Dollar, stocks, and bonds: How will the market react to Adorni's victory in the legislative elections?

Although polls in recent days had predicted Kirchnerist candidate Leandro Santoro as the winner, the confirmation of Manuel Adorni's victory in the Buenos Aires legislative elections, in addition to providing a boost to Javier Milei's administration, opens a new paradigm in Argentina's political contest. For City analysts, this is, initially, positive for Argentine assets, so a day of positive results is expected this Monday.

However, the novelty of these elections is the defeat of the PRO (Progressive Party of Argentina) in a territory where it had consistently won for more than 10 elections. This could, in the longer term, increase the signs of a "rift" between two opposing economic models, which could cast a shadow of doubt ahead of the national elections in October.

All in all, having passed this first electoral test is a piece of good news for the government. The reaction could be positive, albeit moderate. Martín Polo, Cohen's chief strategist, explained: "There is a certain amount of surprise, because there was doubt as to whether Santoro would win. So, having avoided that awkward picture for the government of a Kirchnerist victory is good news, in keeping with the recent ones that have occurred."

So far in May, the Merval index has seen a positive change of nearly 12%, measured in dollars. Even shares of Argentine companies listed in New York have already risen by almost 24%. And although dollar-denominated bonds show mixed results in the monthly total, country risk remains below the 700-point threshold.

"The improved international climate following the negotiations between the United States and China, along with the improved local context given the improvement in Argentina's credit rating, the favorable performance of the ruling party in the provincial elections, and the slowdown in inflation levels during the month of April, led to a rebound in local stocks, with the regulated sector being the strongest performer since the beginning of April," the IEB Group reported.

On the foreign exchange front, the government reaffirmed its decision not to intervene until the official dollar settles below the floor of the floating band . However, the announcement of the negotiation of a new Repo with international banks and the possible placement of a peso-linked bond seeks to strengthen reserves to achieve the objectives proposed with the IMF.

"The outlook going forward, if the exchange rate remains between the floor and the center of the bands and with the doubts regarding the agreement with the IMF and the future of the exchange rate scheme cleared up, is extremely positive," they added at IEB,

However, the PRO's defeat in the Buenos Aires legislative elections marks a new political configuration, and this may raise some concerns for investors. "The most important thing that happened this Sunday is that the possibility of a centrist coalition that could help guide state policy was shattered," explained a market operator, who added: "In the short term, this is positive for financial positions; but in the medium term, it is negative, because what prevails is the conflict and the struggle between two sectors that view politics from two opposing perspectives ."