Brian Bollen's Blog

PIMCO: Fed Reaction

By Tiffany Wilding, North American Economist at PIMCO

• As widely expected the Federal Reserve raised their target interest rate by 75 basis points taking the midpoint of their target rate range to 2.35% - just below their estimate for a neutral policy stance in the longer run.
• At the press conference Chair Powell also guided that “modestly restrictive” monetary policy is warranted by the current economic fundamentals, including elevated inflation, and mentioned that another outsized move in the Fed Funds rate may be necessary in September in order to ensure monetary policy is restrictive.

Risks remain as China takes path to normalisation

By Carol Liao, China Economist, and Allison Boxer, US Economist, PIMCO

 

• Renewed growth in China’s manufacturing activity, coupled with softening developed market demand, should ease some supply-side pressures – but several other inflation risks remain prevalent.

 

After months of COVID-related disruptions, China’s economy looks to be on the path to normalisation. In June, new daily coronavirus case counts stabilised in the low hundreds. More people are hopping on planes and trains, intercity highway traffic has rebounded to pre-outbreak levels, and city traffic is congested again.

PIMCO: Fed Preview

By Tiffany Wilding, PIMCO North American Economist

• At a minimum, we expect the Fed to announce another 75 basis point rate hike this week, and hint that a third 75bp hike may be necessary in September.
• Although Fed Governor Waller downplayed the likelihood of a 100bp hike in recent comments, we think the chances are closer to 50/50.

The US economy is teetering on the brink of recession

The US economy is teetering on the brink of recession, World Economics has stated this morning.

Business activity indicators all remain close to the 50 "no growth" line. Business confidence is actually sitting right on the 50 no-growth fence. Both sales and market growth indices fell in July, the former just below and the latter just above 50. The staffing index rose sharply year-on-year, but remained at a lowly reading of 48.1. The overall sales managers index remained marginally under the 50 no growth line. Prices continue to rise, but at a rapidly diminishing rate, perhaps the most encouraging sign this month.

PIMCO: Corporate Credit - Capitalising on Potential Disruption

A Q&A with Christian Stracke, global head of credit research & Adam Gubner, head of US corporate special situations at PIMCO

Record corporate leverage and challenging macroeconomic factors are combining to create a compelling investment environment for managers with flexible capital. Christian Stracke and Adam Gubner explain why.

Why is the credit market compelling right now?

Stracke: There are three key reasons. First, there is a limited supply of flexible capital. Second, there are global macro headwinds. And third, we are seeing a significant increase in corporate leverage. The market is increasingly fragile against a backdrop of rising rates, higher inflation, and slowing growth – this supports an increasing demand for that flexible capital.

Can you explain the need for flexible capital?

Gubner: Demand for private credit is growing from a variety of factors. Assets under management in the private debt space reached a 20-year high of $1.2trn in 2021 from $50bn in 2001. The sheer growth of the market means borrowers often have a greater certainty of execution, while the private market is often more flexible for the customised financing terms required to meet certain unique borrower needs.