The VIX spiked to levels not seen since 2020 but then swiftly fell back to normal levels. Stock indices and credit spreads followed a similar path but in the context of coming off all-time highs and multi-year tights.

US politics pushed Biden aside and the race now between Harris and Trump has a pretty bleak geopolitical backdrop as well as nearly three months to go. The Federal Reserve held rates at their latest meeting but the weak jobs numbers led to some speculation that they are behind the curve and the US is heading for a recession. A little premature on the basis of one set of numbers but US rate futures did move to discount a 60% chance of a 25bp cut within a week and the 10 year moved from 4.28 to 3.75%. Things calmed down a little after strong retail sales and better jobless claims numbers, taking calls for an emergency 50bp cut off the table but still three 25bp cuts this year are discounted. Powells upcoming speech at Jackson Hole may give more clues, CPI was benign enough to reinforce expectations of the Fed starting next month.

The ECB looks to still be on course for a reluctant cut in September despite Eurozone inflation rising slightly to 2.6% in July from 2.5% in June. The Eurozone is growing as a whole, but German GDP dipped slightly in Q2 against expectations of a small rise. Other core countries saw rises and Spain is still surging, growing by 0.8% against expectations of 0.5%.

The Bank of England kicked off, delivering their own hawkish cut and the SONIA curve discounts two more cuts this year and 4% by June next year. The MPC is at pains to stress that rates will be lowered slowly so will remain restrictive and our Governor ‘won’t cut too much or too quickly’. UK inflation also rose slightly but GDP grew a healthy 0.6% in Q2 following on from the 0.7% in Q1.

The primary market remained active despite the volatility and time of year. Corporate borrowers have sold more than $1 trillion investment grade bonds so far this year, making it the 2nd busiest ever. Sterling issuance in contrast did go on holiday and there was a near three week drought of issuance serving to underpin spreads and keeping secondary markets well bid.
 

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