Brief: For much of the past two years, money managers were handing out credit to just about anyone that asked for it: Tech startups with no profit. Cruise companies struggling to navigate a pandemic. Retailers that rely on fading malls. But in less than two months, the carefree days of ultra cheap credit have shown signs of coming to an end. Central banks around the world that pumped trillions of dollars into markets to keep economies afloat are now rushing to scale back the liquidity and fend off inflation. Those efforts could be hastened after U.S. Labor Department data on Thursday showed higher-than-expected price increases in January. Across debt markets, borrowing has gotten harder for the riskiest companies and more expensive for even the most creditworthy. Orders for new U.S. investment-grade notes are dropping. Rogers Communications Inc., a Canadian wireless company, last week scaled back its ambitions on a $750 million bond offering that was initially contemplated at $1 billion, and ended up paying more interest than it expected, according to a person with knowledge of the deal.
Brief: Collateralized loan obligation managers in Europe are preparing for the post-pandemic world of rising credit risk by adding more flexibility to their traditionally strict structures. CLOs -- which package speculative debt into bonds -- have been including options to participate in restructurings and remain involved in financings even if they go south. And while managers don’t expect a sudden deterioration of junk-rated loans and bonds anytime soon, with defaults in Europe still historically low, they want to be prepared in case things sour. “With the ability to follow their money, CLOs now have better options to sell out if they have significant concerns on poor recoveries or provide new money and benefit from the potential upside of any turnaround,” said Oliver Harker-Smith, a portfolio manager at Barings in London. CLOs historically had strict checks on their documents regarding the risks they were able to take. This meant that more often than not they were forced to sell their positions in situations when borrowers got distressed.
Brief: Over the last number of months some of the most popular stocks of 2020 and 2021 plummeted as their figures failed to impress, with Netflix, Peloton and Spotify all seeing share prices tumble. One thing they all have in common is the subscription model. This has led experts to question whether those models can continue to succeed particularly when consumers are facing a cost-of-living squeeze and there is substantial competition sitting in the wings. "Companies which saw high demand for services as the pandemic took hold like Peloton, Spotify and Netflix have suffered because they have not been able to hook customers in for the long haul as much, as economies have opened up and other forms of socialising have taken over," explained Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown. "They are seen more as one trick ponies, offering either TV streaming, gym classes or audio on demand."
Brief: UK GDP rose 7.5% over the course of 2021, defying the year’s three-month opening lockdown and emerging variants to record the highest rate of growth since 1940. This increase followed a record 9.4% decline in 2020, as a result of the onset of lockdowns and the pandemic. Despite a variety of restrictions across the home nations, GDP only dropped slightly in December, down 0.2% for the month, less than the consensus 0.5% expectations. Emma Mogford, fund manager at Premier Miton Investors, described this as an "encouraging sign for the health of the economy", adding the "self-imposed protect Christmas" lockdown had only a "mild impact" on December growth. Daniel Casali, chief investment strategist at Tilney Smith and Williamson, agreed, suggesting that with restrictions lifted, the economic outlook is "constructive" for 2022.
Brief: Since the pandemic erupted two years ago, Forest Ramsey and his wife, Kelly, have held the line on prices at their gourmet chocolate shop in Louisville, Kentucky. Now, they're about to throw in the towel. In the past year, the costs of ingredients for their business, Art Eatables, have surged between 10% and 50%. The Ramseys are paying their employees 30% more than they did before the pandemic. And in the face of supply shortages, their packaging costs are up. They've begun using 12-piece trays in their eight-piece chocolate boxes because they can no longer get any eight-piece trays. So having just tried to survive for the past two years, the Ramseys, who own three retail outlets and sell custom chocolates to about 25 bourbon distilleries, have reached an unpleasant decision: They're going to raise their customer prices 10% to 30%. “We’ve got to adjust this — we can’t afford to keep taking the hits anymore,” Forest Ramsey said.