Market Updates

Despite the latest payrolls data indicating a highly constrained labor market, there has been no improvement in workforce participation, which contributes to the ongoing issue of stubborn core inflation. In light of this situation, BlackRock believe that the combination of persistent inflation and elevated levels of debt could prompt investors to seek greater compensation for holding U.S. assets, particularly long-term Treasuries, in the long run.

Inflation appears to be continuing to cool in the eurozone. Whilst some European Central Bank (ECB) officials welcomed it, they did continue to push the hawkish messaging last week. Comments suggest officials are still committed to a June hike, and there remains a strong possibility of a hike in July too, as they continue to fight inflation.

Despite the worsening growth outlook, inflation and wage growth persistently remain resistant to change. The transition of U.S. consumer spending from goods to services initially caused a decline in core inflation. However, inflation is currently on the rise, particularly in Europe, notably the UK. BlackRock believes that central banks are confronted with a distinct trade-off given these circumstances.

UK equities have fallen out of fashion in recent years—not helped by a slew of negative headlines. However, Martin Currie’s Ben Russon believes it is time to change the narrative to a more positive one, and shares the reasons for his optimism.

BlackRock’s primary focus within private credit lies in direct lending, which involves negotiations between non-bank lenders and small to mid-sized companies. In terms of equities, their strategic inclination leans towards public rather than private markets.

The clock continues to count down to the Federal government’s debt default deadline, with US Treasury Secretary Janet Yellen stating the government will fall short of funds to meet its obligations by mid-June.

BlackRock recommend staying invested but being cautious and prepared for potential risks in the current economic backdrop. The focus is on short-term debt that can provide attractive income if yields increase. Additionally, investors who can hold onto at-risk Treasury bills until they mature can earn attractive income during the debt showdown.

The US debt ceiling deadline looms, and bipartisan talks failed to yield much progress. The two sides remain far apart in terms of resolving the potential crisis. Treasury Secretary Janet Yellen has warned the federal government could default as soon as 1 June, and that this could undermine the US and the global economy.

The impact of the pandemic and bank turmoil on commercial real estate sectors has varied as well. BlackRock went underweight private growth assets from a view of five years and over in 2023’s first quarter. That includes the commercial real estate sector where they projected negative returns for since June 2022. They expect retail cap rates to keep rising due to pressure from e-commerce growth.

There is plenty to focus on this week, with some key macro data coming out (US CPI), the US debt ceiling in focus (Biden-Congress talks), and the Bank of England decision (Thursday). In addition, the concerns around the US regional banks will no doubt remain a driver for markets.