Market collapse after Javier Milei's defeat in the Senate and the threat to fiscal balance

The political blow suffered by Javier Milei in Congress had immediate consequences for the markets. The approval of five bills in the Senate, pushed by the opposition, triggered a sharp drop in Argentine sovereign bonds and stocks, amid a climate of growing financial uncertainty.

The ruling party warned that it will veto the laws, including the pension increase, the extension of the pension moratorium, and the declaration of a disability emergency . However, investors reacted with distrust, given the real risk that Congress could overrule the presidential veto and the measures could become effective.

The S&P Merval was down 2% mid-day, at 2,020,000 points, after having fallen nearly 3% the previous day . The losses were more pronounced in bank stocks listed on Wall Street, with declines of nearly 3%. YPF was also trading in the red, down 2%, dragged down by the international litigation over its nationalization.

Dollar-denominated bonds, meanwhile, fell by nearly 1%. The decline reflected traders' fears of a deviation in the government's fiscal roadmap. Portfolio Personal Inversiones described the incident as a "political setback for the government and the fiscal accounts."

According to estimates from the Ministry of Economy, the bills approved in the Senate would increase public spending by up to 2.5% of GDP . This would jeopardize the primary surplus target, which Milei considers essential to sustaining the economic program.

Max Capital explained that three of the five bills have already been approved by the House of Representatives and could be enacted if the presidential veto fails. Among them, the most sensitive is the new pension mobility formula, which received 52 votes in favor out of 72 senators.

Milei announced that she will veto the five laws. And if Congress insists and overturns the veto—which requires a supermajority—she will resort to the courts to stop their implementation. She also warned that if the judicial process is delayed, the measures will be in effect for only two months, as she hopes to reverse them with the new parliamentary composition after the October elections.

" As expected, the market reacted negatively to the approval in Congress of laws that threaten the government's fiscal balance ," said Mariano Marcó del Pont of Silver Cloud Advisors. "Sovereign bonds opened in New York with widespread falls of 1%, while stocks are down as much as 4%," he noted.

Adding to the local uncertainty is an adverse international context. Donald Trump 's tariff policy has once again raised global alarms. After confirming a 35% tariff on Canadian products, the Republican threatened to extend similar sanctions to all BRICS countries, particularly impacting emerging markets like Argentina.

In parallel, the Argentine Central Bank implemented a measure to allow banks to carry forward their excess minimum cash integration between July and October. According to the SBS Group, this maneuver seeks to contain the decline in short-term rates, in an attempt to maintain a degree of order in the financial system.

But neither technical tools nor political threats managed to calm market sentiment. The signal was clear: investors see growing risks to the fiscal sustainability of the model Milei is promoting. And the political cost of her defeat in Congress is beginning to translate into red ink.