MyStratWeekly - September 12th 2022

Topic of the week: Jerome Powell vs. Diego Maradona

• The Jackson Hole’s speech was unambiguously “hawkish”. Paradoxically, the main message is perhaps more about long rates and the slope of the curve than about the immediate trajectory of Fed funds.
• The rate cuts anticipated by the market for next year are probably much less likely than the market thinks.
• This would also imply a steeper curve. Longer rates higher for longer.

Market review: The ECB acts forcefully

• ECB: unprecedented 75bp hike, firmness against inflation
• Sharp rebound in risk assets (bank stocks, HY) after the ECB decision
• Tightening in swap spreads as ECB reserve tiering ends
• Yen briefly tumbles past 144

Chart of the week

Portugal has been upgraded to BBB+ by S&P. Althouh the timing is slightly surprising while Europe is in the midst of an energy crisis. However the performance of the economy and the ambitious fiscal consolidation implement fully justify the move.
More generally, Europe faced a large wave of downgrades during the sovereign crisis. If there’s been numerous upgrades during the second half of last decade, the pace has considerably slowed lately.