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Blanchard and Summers: Bad news for the Fed from the Beveridge space
https://www.piie.com/publications/policy-briefs/bad-news-fed-beveridge-space
Just How Big Are Federal Interest Payments?
https://www.crfb.org/blogs/just-how-big-are-federal-interest-payments
Fed: The Increase in Inflation Compensation: What’s Up?
https://www.frbsf.org/wp-content/uploads/sites/4/el2022-18.pdf
See important disclaimers at the bottom of the page.
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Inflation this week came in higher than expected at 9.1%, but the list of reasons why inflation will soon be coming down keeps growing, see below. Our weekly Slowdown Watch with daily and weekly indicators for the US economy is available here.
See important disclaimers at the bottom of the page.
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We have built a model where oil prices are explained by US supply, OPEC supply, World consumption, and lagged oil prices. All variables are statistically significant. With slower economic growth ahead and supply increasing, the model currently forecasts that oil prices will decline over the coming 12 months, see chart below.
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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Since employment declined by 22 million jobs during the pandemic, about 21.5 million jobs have been created. But the distribution of the jobs created has been uneven, with some sectors today having employment above February 2020 levels and others having employment levels below. Most noteworthy was the fast recovery in the goods sector and the current strong growth in jobs in the economy’s service sector. The table shows the level of employment in different industries with February 2020 = 100.
See important disclaimers at the bottom of the page.
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IG index duration has been declining, and HY index duration has been increasing, see charts below. If inflation starts to come down over the coming months as the consensus expects, this shift has important implications for the expected performance of IG relative to HY in case 10-year rates rally from 3% down to, say, 2%.
Source: Bloomberg, Apollo Chief Economist. Note: The measure used is modified duration, which measures the expected change in a bond’s price to a 1% change in interest rates. 
Source: Bloomberg, Apollo Chief Economist. Note: The measure used is modified duration, which measures the expected change in a bond’s price to a 1% change in interest rates. See important disclaimers at the bottom of the page.
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In this PDF we have re-drawn all our charts for credit spreads and yields going back in time as far as possible, and the bottom line is that the ongoing spread widening is still relatively modest seen in a historical context, see also charts below.
See important disclaimers at the bottom of the page.
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To get a sustained rally in credit markets and stock markets, we need to see:
1) evidence that inflation is coming down for 2-3 months from its current peak at almost 9%, and
2) evidence that we will have a soft landing and not a hard landing.
Stock markets and credit markets will continue to sell off and volatility will remain high as long as there is uncertainty about when inflation will start to decline and whether we will have a recession or not.
We discuss this outlook in this PDF, in our latest podcast on Spotify, and my Monday morning 5-minute Weekly Brief videos.
See important disclaimers at the bottom of the page.
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Europe’s growing league of small corporate bond issuers: new players, different game dynamics
https://www.ecb.europa.eu/pub/economic-research/resbull/2022/html/ecb.rb220615~b69a5f0ce5.en.pdf
ECB: The impact of credit supply shocks in the euro area: market-based financing versus loans
https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2673~7d8599b01a.en.pdf
Fed: Volatility in Home Sales and Prices: Supply or Demand?
https://www.federalreserve.gov/econres/feds/files/2022041pap.pdf
See important disclaimers at the bottom of the page.
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More people are going to movie theatres to watch Top Gun, Jurassic World, and Minions, and household savings are still very high, see charts below and in our Slowdown Watch.
The bottom line is that daily and weekly data combined with the June employment report show that the economy continues to do well, and the Fed is still not succeeding in slowing the economy down.
Source: Boxofficemojo.com, Apollo Chief Economist 
Source: Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
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S&P500 earnings normally decline 14% on average during recessions, see chart below.
See important disclaimers at the bottom of the page.
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