A Game of 2 Halves 

A Game of 2 Halves 

The economic outlook right now is divided between the US and the rest of the world, particularly in Europe, which makes the investment landscape especially tough.  

In the US, we have a Federal Reserve that sees only a slim chance of a recession ahead, inflation pressures are shaved by slowing in overseas demand, and while the recent soft patch seems to have passed, there appears to be very little cost-push inflation so far. 

Credit spreads significantly while investment grade bond issuance is up sharply, and we see strong demand for our USD-denominated paper. 

On the stock side, Warren Buffet has been buying Chevron and Occidental. Still, in the broader market, commentators and models are suggesting the S&P 500 is between 750 and 1000 points too high, yet we are seeing a rebound in activity and sales expectations are building. 

The USD has been strong and appears likely to continue to rise, looking at the basis swaps, mainly vs the Japanese Yen. But many European-based investors would shy at buying USD assets at this price and FX rate, especially when UK and European markets trade at a massive discount to the US. 

But for European companies’ earnings to remain stable, the Euro will need to weaken even further. There is a significant fear of a “Winter Cliff Edge” should energy rationing come into force which is causing much negativity, particularly on sub-investment grade names that might not be able to cope with the high energy costs. Credit spreads are widening in Europe, another bearish sign for equities. 

Globally, the Baltic Dry freight index is weak. Seasonally it is very weak, which suggests spending power is going into oil and gas. Meanwhile, in Japan, the Tankan survey was also sluggish, which leaves the US as the only positive outlook with the forecasters. 

With Global Central banks pushing interest rates higher and dang the consequences, it is clear that both bond and equity markets are in for a tough time, while FX volatility leaves investors with a very tough allocation decision to make.  

Photo by Roman Kraft on Unsplash

Hence, there is never a better time than now to put some spare liquidity into a safe haven with a steady return. Such as that offered the Pactum Corporate Capital Fund provides a target return of 3% above 3-month Euribor, saw no deterioration in portfolio quality or returns throughout COVID and is particularly well-placed to protect your capital during these uncertain times.