Market Focus April - Inflationary pressures reviving?
The US Fed’s policy climbdown chimes with evidence of nominal GDP deceleration, yet a 3.2 per cent annualised print for real growth suggests that the FOMC must soon tack in a hawkish direction. With little sign of wage bill deceleration, there is a clear inference that corporate profitability is in retreat. This month’s slide pack sketched out a scenario in which a weaker profits outlook becomes the fault line for the next credit default cycle. The US$2.2 trillion leveraged loan market lies at the crossroads of a skewed corporate debt distribution and a skewed distribution of operating profits. A critical vulnerability to corporate distress and delinquency lies hidden behind a cloak of respectable ratios for the US non-financial sector aggregate. The Fed cannot prevent a new cycle of debt default: debt prices and credit spreads must be closely watched.
Economic Perspectives is a trusted provider of global macroeconomic and financial research with clients in North America, Asia and the UK.
EP research weaves complex and diverse information into coherent macro narratives, providing clear analysis and original market insights for global investors. Our clients benefit from our long experience in connecting economic developments with the credit and financial market outlook.
The analysis of developments in global private sector credit markets is fundamental to our understanding of the global economic and financial outlook. However, the actions and interventions of central banks and government have become increasingly important to our economic assessment.
For several years we have maintained that the only credible resolution of the 2008 global credit crisis is a resurgence of global inflation. We take an eclectic approach to the inflation outlook, considering political and socio-economic factors alongside macroeconomic drivers. We provide the multi-dimensional appraisal of the inflation outlook that is critical to formulating a successful investment strategy, at a time when inflation complacency is rife.
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