Investors predict that the coming years will be marked with defaults and spending cuts as a larger portion of corporate, household and state income goes into financing debt
A stark indicator of the approaching sea change is the gap between what governments and companies globally are currently paying in interest and the amount they would pay if they refinanced at today’s levels. Apart from a few months around the global financial crisis, the gauge has always been below zero. Now it’s hovering around a record high of 1.5 percentage points. Source: Bloomberg
Global liquidity slump could become a drag on risk assets
Source: Bloomberg, HolgerZ
As Torsten Slok from Apollo posted this weekend, a US corporate default cycle has started the markets are not paying attention
Source: Vignesh Vijayakumar
The U.S. has accumulated as much debt in the last 10 years as in the entire 100 years before that
From 1923 - 2013: $16 trillion , From 2013 - 2023: $16 trillion Source: FRED
US Budget Deficits Are Exploding Like Never Before
Some economists and investors warn that the Biden administration’s fiscal spending—it’s pouring hundreds of billions of dollars into programs to bolster domestic manufacturing of electric cars and semiconductors, and to repair roads and bridges—could rekindle inflation and make it hard for the Fed to dial back its rate hikes. Source: Bloomberg
Going into Jackson Hole, the probability of a September hike is just 20%, well below 50%, so not likely. But, as shown below, the probability of a hike in November (see below) is now 50/50
What will it be when Jay is done? Source: Jim Bianco
EU Composite PMI... monetary policy works with a long and variable lag...
Source: Macrobond, Nordea
U.S. Home Purchase applications drop to lowest level in nearly 30 years
Source: Bloomberg, Barchart
