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During the recent rally in credit, the HY index has outperformed the IG index even on a duration-adjusted basis, and there are some good reasons why HY is less sensitive than previously to the coming economic slowdown, including higher average rating quality of the index and a record-high share of secured bonds in the HY index.
Source: Bloomberg, ICE BofA, Apollo Chief Economist. Note: Red dot indicates data as of 18 August 2022 See important disclaimers at the bottom of the page.
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Housing has a weight of 40% in the core CPI index, and leading indicators of rent inflation are showing signs of rolling over, but the leading indicators in the charts below suggest that it may take some time before housing inflation returns to or below pre-pandemic levels. The implication for markets is that it is not enough that inflation has peaked. We also need to see key components of the CPI, such as housing, return to pre-pandemic levels of inflation, which is required to get headline inflation back to 2%.
Source: Bloomberg, Haver, Apollo Chief Economist 
Source: BLS, Penn State, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Inflation today is 8.5%, and the consensus expects inflation at the end of this year at 7.3%. Inflation may have peaked, but these numbers are all unacceptably high for the Fed.
The implication for markets is that the Fed will not turn dovish anytime soon. The Fed’s inflation target is 2%, and the FOMC will continue to raise interest rates and keep them elevated until there are clear signs inflation is coming down to 2% even if this requires a slowing in corporate earnings growth.
The bottom line is that it is too early to declare victory over inflation, and we don’t know yet how much Fed tightening and lower earnings growth are going to be needed to get inflation all the way down to 2% again.
Source: BLS, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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The youth unemployment rate in China has increased from 15% to 20% over the past year, and once the economy reopens after covid, many of these jobs will be coming back, see chart below.
Source: NBS, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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With cash in checking accounts being less sensitive to interest rates, the bottom line is that it will require many more Fed hikes to cool down the economy because consumer spending is driven not only by borrowing but also by the amount of liquid cash households hold in bank accounts. In other words, it is going to take some time before overall consumer spending starts to meaningfully slow down.
Note: Bloomberg, Apollo Chief Economist 
Source: Consumer Expenditure Survey, Haver Analytics, Apollo Chief Economist 
Source: FRB, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Daily data for restaurant bookings continues to show no signs of a slowdown, see chart below. Our weekly Slowdown Watch chart collection is available here.
Source: OpenTable, Apollo Chief Economist See important disclaimers at the bottom of the page.
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50.5% of US households have retirement assets, and the median balance per household is $65K, and the average balance is $255K.
For more, see Table 1 in this new paper from Congressional Research Service.
See important disclaimers at the bottom of the page.
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The pandemic has had a permanent negative effect on labor supply, and this is a crucial reason why there are worker shortages and, therefore, why wage pressures are so intense, see charts below. There is little the Fed can do about this other than continue to destroy demand.
Source: BLA, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Total US employment is now back at pre-pandemic levels, but the jobs recovery has been very uneven across sectors, with total employment significantly below February 2020 levels in clothing stores, furniture stores, and electronics stores, see tables below. This is in contrast to the jobs recovery in warehouses, couriers, and air transportation, where employment levels today are substantially above pre-pandemic levels.
Source: BLS, Apollo Chief Economist See important disclaimers at the bottom of the page.
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One way to measure a country’s competitiveness is to look at how much wages are rising adjusted for productivity gains, and the chart below shows that since the financial crisis wages have increased much faster than productivity in Germany. The bottom line is that Germany is becoming less competitive relative to the rest of Europe.
Source: OECD, Apollo Chief Economist See important disclaimers at the bottom of the page.
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