Has inflation peaked? Ask the housing market.
Given inflation has been running hot for more than a year now, it was no surprise to see the recent dip in US data greeted with a muted sigh of relief across the markets.
Insights Topic
US
Food for thought from the Fed
The Federal Reserve minutes for meetings held on the 3-4th May were released last night, and for markets that have been beaten up by rates volatility, they provided some interesting takeaways.
Just how healthy is the consumer?
Consumers are being hit from seemingly all angles at the moment. Higher interest rates are coming, higher inflation is already hitting their pockets hard and economic growth is expected to slow.
Even in recession, defaults will be lower than previous cycles
The vast majority of the high yield universe used the attractive funding conditions last year to term out their maturity profiles. In fact, 2022 maturities in both US and European high yield equate to just 1% of their respective indices.
The solace provided by a robust earnings season
Earnings season is now in full swing, and it has undoubtedly been eventful. During the first quarter, companies have had to navigate multiple obstacles, including surging commodity prices, hawkish central bank policies, a Russian invasion, further supply chain disruptions caused by lockdowns in China, and dwindling consumer confidence.
Is a soft landing possible?
As this remarkable cycle rapidly progresses, thoughts have more recently turned to the chances of a US recession in 2023, and whether the Fed can somehow pull off a soft landing.
The evidence doesn’t point to recession
Growth in 2022 is likely to be above historical averages for most developed economies, even after adjusting forecasts for the impact of the Russian invasion.
Powell confirms Fed pivot is complete
Officially the Fed pivoted from its ‘transitory’ inflation rhetoric in December last year.
Wave of inflation means companies will sink or swim on pricing power
Soaring inflation was already a dominant theme for markets coming into 2022. The sanctions imposed on Russia in response to its invasion of Ukraine have only exacerbated its expected rise, and pushed its expected peak further out.
FOMC: Central bankers face conundrum on inflation and growth
The much-anticipated March FOMC meeting is finally upon us, and given there was no meeting in February investors will be very glad of this window into the Fed’s thinking, particularly given the ongoing and far-reaching economic ramifications of Russia’s invasion of Ukraine.
Investors face conundrum on government bond allocations
We think a base case that central banks will follow a more measured monetary policy path than markets are currently pricing in is reasonable given the current backdrop.
Steady Fed makes short end look attractive
Escalating geopolitical tensions have contributed to a volatile past week for investors, but uncertainty regarding central bank action continues to dominate the bond markets, with one investment bank now predicting nine straight hikes from the Fed beginning at its March meeting.