Market Overview - The S&P 500 Index is up +0.16%, the Dow Jones is up +0.04%, and the Nasdaq 100 is up +0.19% [1] - The Nasdaq 10 has reached a new all-time high, driven by expectations of additional Fed interest rate cuts [2] - Market volatility is heightened due to the quarterly event known as triple-witching, with $5 trillion in stock options, futures, and derivatives expiring [2] Interest Rates and Federal Reserve - Minneapolis Fed President Neel Kashkari supports a recent 25 basis point rate cut and anticipates two more cuts this year [3] - The market is pricing in a 92% chance of a 25 basis point rate cut at the next FOMC meeting on October 28-29 [4] - The 10-year T-note yield has risen to 4.143%, a two-week high, influenced by stock market strength and concerns about Fed independence [5][6] International Markets - European stock markets are mixed, with the Euro Stoxx 50 rising to a four-week high, while China's Shanghai Composite fell by -0.30% [4] - German PPI fell -0.5% month-over-month and -2.2% year-over-year, marking the largest year-on-year decline in 15 months [7] Company Performance - Major technology stocks, including Tesla and Apple, are showing strength, contributing positively to the overall market [11] - Klaviyo Inc and Lincoln National have both seen stock upgrades, with price targets set at $50 and $58 respectively [12] - Scholastic Corp reported a Q1 adjusted loss per share of -$2.52, wider than consensus estimates, leading to a decline of more than -12% in stock price [13] - Lennar's Q3 revenue of $8.81 billion fell short of the consensus of $9.05 billion, resulting in a stock decline of more than -4% [14]

Investment Rating - The report maintains a constructive outlook on IG Financials, suggesting they are a sweet spot relative to Corporates, while also indicating a cautious stance on Energy and Basics due to tariff vulnerabilities [2][11]. Core Insights - The baseline scenario anticipates gradually slowing global growth for H2'25, with spreads expected to remain rangebound due to healthy balance sheets and low default rates [2][3]. - The European private credit market is highlighted for its robust fundamentals and significant liquidity, which is expected to suppress hard defaults [2][15]. - The report emphasizes the importance of sector-specific dynamics, noting that IG Financials have shown resilience amid geopolitical risks, while sectors like Energy and Basics are more sensitive to tariff headlines [8][11]. Economic Data and Tariff Rulings - Recent economic data from the EU and US have surprised positively, challenging initial recessionary scenarios, with EU GDP projected to halve to 0.4% in 2025 under a downside scenario involving tariffs [3]. - The report suggests that spreads may peak in Q3'25 around 120/425bp but could tighten by year-end, supported by monetary policy and resilient fundamentals [3][4]. ECB Policy Outlook - The ECB is expected to cut rates by 25bp to 2.0% in June, with another cut anticipated in July, reflecting a prioritization of growth support amid trade tensions [4]. - The report indicates that the ECB may remain in a gradual easing mode due to legal complexities surrounding US tariffs, which could reduce immediate downside risks [4]. Spread Dynamics - In May, PMIs softened, yet manufacturing activity trended higher, supporting risk sentiment despite ongoing trade uncertainties [5]. - The report notes that spreads widened in an orderly fashion around tariff announcements, with limited panic selling observed [8]. Sector Analysis - The report identifies that IG Financials exhibited lower beta during spread widening, while IG Energy and HY Basics were the most sensitive to tariff headlines [8]. - In the Energy sector, firms with robust balance sheets are better positioned against global demand fragility, while those with higher leverage face more exposure [9]. Technicals and Market Dynamics - The report highlights a record-breaking month for IG Corps supply in May, driven by positive tariff news, which pushed spreads tighter [14][39]. - It anticipates that flows will remain orderly, targeting high-quality structures and issuers, reflecting a cautious investor appetite [14]. European Private Credit Outlook - The report notes that European private credit shows resilience with rising revenue and EBITDA, alongside improving interest coverage ratios [15]. - It suggests that ample dry powder is available to support liquidity and suppress hard defaults in the private credit space [15].