The latest CPI print suggests that the Fed could continue on an aggressive tightening path.
The Consumer Price Index (CPI) rose more than forecasted in April on both a headline and core basis. On a headline basis, CPI rose 0.3% month-over-month and 8.3% year-over-year, while Core CPI (which excludes food and energy) rose 0.6% MoM and 6.2% YoY. Wednesday’s strong inflation print highlights persisting inflationary pressures that continue to weigh on households, and are likely to force the Federal Reserve to continue on its path of aggressive rate hikes to quell elevated levels of inflation.
We explore the importance of active management in the European high yield market.
In the first four months of the year, European high yield credit spreads widened 104 basis points, approximately 35%, to reach 465bps. The sector’s underperformance to the more domestically skewed U.S. high yield market has been noteworthy, if not unsurprising, given the unfortunate events that have unfolded in Europe.
Reviewing spread performance on a sectoral basis, our analysis shows limited divergence between pro-cyclical and non-cyclical sectors (38% widening vs. 34%, respectively) but, as ever...
Reflections on the lockdowns and prospects for the A-shares market.
It has been a month since Shanghai entered into lockdowns due to the Omicron outbreak. Like many city residents, I’m currently confined in my home and unable to go out. The confinement has also provided an opportunity to share my views on the Chinese economy and A-shares market:
We are already seeing the impact of lockdowns on China GDP, which according to estimates may have been reduced by about 100 basis points—lowering 2022 consensus from 5.5% to 4.5%. Adding to the uncertainty is the trajectory of the pandemic: ...
Regardless of whether we get a hard or soft landing, we likely face a steep approach to the runway in trying to “land this plane.” The question is, how well consumers and companies absorb the slowdown, and whether sentiment is already bearish enough to create long-term value.
Recent spread-widening appears to reflect concern about rising rates incentivizing extensions, and an economic slowdown incentivizing coupon deferrals—concerns we regard as significantly overstated and a source of attractive valuations.