This is an important week for the US as it will announce PPI data on Tuesday and CPI data on Wednesday. Fed Chairman Jerome Powell is also scheduled to speak on Tuesday, and he is expected to stick to his higher-for-longer script.
I reckon that any market correction due to a hotter-than-expected inflation surprise may provide investors and traders with an accumulation opportunity, as I think interest rate cuts are still on the way.
The bigger narrative here is that default and refinancing risks are increasing for US companies, especially for speculative-grade firms, over the next several years.
Speculative-grade companies, also known as non-investment grade or junk-rated companies, will face $2 trillion in debt maturing from 2024 to 2028.
The year-over-year growth rates of speculative-grade bond maturities are 104% and 40% in 2025 and 2026, respectively.
A larger portion of speculative-grade companies generate their revenue domestically, so the US may not want to maintain high interest rates for an extended period to hurt local businesses.
If the Federal Reserve maintains higher interest rates for too long, it could eventually lead to defaults in speculative-grade companies, which would be a policy mistake.
Even if inflation remains hotter than expected, the right move for the Fed might still be to cut rates to help speculative-grade companies avoid default and refinancing risks.
Source: S&P Global, Tiger Brokers
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