EM LATAM CREDIT: Argentina: The 4 Pillars of Reform – Positive
(ARGENT; Caa1/CCC/CCC+)
• President Milei’s agenda will focus on labor, tax and pension reform as well as agreeing with the provinces on potential changes to the allocation of Federal revenues. His cabinet appointments, some or all of which could be delayed until December 10th when the new congress officially takes office, will be geared towards winning support for reforms in congress.
• ARGENT 35s showed technical strength, breaking through resistance from the previous January 2025 high, last quoted $70.5. With the backstop if necessary, of the USD20bn U.S. swap line to pay 2026 maturities and with more reforms coming we think the credit profile has improved to justify the positive price performance.
• The ruling party does not have a majority in congress, and the opposition Peronists still have the largest voting bloc, but the administration has the potential to muster enough support for reforms when factoring in allies such as the PRO and United Provinces parties.
• Labor reform would seek to increase the number of formal workers by changing how people are hired, rules around managing the labor force, lowering payroll taxes and in general lowering the cost of hiring. The Labor Ministry has proposed negotiating collective wage agreements at company level rather than the current union-led talks, along with performance-based pay. Milei also wants to end what he calls the "labor litigation industry" by introducing a fixed severance pay system.
• Unemployment in Argentina stands at 7.9 percent, while 40 percent of workers are informally employed, according to the Buenos Aires Times.
• Milei has reportedly talked about lowering the value added tax, according to the Americas Society. Also, in an interview this past Monday Milei said they had a plan to eliminate 20 taxes, reduce rates and broaden the tax base.
• While no specific proposals have been mentioned, pension reform will be a priority too. Pensions and retirement benefits will account for 46 percent of state spending in 2026, according to the IARAF think tank (Argentine Institute for Fiscal Analysis) as reported by the Buenos Aires Times.
• To gain support for the reforms Milei will likely need to allocate more funds to the provinces. One proposal suggested by provincial governors was to change the allocation of fuel tax revenues to increase the amount sent to the provinces from 10% to 35% by cutting other areas such as the housing fund, according to Infobae.
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US: Senate Rejects GOP Funding Bill, Shutdown Continues
The United States Senate has rejected a House Republican funding bill for the third time, ensuring the US government will remain shut until at least Friday. There was no change in the vote count, with all Republicans (except Senator Rand Paul [R-KY]) and three Democrats voting in favour of the CR. The vote followed a separate ballot on a Democrat-led funding bill that also failed. Both outcomes were expected.
- Democrat Senators John Fetterman (D-PA), Catherine Cortez Masto (D-NV), and (Democrat-aligned Independent) Angus King (I-ME) voted in favour of the CR, as they did yesterday.
- Senators Jeanne Shaheen (D-NH), Maggie Hassan (D-NH), and retiring Gary Peters (D-MI), the group that (along with the above and Senate Minority Leader Chuck Schumer [D-NY]) voted to keep the government open in March, again voted against the CR.
- A short time ago, Max Cohen at Punchbowl News reported that Shaheen "says she will continue to vote no on GOP CR [and] thinks she can get a deal that includes an ACA credit fix when the House returns... says she’s in talks with Republicans on this."
- While there hasn't been any movement on the vote tally, a bipartisan group of Senators huddled on the floor for an extended period, which might suggest some informal discussions are underway.
- Senator Peters, one of the above swing votes, and Senator Mike Rounds (R-SD), who has floated a one-year extension to the Obamacare subsidies as a potential offramp, were among the group.
- Burgess Everett at Semafor notes, "From what I could tell one thing beyond discussed on the floor that Dems are wondering if there’s a shorter term CR that could set up quicker negotiations on the ACA subsidies"
US STOCKS: Midday Equities Roundup: Health Care & Utilities Outperforming
- Stocks gaining ahead midday Wednesday, political distractions at bay as focus turns to fundamentals rather than the US Government shutdown as of midnight Tuesday. Additional support for equities could be tied to the Supreme Court denying Pres Trump's demand to fire Fed Gov Cook, allowing her to stay on at least until oral argument on the case is heard in January 2026.
- Currently, the DJIA trades up up 56.81 points (0.12%) at 46453.89, S&P E-Minis up 6.75 points (0.1%) at 6745.5, Nasdaq up 39.5 points (0.2%) at 22698.78.
- Leading gainers ahead midday included Health Care and Utility sector shares, pharmaceuticals leading the former: Regeneron Pharmaceuticals +9.06%, Moderna +8.75%, Biogen +7.67%, Amgen +6.75% and Eli Lilly +6.66%.
- The Utilities sector was buoyed by AES, the energy company surging 16% higher in the first half as wires reported BlackRock's GIP is in advanced talks to purchase the company. Follow-through support for other energy companies includes: Constellation Energy +3.79%, Vistra +3.33%, PG&E +3.18% and NextEra Energy +2.41%.
- Conversely, Materials and Communication Services sectors led decliners by midday. Weighing on Materials: Corteva -7.05%, Ecolab -1.95%, Linde -1.92% and Eastman Chemical -1.53%. Meanwhile, News Corp -5.62%, Interpublic Group -4.12% and Omnicom Group -3.95% weighed on the Communication sector in the first half.
OPTIONS: Larger FX Option Pipeline
- EUR/USD: Oct03 $1.1700(E1.2bln), $1.1845-55(E2.2bln), $1.1875(E1.2bln); Oct06 $1.1700(E1.1bln); Oct07 $1.1650(E1.8bln), $1.1750(E1.0bln), $1.1820(E1.7bln)
- USD/JPY: Oct03 Y148.00($1.0bln); Oct06 Y147.00($1.3bln)
- EUR/GBP: Oct03 Gbp0.8785-05
- AUD/USD: Oct03 $0.6600(A$1.5bln); Oct06 $0.6700(A$1.1bln)
- NZD/USD: Oct03 $0.6450(N$1.2bln)
