INTRODUCTION
The main trend throughout 2022 has been a candidate driven market . Good candidates have been in high demand across many areas within Global Markets. We have seen many candidates with multiple opportunities. Banks who are nimble and can make decisions in a timely fashion will be the winners, when it comes to the war for talent we don’t see this trend changing as we go into 2023.
CREDIT
Corporate supply now at €224bn YTD
Corporate supply amounted to €23bn in October.
Some market participants predict a 10% increase, totalling €270bn in corporate supply. Redemptions are up in 2023, pencilled in at €246bn, the highest year on record. The technical picture for corporates remains very strong, particularly when coupon payments, CSPP reinvestments and fund flows are taken into account.
Supply increase next year could be low due to much higher funding costs.
Financials supply slowed in October to just €17b
Financials supply amounted to just €17bn in October, lower than the €25bn in both August and September. Banks senior supply accounted for €12bn of last month’s supply. Financial supply is now sitting at €237bn YTD, still slightly ahead of previous years.
Looking into 2023 financials, bond supply is likely to face another strong year. For the banking sector covered bonds remain the main funding alternative – with higher interest rates and as a substitute for collateralised central bank funding.
In volatile market conditions, the funding split is likely to remain geared towards tighter spread funding alternatives including covered and preferred senior.
RATES
In 2023 will be the year the UK yield curve re-steepens. Bank of England hike expectations are still too high and recession fears will bite.
2022 was a bruising year for gilts and GBP rates in general. The outlook for a more stable 2023 is not a very high bar to clear, however, it is going to take quite a long time to restore market confidence in letting the Treasury feel the force of market pressure. The BoE may have won a battle but left the persistent impression that it will only step back into the bond market when it absolutely has to, as it did in September 2022
Markets have challenged the BoE’s stance ever since the start of this tightening cycle. Tighter fiscal policy is a potential catalyst for this to happen. A severe recession could also go some way to convincing market participants that rates aren’t heading as high as current pricing suggests.
€ – Market liquidity remains a challenge
2022 brought the end of Negative Interest Rate Policy and of expanding ECB balance sheet . In 2023, the challenge for markets will be how to deal with contradictory inflation and growth signals.
Low EUR rates have been a structural one since the global financial crisis of 2008. The low growth and perma-crisis environment resulted in ever-lower interest rates, enforced by the ECB’s NIRP and ever-growing balance sheet.
G10
The final quarter of 2022 has seen a breakdown in the otherwise orderly dollar rise – a trend which had been worth 5% per quarter over the first nine months of the year. The dollar rally has largely been driven by the Federal Reserve, a trend only exacerbated by the war in Ukraine.
A recession in Europe could mean that EUR/USD could be almost trading at par for most of the year, where fears of another energy crisis in the winter of 2023 and uncertainty in Ukraine will hold the euro back. Sterling should also stay fragile as the new government attempts to restore fiscal credibility with Austerity 2.0.
To conclude, FX trends will be less clear in 2023 and volatility will continue to rise. We could see greater use of FX Options from a risk management perspective in 2023.
COMMODITIES
OPEC
Oil prices came under pressure in September, with ICE Brent falling by almost 9% over the month and trading to the lowest levels since January The US dollar strength and central bank tightening have weighed on prices and clouded outlook for demand
Regards to a supply perspective, the oil market has been in a more comfortable position. Russian oil supply has held up better than the market was expecting due to China and India stepping in to buy large volumes of Russian crude oil. The demand picture has also been weaker than expected.
Price caps
As for the proposed G7 price cap on Russian oil, the EU now appears to have agreed on the mechanism. However, once implemented, there is still plenty of uncertainty over whether it will have the desired effect of keeping Russian oil flowing and limiting Russian oil revenues. Without the participation of big buyers, such as China and India, it is difficult to see the price cap being very successful. In addition, there is always the risk that Russia reduces output in response to the price cap.
Even tighter times ahead for European gas ?
European natural gas prices have come off their highs in August, falling more than 40% from the recent peak.
It also appears that the EU is moving towards a price cap on natural gas in some shape or form. Whilst this will offer some relief to consumers, it does not solve the fundamental issue of a tight market for the upcoming winter.
METALS
The LME’s decision to continue to allow Russian metal to be delivered into its warehouses put some downward pressure on metals, easing fears of supply shortages.
The LME aluminum price fell from a two-month high, to as low as $2,416/t following the decision.
In the lead-up to the decision, there were a number of producers, who were quite vocal in calling for Russian metal to be banned, whilst consumers were keener for there to be no changes.
SUMMARY
We have seen a large number of areas for growth this year. We hope the above report gives you some indication in terms where we will see the most growth and value next year. The current market backdrop plays well into the hands of credit products next year .Banks are seeing strong pipeline growth across Distressed debt with clients looking at restructuring debt , which is becoming difficult and costly to service in a higher interest rate environment .
With the constant strive to automate trading strategies and extract the maximum amount of value from trades, the battle for quants will continue, FX, Inflation products, Rates, Credit and cross asset are just some of the areas we have seen an uptick in hiring demands across the quant space. We already are seeing a spike in incoming calls around Equity Derivative quants for next year.
That being said, when hiring happens next year, some organisations may focus on one particular area (upgrades), moves will still happen. Credit Suisse imminent restructuring is expected to shake out its sales and trading staff, some of whom will be of interest to rivals and might unseat existing staff .
Fixed Income has pulled back and had a very positive last 6 months to the year-end. Markets continue to remain uncertain against a backdrop of high interest rates and inflation.
As alluded to in our introduction, the drive for talent will continue into 2023 . Feedback from clients around hiring plans continue and feedback has been positive.
Commodities is an area of investment / growth, specifically across AGS.
We are seeing more organisations wanting to bring staff back to the office , for many banks and front office personnel there has been no flexible working and many have been in 5 days a weeks since the start of the pandemic in March 2020. We are seeing a lot of candidates, rightly or wrongly expecting working flexibility, some buyside firms have written hybrid working into contracts as part of policy. There will always be a thirst for talent especially in the Multi Strat space, luring people away from banks. Flexible working could tip the scales!
We hope you have found our market comms enlightening and thought provoking.