Market Views

GLOBAL CREDIT BULLETS | Monday, 9 October 2023

US Economy – Labour market remains strong
Friday’s NFP print showed that 336k jobs were added in September, against a survey of just 170k. While other labour market indicators of the week showed a more balanced picture (the quits remained unchanged at 2.3% and the JOLTS ratio held steady at  1.5x, ADP jobs were weaker at 89k vs 150k survey), conditions remain too tight for the Fed to ease and so markets are now pricing 40% odds of another hike in November. However, as long end yields continue to rise, financial conditions tighten even without additional hikes. This week’s CPI data will be key to watch and are expected to come at 3.6% headline YoY and 4.1% core YoY.

Markets – Higher yields hitting risk assets
Steeper US curves and the 30y yield breaking 5% are impacting risk assets, as risky/risk-free correlations are flipping from negative to positive. Equities fell 1-2% during the week, and European HY credit spreads widened almost 40bps. Sovereign spreads also continued to widen, with Bund-BTP breaking 200bps despite strong demand for new retail issuance. We think the economy is likely to slow into Q4 unless there is a substantial rebound from China.

Algebris Investments’ Global Credit Team

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