovereigns continued to be offered and decoupled from other emerging markets, a sign that the market began to demand an additional premium for domestic factors, especially related to the political and electoral scenario.{#p-1788202143409-79462}

Moreover, bonds under Argentine law performed worse than their New York peers across the curve, widening the jurisdiction premium. The spread between AL29 and GD29 increased from 1.50 to 2.55 points, while the gap between AL30 and GD30 rose from 1.51 to 2.31 points. For Pablo Lazzati, CEO of Insider Finance, this difference shows that legal protection has regained relative value, in a context where investors began to pay more attention to medium-term sovereign risk and the possibility of more adverse scenarios after 2027.{#p-1788202143409-17466}

In parallel, the rise in long-term Treasury rates added pressure on Argentine debt. In contrast, short Bopreales and Lecap/Boncap showed greater stability, with the fixed-rate curve capturing nearly its monthly carry without strong price corrections.
Country risk closed August around 512 points, after recording its largest monthly jump since February.

Banks Led the Downturn and Merval Closed Its Worst Month Since February

Equities closed August with widespread declines, following a July in which major stocks had mostly ended higher. While the average of leading stocks had risen 2.8% in July, it fell 7.5% in August, with a deterioration affecting both large-cap companies and the rest of the panel.

The hardest hit was Financial Services, which lost 13.2% for the month. BBVA Argentina fell 21.4%, Banco Macro 15.3%, and Grupo Financiero Galicia 13.6%. According to Pablo Lazzati, CEO of Insider Finance, the deterioration was mainly due to second-quarter balances, which showed a new rise in delinquency. In this context, he stated that the market shifted its focus from the profits reported by some entities to the quality of the portfolio and credit risk.

At the same time, there was also pressure on some regulated companies, but for a different reason. Lazzati noted that uncertainty about the tariff and regulatory framework after the 2027 elections weighed heavily. However, the Public Services sector managed to cushion the overall decline better thanks to Metrogas and Transener, which advanced 11.7% and 7%, respectively, and were two of the only four stocks in the leading panel that ended August positively.
The rise in delinquency refocused the market on the quality of the portfolio and the credit risk of banks.

Wall Street Advanced, but Long-Term Rates Again Tensioned the Scenario

The international front left in August an improvement in U.S. stocks, but with greater pressure in the debt market. The S&P 500 rose 2.5%, the Nasdaq advanced 3.5%, and the Dow Jones gained 1.4%, while Treasury yields increased on average by about 0.5%. At the same time, gold climbed around 10%, while oil ended practically unchanged despite the month's strong volatility.

August coincided with the near-complete closure of a very solid earnings season. With 485 companies from the S&P 500 having reported, 86% exceeded earnings forecasts, one of the highest rates since 2013. In this context, Nvidia once again captured attention by reporting revenues of $96.2 billion and earnings per share of $2.22, while its data center business reached $89 billion.
Nvidia exceeded forecasts again and reinforced expectations about artificial intelligence demand.

From Cohen Research, they noted that the macroeconomic scenario has become more ambiguous for the Fed. On one hand, inflation has eased, with the overall index slowing to 3.4% year-on-year from the peak of 4.2% in May and the core measure at 2.5%. However, the labor market has weakened, with a net job loss in July and negative revisions for previous months. In this context, the firm expects the Fed to keep rates unchanged and not cut them for the remainder of 2026.

Still, long-term rates continued to rise, a dynamic that Cohen attributed less to inflation or growth and more to the supply of debt. The Treasury deficit and strong financing needs combined with increased corporate issuance to sustain the investment cycle in artificial intelligence. During the second quarter, Alphabet, Amazon, Microsoft, Meta, and Oracle invested around $192 billion in data centers, nearly all of their operating cash flow, while their financial debt rose from $312 billion to $486 billion in six months. In fact, the 30-year bond surpassed 5.25%, its highest level in nearly two decades.

Meanwhile, Ormuz continued to function as the main geopolitical focus, with the strait still restricted and new U.S. sanctions on Iran. Nevertheless, oil managed to end the month nearly stable, while gold benefited from increased defensive demand in a context of high rates and global uncertainty.