The Cambridge Weekly – 20th September 2022

The Fed at work and China snubs Putin

The consequences of a European war continue to dominate our economy and markets, as it does throughout Western Europe and, to some degree, Asia. Meanwhile, seemingly unaffected by the rest of the world, the US is blazing its own trail.

US corporate credit not yet stressed

Recession fears continue to dominate market headlines. This is most pronounced here in the UK and in Europe, where the energy crisis has made a downturn all-but inevitable. But investors are also worried about the outlook for the US, given it remains the preeminent global economic superpower. Declining business confidence and an aggressive Federal Reserve has led to fears that debt repayments will become too great, sending companies into bankruptcy. The US yield curve – measuring the difference in term payments between short and long-term government bonds – is still inverted, with investors getting paid less to lend over ten years than they do over two. This is often taken as a reliable recession indicator, as markets acknowledge the Fed forces them in the short-term into a high-rate environment – to slow the economy – which is seen above the long-run average.

US midterm elections in the balance

After Britain’s political shakeup, our attention turns across the Atlantic. The US midterm elections, when control of both Houses of Congress will be up for grabs, are less than two months away. The November polls are always worth viewing because, when America votes, the world watches.