September 20, 2022
Credit spreads: Over the past week, we’ve received negative Q3 earnings preannouncements from DOW, EMN, HUN, OLN, F, GE, FDX, ARNC, NUE, FLS, SIVB, MCK, NWL, CHD, STX and Electrolux in Europe. The unofficial preannouncement season usually doesn’t begin until the calendar quarter ends and the early start has begun to widen credit spreads. Once it starts, the widening of credit spreads during a tightening cycle tends to continue until the Fed signals a pivot.
Catalyst ahead: Tomorrow’s updated SEP, updated dot plot and Powell’s messaging will have implications for terminal rate expectations that remain near 4.50% and a Fed pivot currently priced to begin after the July’23 meeting. Powell seems likely to stick with the ‘hike and hold’ message given how the higher August CPI print was largely driven by historically persistent/sticky components. The updated dot plot and SEP have a better chance of signaling an eventual end to unrelenting tightening measures that have pressured equity markets this year. But sometimes, the mere passing of an anticipated negative event can remove an overhang on equity markets.