US – Room for rate cuts ahead
Last week, growth indicators were solid, with PMIs expanding, GDP up 3.8% quarter-on-quarter, and personal consumption above expectations. Labour market signals stay firm, with continuing claims low. The 10-year Treasury yield edged slightly higher, while PCE data came in line with expectations and University of Michigan inflation expectations ticked lower. Although the economic outlook remains uncertain, current data do not fully support market pricing of two rate cuts this year. We view US real rates as still elevated, leaving scope for cuts further ahead.
Argentina – Bessent-ment grade
The Province of Buenos Aires elections dealt a major setback to Milei’s camp, triggering a selloff in the peso and a sharp loss of investor confidence. Bonds and FX came under heavy pressure until Scott Bessent announced a USD 20bn swap line and US readiness to purchase debt if required, a first for Argentina. Markets reacted strongly, with bonds rallying back towards almost pre-election levels. Looking ahead, October’s parliamentary elections will be the decisive test for Milei. We see potential upside in bonds but expect elevated volatility.
Ukraine – A “Frozen” loan
Chancellor Merz confirmed reports that the EU is preparing a €140bn loan package for Ukraine, financed by frozen Russian assets. With the war showing no signs of resolution, Ukraine remains heavily dependent on EU support to sustain its finances. Should the package be approved, it would represent a major shift in Ukraine’s funding outlook. However, political debate within the EU over the use of frozen assets remains highly contentious.
Algebris Investments’ Global Credit Team
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