Welcome to Aurora Macro Fridays, your recap of what matters most in global macro.
This week's theme is comeback--with a focus on non-U.S. markets.
For New Yorkers, this week's theme was UNGA - which stands for endless traffic jams, lots of security screening, and not very much sleep.
The upside of all this is that world leaders and their entourages converge on the city, making it a particularly informative time if you're doing global macro.
On Wednesday I attended a breakfast with the Greek Prime Minister, Kyriakos Mitsotakis, hosted by our friends at Axia.
The meeting was well attended by macro veterans of the Greek crisis, and the prime minister brought along Alex Patelis, his chief economic advisor who is also well known in macro circles.
It was a great setting to look back at the country's remarkable macro comeback. That morning, the Greek 5Y had just traded through France for the first time.
Perhaps shocking was how little there was to talk about Greece. That morning, the Greek 5-year had traded through France for the first time--see chart 1 below.
"Who would have thought" asked Mitsotakis. But no one around the table was surprised--a testament to how the country's fortunes have changed, as well as how messy France is these days.
What was surprising was how much of the discussion focused on the EU more broadly--rather than Greece specifically.
Mitsotakis is a committed European and sees that without significant reform (he pointed to the Letta and Draghi reports), the region will just be stuck in the slow lane.
This holds true for Greece as well--the country will continue to recover lost GDP, but it is unlikely to do so quickly if Germany is stagnating.
Mitsotakis was optimistic that Ursula von der Leyen's second term would be more productive than the first.
I remain skeptical this can happen while the French and German governments are AWOL.
But next summer could bring change. France is very likely to hold fresh legislative elections which, at a minimum should bring some clarity. They may well produce a right-far-right coalition like Giorgia Meloni's in Italy.
Germany, too, is set to turn rightward. The right-wing CDU is leading in the polls and we can expect Friedrich Merz to be the next chancellor.
Rumblings in the dysfunctional current German coalition mean this could even happen sooner than the currently scheduled elections in September. The Green party leadership resigned en masse this week, and internal elections are scheduled for mid-November.
We would view such an outcome as broadly positive for German equities and neutral on bunds--as the CDU is likely to maintain the current (unnecessary) levels of austerity.
Beyond Europe, what else can we learn from the Greek comeback story?
To me, there are two broader lessons.
First, stuff breaks quickly but takes a very long time to rebuild. Though countries can descend into chaos and financial exile quickly (think Greece in 2010), the road to redemption is long and arduous. Mitsotakis was first elected more than 5 years ago.
Internal link: this is a critical lesson especially for countries that seem bent on dismantling their institutional infrastructure. (Ahem, Mexico --see our recent report AMLOcalypto here)
Second, the road to redemption goes through pragmatism, not ideology.
Though right-wing, Mitsotakis is not ideological, whether on fiscal or social matters. He pushed through progressive reforms like gay marriage on a bipartisan basis and was liberal with government subsidies during COVID.
At the same time, he took a hard line on immigration, building a wall (OK, technically a very tall fence) on Greece's external border. And unlike other developed markets, he was quick to bring in the deficit after COVID was over.
To me, this stands in sharp contrast to, say, the Milei administration in Argentina, which is also tasked with bringing the country back from an economic disaster.
External link: in a bizarre speech to the UN, the Argentine president argued that the sustainable development goals were "a supranational program of a socialist nature" and declared a "cultural battle" against the country's left.
External data: not the kind of stuff I'd want my president to focus on if my country's poverty rate was pushing 53%.
Internal link: to be fair, Milei is fighting a multi-front legislative and economic battle in Argentina, and has intelligent, orthodox advisers driving the change. (for more on this, read our Argentina Report: Fiscal Federalism Courtside)
But it's a tough job as it is--railing against supranational programs is unlikely to make it any easier--especially as Argentina is very likely to need a fair few supranational programs in the future.
Next week in the U.S.: it's a data-heavy payroll week--Oct PMIs are out on Tuesday; jobless claims, ISM Services, and durable goods on Thursday and September NFP on Friday.
Fed speakers include Powell, Bostic, Barkin, Collins, Hammack, Musalem, Bowman, and Kashkari.
Next week in Europe: September CPI is out on Tuesday alongside mft PMI, August UE rate on Wednesday, and services/composite PMI and PPI on Friday.
ECB speakers include Lagarde, who is speaking in front of the EU Parliament on Monday, Schnabel, Lane, Villeroy, and Nagel
Next week at Aurora: we are in Miami, Nashville, and Philadelphia--reach out if you are in town!
Have a great weekend!
Dimitris.
Upcoming travel schedule:
Nashville, TN - Sep 29 - Oct 1 for the NABE conference
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