Federated Hermes has provided the following markets commentary, looking ahead to the upcoming FOMC meeting, following the US CPI reading, and diving into market sentiment for European Structured Credit.
Geir Lode, Head of Global Equities at Federated Hermes Limited:
“The disinflation trend we have been seeing remains dominant despite a modest uptick in US inflation figures yesterday that outpaced forecasts. Combined with more evidence of a weakening labour market, we believe the Fed will most likely not increase rates next week and US equities will rally in the short-term. However, as the higher level of interest rates start to bite more, we also expect to see pressure on US corporate earnings sometime next year and possibly a mild recession. Investors should therefore be prepared to position their portfolios more defensively as the short-term rally fades.”
Andrew Lennox, Senior Portfolio Manager for Fixed Income at Federated Hermes Limited:
“The European structured credit market bounced back to life this week with a vengeance following a particularly quiet August period. The primary pipeline quickly swelled in ABS with a year-to-date high of 9 deals pricing within the week adding approximately €5bn to the YTD issuance tally.
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“Dominated by Residential Mortgage-Backed Security (RMBS) and the auto sector (the two largest sectors of the market), but with collateral pools from 4 jurisdictions (Germany, the Netherlands, Spain, and the UK), investors were presented with diversification opportunities. In particular, UK Prime RMBS issuers are back in the market after long periods of absence due to the BoE funding schemes (e.g. TFSME) providing cheaper financing options over recent years. With RMBS pricing looking more competitive vs covered bond levels and central banks pulling back on funding, we can expect higher levels of issuance from those bank and building society issuers we haven’t seen for a while.
“Despite no new issue CLOs pricing last week, the pipeline is looking very healthy with a number of familiar names but also first-time managers looking to come to market in the coming weeks.”
