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The chart below shows the US CLO investor base by tranche. Our updated outlook for credit markets is available here.
Source: TIC, Moody’s data, Fed, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The Fed is trying to slow down hiring to slow down inflation.
But Fed hikes are so far not having a negative impact on the labor market. The employment report for October showed job growth even in the housing sector. And also in manufacturing, despite the rising dollar. In addition, October data for startups shows that layoffs at startups are beginning to slow down, see the first chart below.
The bottom line is that the economy is not slowing down as quickly as the Fed would like it to. That is why the Fed has no other option than to continue to be hawkish. As a result, there is more downside risk to the 60/40 portfolio, see the second chart.
Our daily and weekly economic indicators for the US economy are attached.
Source: Layoffs.fyi, Apollo Chief Economist. Note: Top 5 sectors that account for layoffs: Transportation, Food, Travel, Finance, and Real Estate. 
Source: Bloomberg, Apollo Chief Economist. The Bloomberg US BMA6040 Index rebalances monthly to 60% equities and 40% fixed income. See important disclaimers at the bottom of the page.
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The chart below shows that we will end up with higher peak yields in the US and UK than in Europe and Japan.
The chart also shows that the Fed is closer to done than the BoE and the ECB.
The bottom line is that current market pricing says that for the Fed and the BoE, most of the work is done with raising rates.
The ECB is only halfway there. And with core inflation in Japan at 0.9%, the inflation problem in Japan is much smaller than in other OECD countries, which gives the BoJ plenty of room to continue with YCC.
Source: Bloomberg, Apollo Chief Economist. Note: Market pricing based on OIS curve and a 3-year forecast period. See important disclaimers at the bottom of the page.
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The latest data from the United Nations shows that population growth is now negative in China, see chart below.
Source: UN, Haver analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Euro area inflation in October came in at 10.7%, much higher than the ECB’s 2% inflation target. The sub-components showed a 42% increase in energy prices and a 4% increase in service prices.
With European energy prices coming down significantly at the moment, energy will soon turn into a significant drag on European inflation, see the first chart below.
Combined with Germany likely having a recession in 2023, European inflation will soon come down very quickly, see the second chart.
The bottom line is that inflation in Europe is mainly energy. Whereas in the US, inflation is much more broad-based.
As a result, the ECB will soon turn even more dovish. And the Fed will have to remain hawkish.
Source: Bloomberg, Apollo Chief Economist. Assuming TTF and Brent prices constant as of 31st October 2022. 
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The consensus now sees a 60% chance of a recession in the US over the next 12 months. For Europe and the UK the probability is 80%, see chart below.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The price of candy and chewing gum has increased 13% over the past year, see chart below.
Source: BLS, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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BoE: How broad-based is the increase in UK inflation?
https://bankunderground.co.uk/2022/10/27/how-broad-based-is-the-increase-in-uk-inflation/Fed: Is China Running Out of Policy Space to Navigate Future Economic Challenges?
https://libertystreeteconomics.newyorkfed.org/2022/09/is-china-running-out-of-policy-space-to-navigate-future-economic-challenges/FSB: Liquidity in Core Government Bond Markets
https://www.fsb.org/wp-content/uploads/P201022.pdfSee important disclaimers at the bottom of the page.
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Weekly data shows that hotel demand is still very strong, see chart below. Our collection of daily and weekly indicators for the US economy is available here.
Source: STR, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The FOMC’s inflation target is 2%, and 83% of the components in the CPI basket are growing faster than 5%. Inflation is, unfortunately very broad-based, see chart below.
Note: Year-over-year growth used. Source: BLS, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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