Banananomics: Startling Reasons For Global Stagnation

Argentina's new President, Javier Milei, has hailed his country's first quarterly budget surplus since 2008 as a "historic achievement."

Inputs that matter: In the first quarter of 2024, the South American country recorded a budget surplus of about 275 billion pesos ($309 million).

• "If the state does not spend more than it collects and does not issue (money), there is no inflation. This is not magic," explains Milei.

• Milei won elections last November, vowing to reduce the deficit to zero, a target more ambitious than required by the International Monetary Fund (IMF), with whom Argentina has a $44 billion loan.

The opportunity: Acknowledging that Argentines are suffering amid high inflation and falling purchasing power, Milei promised them that "we have already gone more than halfway."

• Around half of the population now lives in poverty (though Milei said in his speech Monday that the figure was 60%).

Zoom in: Meanwhile, in the U.S., first-quarter growth fell well behind estimates, rising at an annualized rate of 1.6%, according to the Bureau of Economic Analysis.

• "This was a worst-of-both-worlds report—slower than expected growth and higher than expected inflation," wrote David Donabedian, chief investment officer of CIBC Private Wealth U.S.

• It's also bad news for the economy, as sputtering growth and higher prices are the key ingredients for stagflation, characterized by economic listlessness and stubbornly elevated inflation over a prolonged period.

• The last episode of stagflation in the U.S. occurred during the 1970s.

• To finally reign things in, then-Fed Chairman Paul Volcker was forced to raise interest rates by a staggering 20%, calming price highs but throwing the U.S. into a deep recession. 

Between the lines: Fed funds futures trading data suggests there will be just one interest rate cut this year, according to the CME FedWatch Tool.

• "In the short term, the numbers don't appear to be a green light for either bulls or bears...the uncertainty is unlikely to ease pressures in a market experiencing its deepest pullback since last year," said Chris Larkin, managing director of trading and investing at E*Trade from Morgan Stanley.

Follow the money: "For all of the attention given to generative A.I. in the past nine months, Meta's failure to attain its revenue growth projections in Q1 is raising questions about whether the monetization of this technology is as easy as management led traders to believe,″ said Thierry Wizman, global F.X. and rates strategist at Macquarie.

• Meta plunged 10.5% after the social media giant issued light revenue guidance for the second quarter.

• IBM also fell 8.3% after missing consensus estimates for first-quarter revenue.

The EU commission raided offices of Nuctech, a Chinese maker of airport security inspection scanners, in the Netherlands and Poland as part of a probe into unfair state subsidies.

Inputs that matter: In a statement on Thursday, China's mission to the EU deplored the "unannounced inspections" and criticized Brussels for not raising its concerns directly with the company or Chinese authorities.

• The company said in a statement, "Nuctech is cooperating with the European Commission and is committed to defending its reputation as a fully independent and self-supporting economic operator."

• "The Commission has indications that the inspected company may have received foreign subsidies that could distort the internal market under the Foreign Subsidies Regulation."

The opportunity: The head of the United Nations nuclear watchdog has said that it would take Iran just weeks to have enough enriched uranium to make a nuclear bomb.

• International Atomic Energy Agency chief Rafael Mariano Grossi said that Iran is "weeks rather than months" away from having enough enriched uranium to make a nuclear weapon.

• Grossi said there are still unresolved issues about Iran's nuclear program, such as traces of enriched uranium found in locations where it was not expected to be.

• Iranian lawmaker Javad Karimi Ghoddusi said on X that it would take a week to conduct nuclear tests after the order is issued from the superior authorities in Iran.

Zoom in: Meanwhile, in Canada, Astrophysics, Inc. finds the unethical business practices of Nuctech and Chinese security technologies to be an imminent threat to Canadian and broader Western national security concerns.

• "These concerns are due to Nuctech's relationship with the Chinese government and the People's Republic of China's (PRC) history of espionage, the inferior quality of their scanning equipment, and the total control of information the PRC exercises over companies operating within China along with Chinese companies abroad."

• "Based on Nuctech's history of disreputable business dealings and involvement in alleged Chinese espionage operations, the United States (U.S.) Department of Commerce placed Nuctech on the Bureau of Industry and Security (BIS) Entity List for specific scrutiny and licensing requirements."

• "During the investigation, Nuctech machines were suspected to contain embedded software for sending data and images to China."

Between the lines: While China has actively positioned itself as a mediator for peace, particularly in the Middle East, where it seeks to diminish US influence, its ambitions face impediments and occasionally diverge from its stated goals.

• China has emerged as the top importer of Iranian oil, acquiring 90% of the country's oil exports in 2023.

• The Atlantic Council reports, "China is more likely to continue to be the regional actor it has been over the past decade—one that comes to the Middle East to trade and build, not lead."

Follow the money: Russia hosted Iran and China security chiefs amid rising geopolitical tensions. 

• On Tuesday, Iran's Ali Akbar Ahmadian and China's Chen Wenqing were in Moscow.

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