Worries grow over US financial market conditions
US financial market conditions under scrutiny as banking crisis triggers concerns of a credit crunch and stricter lending standards.🧵
Another series, Macro Pulse Update 19.05.2023 by Threading on the Edge! Looking just slightly rosy with at the things that are happening around us.
1️⃣ Lending standards tighten
2️⃣ Inflation on the right track
3️⃣ China slowing but strength is present
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1️⃣ Lending standards tighten🔴
US financial market conditions raise concerns. In the Fed's latest report, it highlights the risk of a credit crunch that could slow the economy.
Lending standards are tightening as banks fear deposit flight.
The banking system remains relatively safe, but some medium-sized banks face challenges.
Excessive exposure to commercial property, combined with remote work trends and accelerated online shopping, impacts office and retail spaces.
Worsening with higher interest rates.
This could lead to revenue decline and difficulty in servicing bank loans. Opportunities for property acquisition and repurposing may arise.
2️⃣ Inflation on the right track🟢
Inflation decelerates but remains persistent. Shelter and services are still contributing to inflation.
Post-pandemic effects had a role to play as consumers demand shifts away from goods towards services.
Inflation could continue its downward trajectory with a weakened economy.
Historically, commodities have been a good leading indicator by a few months to foretell inflation trends.
The Fed is likely to keep interest rates steady so they may not need to raise interest rates as aggressively as they had previously thought.
Expectations of steady rates are priced into equity prices now.
All things looking bright?
But @gameoftrades_ cautioned a situation of a sticky inflation where ISM prices are increasing.
3️⃣ China slowing but strength is present
🔴Relations with China
The relationship between China and the European Union (EU) is becoming more strained.
The EU is proposing sanctions on specific Chinese companies that are said to support Russia’s war effort.
This would be the first such measure by the EU to sanction China. In response, China is threatening to retaliate.
The sanctions are a sign that the EU is concerned about China's growing economic and military power, and its willingness to support Russia's war effort.
The sanctions could also have a negative impact on the EU economy. China is a major trading partner of the EU, and the sanctions could lead to higher prices for goods and services.
The decline in Chinese investment in Europe is another sign of the strain in the relationship between the two sides.
🟢 Export
China's economic recovery is weaker than expected. Evident from China's biggest trade showing weak global demand for Chinese products.
At the same time China's weakness is important to the global economy.
A weaker Chinese economy has negative implications for export growth for other major economies.
It likely implies somewhat slower global economic growth this year than previously anticipated.
There is one potential silver lining to China's economic weakness.
Weaker growth in China could help to suppress energy prices, thereby further enabling inflation in the West to decelerate.
🔴 Import
A slowdown in Chinese demand could lead to job losses for these importing countries and decline in global trade.
China is a major consumer of commodities, and a demand slowdown could lead to lower demand for commodities and downward pressure on prices.
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