Want it delivered daily to your inbox?
-
There are some very early signs that the economy is starting to cool down, with layoffs rising in startups and some housing indicators starting to roll over from high levels. But the big picture remains that high-frequency indicators show that the economy is still strong. Most noteworthy this week was the decline in jobless claims. The solid data is consistent with the consensus expectation of nonfarm payrolls coming in at 330K next week and the unemployment rate falling from 3.6% to 3.5%.
Looking ahead, with the virus subsiding, we should begin to see a shift away from goods toward services. The chart below shows that this shift has not started yet. The surprise has been that consumer goods spending has continued to be so strong. But with more people flying, eating at restaurants, staying at hotels, and going to amusement parks, we should over the coming quarters see growth in consumer services accelerate, and spending on consumer goods begin to slow down.
The trading implication for equity and credit markets is to be long consumer services and short consumer goods. For the Fed the implication is that rate hikes continue. Read our slowdown chart book.
Source: BEA, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
With tech and venture capital taking a severe hit, layoffs at startup companies have started to increase, see chart below. The Fed is trying to destroy demand, including demand for labor, and this is early evidence that they are succeeding.
Source: Layoffs.fyi, Apollo Chief Economist. Note: Top 5 sectors that account for layoffs in May 2022: Transportation, Food, Travel, Finance, and Real Estate. See important disclaimers at the bottom of the page.
-
The total value of the US-based venture capital private company universe is down almost 60% over the past six months, and with a rising risk of a US recession, there is more downside from here. The crash in venture capital will continue until the hard landing is behind us.
Source: Bloomberg, Apollo Chief economist. Note: The Thomson Reuters Venture Capital Index is designed to measure the value of the US-based venture capital private company universe in which venture capital funds invest. See important disclaimers at the bottom of the page.
-
Wheat prices and barley prices are up 50% not only because Ukraine and Russia combined account for 30% of global wheat trade but also because of bad weather slowing the US spring wheat planting progress, see chart below.
Source: USDA, Haver Analytics, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
We have updated our credit market chartbook, and the conclusion is that the Fed wants to see wider spreads in both IG and HY to get inflation down. There is also a rising risk that Fed rate hikes will result in a recession, triggering additional spread widening for both IG and HY spreads.
The bottom line is that with inflation currently at 8% and the Fed’s inflation target at 2%, it is too early for markets to declare victory. Credit spreads need to go wider until we have certainty about inflation coming down to 2% and certainty that we will not have a hard landing.
Source: Bloomberg, Apollo Chief Economist. Note: Ticker used HYG US Equity and LQD US Equity. 
Source: Bloomberg, Apollo Chief Economist. Note: Index used LUACTRUU Index. See important disclaimers at the bottom of the page.
-
The charts below show that traffic of prospective buyers of new homes is declining, homebuilder confidence is declining, weekly data for mortgage purchase applications has started to move down, consumer plans to buy a new home have softened, home sales are coming down from their recent peak, leading indicators for home prices are rolling over, and mortgage originations have started to come down, in particular for 30- to 49-year olds. These are all signs that the housing market has started to cool down. This is what the Fed would like to see. The question is if we will get a soft or a hard landing. View the full report.
Source: Bloomberg, Apollo Chief Economist 
Source: NAHB, Apollo Chief Economist 
Source: Mortgage Bankers Association, Bloomberg, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
Fed: The anatomy of single-digit inflation in the 1960s
https://www.federalreserve.gov/econres/feds/files/2022029pap.pdfFed: Has the current lockdown in China affected the global supply chain?
https://www.kansascityfed.org/Economic%20Bulletin/documents/8821/EconomicBulletin22Nie0520.pdfECB: The rise of bond financing in Europe
https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2663~06c26039e0.en.pdfSee important disclaimers at the bottom of the page.
-
I think there is a 75% chance we will have a recession. It is just not happening yet. Our high-frequency indicators show that air travel is still strong, hotel occupancy rates are high, restaurant bookings are strong, credit card spending is still strong, and the weekly data for bank lending is also trending higher.
Weekly jobless claims have started to move slightly higher in recent weeks, but this is consistent with the seasonal pattern. The weekly mortgage purchase applications data is modestly weaker, and we are watching the housing market very carefully.
The Fed’s goal is to cool down all these indicators, and they will ultimately succeed, so investors should continue to prepare for the coming slowdown.
Source: TSA, Bloomberg, Apollo Chief Economist 
Source: STR, Haver Analytics, Apollo Chief Economist 
Source: OpenTable, Apollo Chief Economist 
Source: Department of Labor, Bloomberg, Apollo Chief Economist 
Source: Mortgage Bankers Association, Bloomberg, Apollo Chief Economist 
Source: Redfin, Haver, Apollo Chief Economist 
Source: FRB, Haver, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
Apartment rents in Manhattan are up 40% over the past 12 months, and the median rent is now $3,900, see charts below. The ongoing increase in housing costs across the country is beginning to have a negative impact on other types of consumer spending. The more money households have to spend on paying for their rent or mortgage, the less money is available for consumer discretionary purchases such as buying a new phone, replacing a washer or dryer, and eating at restaurants. The Fed is trying to cool down the economy, including the housing market, and they will succeed, and the risks are rising that we will get a U-shaped recession as the Fed keeps rates high to make sure inflation comes down from the current level of 8% to their 2% target.
Source: Elliman, Apollo Chief Economist 
Source: Elliman, Apollo Chief Economist 
Source: Elliman, Apollo Chief Economist See important disclaimers at the bottom of the page.
-
The number of people using the subway in New York City is still far below normal, see chart below.
Source: toddwschnieder.com, MTA, Apollo Chief Economist See important disclaimers at the bottom of the page.
This presentation may not be distributed, transmitted or otherwise communicated to others in whole or in part without the express consent of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”).
Apollo makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made during this presentation, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of the speaker as of the date indicated. They do not necessarily reflect the views and opinions of Apollo and are subject to change at any time without notice. Apollo does not have any responsibility to update this presentation to account for such changes. There can be no assurance that any trends discussed during this presentation will continue.
Statements made throughout this presentation are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed during this presentation, including consulting their tax, legal, accounting or other advisors about such information. Apollo does not act for you and is not responsible for providing you with the protections afforded to its clients. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by Apollo.
Certain statements made throughout this presentation may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.