Jason DeViito, Lead Portfolio Manager for Emerging Markets Debt at Federated Hermes
This week we saw some exciting developments in Argentina, with Luis Caputo, Argentina’s Minister of Economy, possibly in the process of negotiating fresh money from the IMF. We have noted an iron will commitment from Javier Milei, the President of Argentina, and Luis Caputo to lowering fiscal expenses. This invariably involves painful cuts to wages and social programs, but as of now, there seems to be a willingness of a large swath of the population to endure pain, in order to ensure a brighter longer-term outcome for Argentina.
Other complications to achieving this mission involve a push back from provinces who do not want to see federal transfers cut. However, we see the potential for higher tax revenues from these provinces to mollify their objections to lower federal transfers. The government has made progress in reducing the central bank’s funding costs as interest rates are not enticingly high any longer. This will have a direct effect on fiscal balances. Yet, this is only one piece of the puzzle and greater fiscal savings are still required and being aggressively pursued.
Louise Dudley, Portfolio Manager for Global Equities at Federated Hermes Limited
Despite concerns over a hot CPI print, US equity markets remain undeterred as the S&P climbed to yet another all-time high in Tuesday’s session, driven by growth and tech. While that sentence has come to be the norm in the age of the Magnificent Seven, it doesn’t quite reflect the overall trend we’ve seen this month: a rotation out of momentum and a broadening out of the market. This has alleviated wider investor concerns of a narrow market, and given legs to the risk-on rally. It seems the credit market agrees, with CCC’s realizing the best month-to-date performance at time of writing.
With the soft landing outcome now the overwhelming consensus, the most important question for positioning is rate cuts: how quickly and how many. While there isn’t much agreement among investors when it comes to the speed and magnitude of cuts, there are few betting against the longer term outlook of a decline in benchmark rates. Of course, dovishness and growth go hand-in-hand, and so as long-term investors, we favour growth in this environment, but remain cognizant that the road to low rates is not likely to be a smooth one. As such, we maintain our quality bias in the growth space.
