Argentine Leader orders to accumulate more reserves

International markets fall continued on Thursday. Only at close, Wall Street rebounded and improved partially another black day for bourses. According to reports, the intention of Argentine President Néstor Kirchner is to reach to $30 billions of reserves by the end of the year and to $ 38 billions by 2007 presidential elections. This decision has a number of economic consequences. In the first place, dollar won't move far away from ARG$ 3.10, at the most a few cents. Moreover, interest rates will keep on rising slowly because Central Bank will be forced to collect Argentine pesos issued in every intervention.

As regards prices, possibility of Argentina having once again one-digit inflation is banishing. The best strategy is to resort to something different: government should buy more dollars with tax surplus instead of issuing. Reducing expenditure and increasing that surplus would be the best sign that can be offered to markets. Contrary to official belief, it would even have a positive impact on economic activity.

Good news is bad news. This seems to be financial market's maxim. On Thursday, US unemployment data was released, showing that it has decreased to the last-two-month minimum. This piece of news caused investors to be in a bad mood.

Why an unemployment fall affects investors? Because they see that US economy growth does not slow down, and that entails inflation and interest rate hikes.

In view of this situation, investors chose to shelter in dollar. The latter rose against the other currencies for the forth consecutive time and reached its maximum against euro in a month.

The European currency rebounded after reaching minimums, at 1.2650 dollar from 1.2627. However, it kept a 1.06-per cent fall against dollar, its greatest daily drop in two months.

Dollar rose 0.54 per cent against yen, at 114.13, after reaching six-week maximums at 114.74 yens.

Dollar rally started after the European Central Bank (ECB) opted for an interest rate hike of a quarter percentage point, raising them to 2.75 per cent annual.

Complication

Dollar increased its profits after ECB President, Jean-Claude Trichet, failed to provide signs indicating whether monetary strengthening rhythm would be kept or not.

Thursday got complicated with sharp increases in rates of Turkey, South Korea, India and South Africa central banks. These hikes joined Monday's and Tuesday's inflation comments from the US Federal Reserve.

This situation also generated a robust fall of stocks, oil and emerging markets assets, since investors moved to safer assets in dollars, like US Treasury bonds. US Treasury bond 10-year rate slipped to 4.99 per cent due to bond price rise.

Asia bourses, which close earlier due to time zone, were the most affected ones. Tokyo lost 3.07 per cent and Nikkei index ended at its lowest level sine November 17 2005. Bombay plummeted 4.72 per cent; Hang Seng index from Hong Kong dipped 2.32 per cent; Seúl, 3.48 per cent; and Singapore, 2.48 per cent.

Europe, opening later than Asia, was infected. Paris retreated 2.91 per cent; Frankfurt plunged 2.90 per cent; London fell 2.51 per cent; Madrid lost 2.42 per cent; and Zurich decreased 2.72 per cent.

Wall Street, doing as bad as the rest of bourses, managed to reduce losses because it closes five hours later. For that reason, Dow Jones managed to rise 0.07 per cent. However, NASDAQ (where technologies operate) tumbled 0.30 per cent. Dow Jones went so far as to hit 1.50 per cent down and NASDAQ, 2.40 per cent.

Stock Exchanges operate downwardly because investors are selling everything that's risky: stocks, emerging countries' bonds, currencies and metals. Most of them move to dollar.

Gold stumbled 3 per cent and silver plunged to a 10-week minimum in European market in view of dollar strength against euro.

Pressure

Oil price retreat also pressured metals; with palladium, they fell sharply to its lowest value in 10 weeks.

"It's so disappointing to see markets operating at such low levels. After dipping below 620 dollars, the next gold level will be close to 600 dollars the ounce," a precious metal operator in London said.

Gold paid in cash went as far as to slump to a minimum of 608.20 dollars the ounce, its lowest level since April 17. However, it quoted at 610.20 dollars at close in New York, against previous day close in US market at 630 dollars.

Argentine bonds

Decrease means that gold has lost 16 per cent since its 26-year 730-dollar maximum on May 12.

In Argentina, bonds reduced a strong initial slump of more than 2 per cent. Discount in Argentine pesos, the main debt swap bond, remained 0.42 per cent down. Par in Argentine pesos lost 1.67 per cent. Among post-default bonds, the most affected one was BOGAR with a 1.12-per cent drop. BOCON PRE8 (0.83 per cent) and PRO 12 (0.30 per cent) also plummeted. BODEN 2008 and 2014 in Argentine pesos managed to raise 0.30 per cent.

Dollar continued at ARG$3.10 in exchange agencies and got a few thousandths of cent stronger in wholesale market due to a last-minute robust demand. The American currency settled at ARG$ 3.0834 in Siopel (market were banks operate).

Central Bank managed to buy 40.3 millions and reserves stayed at $24.5 billions.

Markets are at a loss with Federal Reserve style. Its Chairman, Ben Bernanke, is adding unnecessary tension with his inflation statements. At the beginning of May, he talked about a rate hike interruption. A week later, the official suggested the need to increase them.