EM LATAM CREDIT: ARGENTINA: IMF Reaches Staff-Level Agreement

• In the FI space, Bund futures remain in consolidation mode, trading below the Jun 13 high. For now, the recent move down appears to be a correction. Key short-term support to watch lies at 130.12, the Jun 5 low. A break of this level would highlight a stronger reversal and undermine the bullish theme. This would open 129.30, the May 22 low. Key short-term resistance and the bull trigger, has been defined at 131.95, the Jun 13 high.
• A bullish condition in Gilt futures remains intact and recent weakness appears to have been a correction. This week’s strong gains reinforce the current bullish theme. Key short-term support has been defined 92.23, the Jun 16 low. A break of this level is required to undermine a bull theme and signal scope for a deeper retracement. On the upside, sights are on 93.68, the Jun 13 high and bull trigger.

• ERH6 98.125/98.25/98.50/98.625 c condor vs 97.9375p, bought for 1 in 5k.
• ERZ5 98.25c vs 2RZ5 98.0625c, bought the front for -1 in 15k.

The below analysts on balance were surprised to the upside by yesterday's German fiscal plan announcement in terms of money spent through 2029. However, they continue to point to some downside risks to the announced investment figures, and see the need for structural reforms in Germany (for our view on the events, click here):

Berenberg:

• "Government plans to run somewhat higher fiscal deficits from 2025 onwards than observers (ourselves included) had anticipated"
• "In addition to ambitious plans for scaling up public spending, tax incentives to raise investment, some modest deregulation [...] can put an end to Germany’s three years of stagnation."
• "In the long run, the government of chancellor Friedrich Merz will need to pass further significant reforms, for example to rein in the rise in payroll taxes to finance the pension and health care systems. Otherwise, structural problems could once again weigh heavily on the growth outlook once the fiscal boost has run its course."
• "The German government often found it difficult to spend all the money it allowed itself for investment projects – thus, actual expenditures may again rise less quickly than outlined."
• "We expect the German economy to expand by c1.25% yoy for a number of years from late 2025 onwards"

Commerzbank:

• "A closer look at the details reveals that only part of [the new debt amounting to E143bn this year] will be used for additional investment. This casts doubt on whether the additional spending made possible by the new debt will actually improve the competitiveness of the German economy in the end. However, it will give the economy a significant boost next year at the latest, helping the German economy to grow noticeably in the coming year."
• "hardly any new projects are likely to be launched on a significant scale this year. [...] shifting projects to the special fund helps to close the gaps in the previous government's draft budget [...] The numerous transfers from the core budget to the special fund that have already been made this year and are likely to continue in the coming years suggest that the positive effect is likely to be smaller than the bare figures suggest."
• "However, what is crucial for short-term economic development is that the government spends more or is less forced to make fewer savings. By next year at the latest, fiscal policy should therefore give the economy a noticeable boost and help the German economy grow by 1.4% in 2026, the first significant increase in a long time."

UBS:

• "Overall, our impression is that the planned rise in defence spending is similar to our assumptions and that the government aims to ramp up infrastructure spending, notably on transport, quicker than we assume."
• On E143bln federal borrowing 2025: "While this suggests that the German budget deficit is set to well exceed its 2024 level of 2.8% of GDP already in 2025 (we project 2.9% of GDP), this needs to be interpreted with caution."
• On investment spending: "All depends on execution"
• UBS see the German general government deficit at 2.9% of GDP in 2025, 3.2% 2026, 3.4% 2027.