Credit Markets Hunker Down, UAW Strikes Stifle Auto Production and Chicago Derivatives Firms Consider Exodus in this Week's Edition...
Take a Lap Around the Industry
Corporate Defaults Hit Highest August Level Since Financial Crisis (S&P Global)
Kevin Durant's Boardroom Starts Talent Rep Business for Athletes and Entertainers (CNBC)
U.S. Housing Construction Drops to Lowest Level in 2 Years, Sparking Economic Concerns (Markets Insider)
Amazon Bolsters Workforce for Holiday Rush, Ups Pay for Seasonal Workers (CNBC)
Credit Markets Eye Defensive Positioning as Fed Stays Restrictive
Apollo's monthly credit market outlook highlights three key investment themes for navigating the current environment. According to the analysis, with the Fed committed to higher rates for longer, debt costs will continue weighing on margins and interest coverage ratios (ICRs) over coming quarters. Both investment-grade and high-yield companies will experience higher refinancing costs as debt maturities roll over at elevated yields. The report suggests upshifting portfolio quality where possible. Additionally, the report notes the lagged effects of tightening monetary policy are now being felt, with slowing consumer credit growth, rising delinquencies, and tighter bank lending conditions. This will disproportionately impact middle market and more vulnerable companies, underscoring a preference for larger, more defensive credits. Finally, an emphasis on low leverage and strong interest coverage ratios can help identify resilient issuers positioned to weather rising funding costs as the Fed maintains restrictive policy well into 2024. Though higher yields may seem attractive, credit fundamentals should remain the focus against a backdrop of slowing growth and a looming recession.
"We want to see convincing evidence really, that we have reached the appropriate level..."
Jerome Powell, Federal Reserve
Private Funding Pulse Check
BioLoomics, Inc., a preclinical stage biotechnology leveraging the evolutions of antibodies, has secured $8.7M in a Seed funding round led by Hong Kong-based Horizons Ventures
In a recent Series C round, Claure Group participated in a $50M investment in Mottu, the number one startup in motorbike rental business in Brazil
CEAS Investments has participated in a $2.5M Seed funding round for Pliable, an AI-powered SaaS platform that is standardizing dataOps for everyone
Jim Breyer's family office, Breyer Capital, has engaged in a $100M Series B investment in Pryon, a Raleigh, NC-based full-stack AI knowledge management platform
UAW Wage Demands Could Undermine Biden's EV Agenda
A United Auto Workers (UAW) strike against major U.S. automakers General Motors, Ford, and Chrysler's parent company Stellantis has brought into focus a dilemma facing the Biden administration. The administration aims to boost American manufacturing competitiveness, particularly in electric vehicles, but also strongly supports higher wages for unions like the UAW. However, the UAW's demands for over 30% wage increases over 4 years could raise automaker costs significantly, potentially hurting their ability to compete globally, especially against Chinese electric vehicle makers. This highlights difficult tradeoffs for Biden between supporting unions and wages versus bolstering American industrial competitiveness. While the Inflation Reduction Act provides incentives for manufacturing EVs domestically, subsidies alone are unlikely to ensure sustainable competitiveness. This leaves many believing there are no straightforward solutions, with the UAW strike underscoring the administration's tricky balancing act between labor and business priorities.
"The switch to electric engine jobs, battery production and other EV manufacturing cannot become a race to the bottom...Not only is the federal government not using its power to turn the tide—they’re actively funding the race to the bottom with billions in public money."
Shawn Fain, UAW
Volatile Markets Lead Family Offices to Make More Changes to Asset Allocation
Family offices are adjusting their investment strategies in response to economic uncertainty, according to a new global survey by Citi Private Bank. The survey of over 200 family offices worldwide found that two-thirds are seeking opportunistic investment deals based on attractive valuations. However, over a third have paused new direct investments due to the unstable economic environment. To position their portfolios defensively, over half of family offices increased fixed income allocations, while 38% boosted private equity and cut public equities. Technology remains the most popular sector for direct investment globally, except in Latin America where real estate is preferred. Healthcare is also a major focus in Europe, the Middle East and Asia Pacific but less so in North America. As families prioritize wealth preservation, a staggering 74% have shifted their primary focus towards comprehensive wealth management. Looking ahead, families aim to safeguard assets while preparing the next generation. Overall, The Citi Private Bank survey provides valuable insights into how some of the world's most sophisticated investors are navigating volatile markets.
"With inflation, market volatility and geopolitical concerns top of mind amongst ultra-high net worth investors and their families, they are readily diversifying their portfolios and considering direct and sustainable investments. It’s clear they are thinking beyond the now with an eye toward the future."
Ida Liu, Citi Private Bank
Critical Chicago Derivatives Firms Weigh Abandoning City Over Tax Hikes
Chicago's derivatives industry, which handles trillions in trades annually, is facing pressure from new mayor Brandon Johnson's proposed taxes aimed at closing the city's $538M budget deficit. The $800M in proposed taxes, including a potential levy on financial transactions, has alarmed major firms like CME Group and Cboe Global Markets. While no companies have explicitly threatened to leave, executives are worried about rising crime and being at a disadvantage compared to competitors in lower-tax states. Trading firms are banding together in an informal group to make their case to policymakers about the economic benefits they provide Chicago. Though relocation may be easy in the electronic trading era, the industry stresses its long history and deep roots in the city. Still, Chicago suffered when Ken Griffin's Citadel moved to Miami citing crime and taxes. As Johnson tries to boost revenue without raising property taxes, businesses feel they're being unfairly targeted. It's a delicate balancing act for the new mayor.
"We know the financial transaction one has been highly debated and there may be merit in that, but we look forward to that debate...What the mayor has said is that solutions cannot disproportionately impact the working and middle class of our city."
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