Market Views

GLOBAL CREDIT BULLETS | Monday, 4 September 2023

US – Labour markets loosen further
The US labour market showed ongoing signs of loosening last week, with the unemployment rising to 3.8%, the quits rate falling to 2.3% and the ratio of job openings to unemployed falling to 1.4x. Consumer confidence declined too, undershooting the survey by 10 points. On the positive side, prices paid in the Friday ISM survey saw a significant increase from 42.6 to 48.4, while construction spending rose to 0.7% MoM, surpassing the 0.5% survey. Despite these developments, the market is currently pricing in only a 10% likelihood of a Fed rate hike at the upcoming September meeting, with a 44% chance of any hike soon.

ECB – Services cooling down
Last week’s Eurozone inflation remained steady at 5.3%, surpassing survey estimates of 5.1%, whereas core inflation declined to 5.3%. Services inflation falling to 5.5% was a welcome relief for markets, but energy surprised to the upside, falling only -3.3% YoY and driving the surprise in headline. Central bank discussions remained balanced, with neither doves nor hawks advocating for any move at the upcoming meeting in two weeks. Especially the absence of hawkish commentary by Schnabel triggered a strong rally in European rates, where the odds of a hike in September are now only seen at 25%.

Algebris Investments’ Global Credit Team

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