Morning Update

Thought for Thursday

“People waste years of?their lives not being?willing to?waste hours of?their lives" - Amos Tversky

Argentina

In Argentina, data out this week has confirmed what was expected, that the country is in a recession – and it’s quite a deep one, as GDP fell 5.1% in the first quarter of this year, compared to last year. The recession was bound to happen and is really all part of Javier Milei’s economic shock therapy, where he has slashed public spending, reduced fuel subsidies and dramatically devalued the Peso.

The moves have been divisive in Argentina, particularly as they have pushed unemployment up from 5.7% to 7.7% - which means 300,000 more unemployed – but there are early signs that the plans are starting to have an impact on inflation, with it now having fallen for five months in a row, although it’s still running at an annualised 40% per annum.

Outside of the country, the changing economic conditions have been welcomed and the IMF have said that they see President Milei’s plan as credible and working, though they also caution that there will be more pain to come in the months ahead as expenditure cuts continue to bite even harder.

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French Elections

The election campaign in France is ramping up a gear with only four days to go until the electorate head to the polls for the first round. With Macron’s snap election coming as a major surprise to electorate and commentators alike, there is major uncertainty over what lies around the corner, with the make up of the government looking likely to change.

As we looked at earlier this month, the elections will decide the 577 deputies of the National Assembly, over two rounds. During the first-round candidates must win over 50% of the vote share, alongside 25% of the number of registered votes. Assuming no candidate gets both of the above, the two candidates with the highest vote share (and any that receive above 12.5% of the registered vote share) advance to the second round (held on 7 July). During the second round, the candidate with the highest number of votes wins the seat.

10 days into official campaigning, Marine Le Pen’s far-right Eurosceptic Rassemblement National party remains well ahead of Macron’s centrist and pro-European Renaissance party, with it thus looking probable that the 28-year-old leader of RN, Jordan Bardella will become the next Prime Minister. Renaissance also faces pressure from the far-left France Unbowed (LFI) alliance, with polling indicating that they could come second to RN.

Speaking on the subject to the BBC yesterday, the French political commentator Nicolas Baverez said, “In France we are jumping into the unknown.” Here, he stated that an RN majority or hung parliament look most likely as is a crisis of France’s Sovern debt.

Commenting further on this Baverez maintained that “Being in the euro meant that governments here could keep doing what they always do: buying social peace by increasing the public debt. Well, now it’s over.”

This comes as RN look to favour fiscal loosening measures, which could compound France’s existing deficit, which is the second highest in Europe. For example, analysis shared by Asterès Research in the FT identified that RN’s fiscal loosening measures announced during the last election would rise France’s peak annual public deficit as a share of GDP by an extra 3.9 percentages points.

With the first round on Sunday, we'll keep you updated on all the developments on Monday morning.

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Today in Focus

Following some stronger than expected retail data out of Japan (which showed retail trade rise from 2% to 3% on an annualised basis for the month of May), at 1000 markets will look towards the latest release of consumer and business confidence figures out of the Eurozone – the first since the ECB cut rates 25bps 6 June.

This afternoon, focus will shift across the pond, where at 1330 we will see a string of data releases from the US, including, GDP for Q1, durable goods orders and initial jobless claims.