H2C INDUSTRY INSIGHTS: CAPITAL MARKETS

Interest Rates and Economy 

Week of July 18, 2022

Interest Rates & Economy

Commentary – Interest Rates & Economy (1)

Interest Rate Update

  • After stronger-than-expected inflation data, many now wonder if the Fed is going to consider a more aggressive action later this month à 100bps increase, rather than the prior expectation of a 75bps hike. Also, Fed funds futures put the likelihood of a 100bps hike on July 27 at 29%, up from 7.6% a week ago.

  • Two-year yields rose 1.6bps to 3.13% this week. Ten-year U.S Treasury note settled at 2.90% down from a high of 3.61% right after the CPI report. The 30-year yield declined 17.4bps to 3.09% this week.

  • The two-year yield finished 24 bps above the ten-year yield Wednesday, the largest gap in that direction since 2000. This gap represents the second time the curve has inverted since April, which is a potential leading indicator of a recession.

Economic & Financial Update

  • Fed research published this week based on modeling of bond-market yields puts the chance of a recession next year at 35%. In addition, according to Atlanta Fed’s GDPNow model, the real GDP growth is expected to be -1.5% in the second quarter, which is a decrease from last week’s forecast of -1.2%.

  • Even with growing fears of recession, the June job report showed U.S. labor market maintained its positive pace: a steady 3.6% unemployment rate and a headline gain of 372k jobs, stronger than the 275k consensus.

  • U.S. CPI jumped 9.1% in June, above the 8.8% Dow Jones estimate à the largest increase since 1981.

  • Gasoline prices have retreated, and domestic natural gas prices have tumbled since mid-June. With the combination of the two, July’s inflation is likely to moderate, but underlying inflation pressures remain intense.

Federal Open Market Committee (FOMC)’s

Assessment of the Appropriate Federal

Funds Target Rate, June 2022 (1)

Chart 1.png

Wall Street Rate Forecast

Chart 2.png

1) Source: Federal Reserve, Summary of Economic projections, June 15, 2022; Bloomberg LP; CME FedWatch Tool

About H2C Securities Inc. ("H2C")

H2C is a strategic advisory and investment banking firm committed to providing superior advice to healthcare organizations, higher education institutions, and related companies throughout the United States. H2C’s professionals have a long track record of success in healthcare and higher education mergers and acquisitions, capital markets, and real estate transactions, acting as lead advisors on hundreds of transactions representing billions of dollars in value.

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H2C Capital Markets Team

Michael Hammond

Managing Director

212.257.4550

mhammond@h2c.com

Richard Bayman

Managing Director 404.937.1340

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William B. Hanlon III

Managing Director

858.242.4801

bhanlon@h2c.com

Emily Abrantes

Managing Director

212.257.4500

eabrantes@h2c.com

Victoria Poindexter

Managing Director

312.508.4201

vpoindexter@h2c.com

George Huang

Executive Director 

212.257.4529

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Mike McCullough

Senior Associate

212.257.4511

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Andy An

Associate

312.508.4208

yan@h2c.com

Greg Zuber

Analyst

312.508.4202

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Anirudh Vemulapalli

Analyst

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avemulapalli@h2c.com

Shawn Sinel

Director

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Catherine Gao

Vice President

212.257.4508

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Luke Vaughn

Analyst

312.508.4206

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Calvin Zhu

Analyst

847.654.1508

czhu@h2c.com