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Steno Research: Buckle up for the energy crisis 2.0
Is there another major energy crisis in the making and how does it differ from the crisis in 2021/2022?
Tightness in energy markets would lead global macro trends from one extreme to the other with relatively short 18-24 month cycles and here we are probably on the verge of another extreme again.
The impulse from input costs in necessities (read mainly energy costs) will dictate the cycle trends and after an outright landslide in input costs over the past 12 months, we are now edging higher fast again.
Pantheon Macro: Brace for Chaos and Uncertainty
The downside risk to economic growth is real, despite consumer strength in the summer; policy lags and one-time hits matter.
A long shutdown, the UAW strike, and the cashflow drain from student loan payments all threaten consumption in the near-term
Manufacturing has stabilized, but no recovery is underway. The corporate sector overall is under pressure from the Fed and weak banks, but isn’t rolling over.
Inflation pressure is receding, and leading indicators point to a sustained drop in core measures. The Fed likely is done, but won’t declare victory until the labor market loosens further. They will talk about higher-for-longer until it becomes untenable; first easing in March at the earliest.
Gavekal: Of Wars And Walmart, why bond yields are still too low
The US is still in an inflationary period.
US treasury yields are still too low. The equilibrium yield on the 10-year is 5.2%. Investors should only consider extending duration at above 6%.
TS Lombard: Why the 40-year bond bull market is over
The pandemic and the Ukraine war mark a secular turning point in bond markets, just like big historic events of the past.
While the pendulum between recession and inflation risk will continue to swing, the 40-year bull markets in bonds is over.
Inflation vol matters, especially if it comes from supply shocks. It means more episodes like 2022, where inflation rises and growth deteriorates. It means more periods where bonds and equities are POSITIVELY correlated. And those periods are massively destructive for financial markets.
MRB: Options For De-Risking From The Heavyweight U.S
U.S. growth stocks are likely at greatest risk, especially following their outperformance in the first half, elevated valuations and further cyclical upside for bond yields
Beyond the near run, a sturdy global economy and firmer growth momentum in the euro area and China should cause global ex-U.S. stocks and earnings to outperform over the next 6-12 month.
Spectra Markets: Oil; One less vulnerability for the USD
One of America’s key vulnerabilities from 1970 to 2019 was its reliance on foreign energy. This meant that the up/down cycles in the price of oil triggered aggressive down/up cycles in the USD
This move to net energy independence has had a major impact on FX markets and global cashflows as a rise in energy prices no longer leads to massive selling of dollars. So now, that first chart looks like this.
Bloomberg Markets: Credit Spreads don’t reflect the diversity of underlying
Credit spreads are not reflective of the true state of credit markets
The now huge $1.5 trillion private credit market in the US is inhibiting price discovery
But private markets will not be able to remain so private indefinitely, and credit spreads are prone to a significant widening as they reprice to reflect underlying credit conditions.
Credit spreads are widening, but they have a potential widen a lot further if they are to become consistent with their underlying drivers.
Apollo Global: Private credit, for all its headline growth, remains small relative to public financing markets
The total market cap of global equity markets is $101 trillion. The total value of all assets in the global banking sector is $98 trillion. And total global private capital AUM is $13 trillion. Private capital makes up less than 5% of global financing markets.
Indeed private capital has over the past decade grown much slower than global financing markets. The bottom line is that the alternatives industry is small, and has over the past decade grown much slower than the rest of the financial system.