U.S. stocks continue to be under pressure on the backdrop of the Federal Reserve's signal of interest rate cuts in 2024, but the real world is still under pressure from interest rate hikes.
Over the past two years, the world's major central banks have struggled to control inflation by raising interest rates, resulting in tight market liquidity. **As a result, borrowing costs for businesses and consumers have risen and will continue to curb spending for much into the next year. Some studies predict that next year will be the weakest year in non-economic crisis years since the beginning of this century.
Even if central banks succeed in achieving a soft landing, refinancing costs may remain prohibitive for some companies, triggering defaults and costing lenders. Consumers are already feeling the difficulty of accessing credit, and regional banks are also facing a significant impact from lower commercial property valuations.
The question now is whether central banks, which have previously underestimated the threat of inflation, will be too slow to cut interest rates this time around, so that they have not contained the slowdown in time.
Earlier this year, borrowing surveys in the US and the eurozone showed that credit conditions** were deteriorating and could pull real growth rates down 1% to 2% in both regions by the end of next year. Economist Stuart Paul predicts:
"As the impact of monetary policy continues to be felt, interest rate-sensitive spending categories will continue to be weak. ”It's been a very tough time for families, with their incomes being eaten up by soaring costs of goods and services, as well as higher rent and credit card interest rates.
Mark Schneider, CEO of Nestle, was quoted as saying that after two years of high inflation, it is understandable that consumers are experiencing some difficulties in making ends meet. In addition, the effectiveness of central bank tightening is now permeating the real economy: rising mortgage rates, rents**, all of which combine to make consumers very cautious.
The data shows that currently in the United States, the prime lending rate of banks has increased from 325% rose to 8About 50%, an increase of more than doubled;This also affects the financing rate of Moody's AAA-rated corporate bonds in the United States from 263% rose to 5 in the recent pastAround 67%.
From the perspective of credit scale, the scale of industrial and commercial loans of US commercial banks has continued to shrink since January this year, the year-on-year growth rate of consumer loans has dropped sharply since October last year, and the year-on-year growth rate of real estate loans has dropped sharply since March this year. In addition, the U.S. industrial production index fell 0.m. in October from the previous month6%, the manufacturing output index fell 07%, the performance of the supply side has weakened significantly;The main housing market index in the United States has also fallen near this year's low.
Wells Fargo economist Shannon Seery Grein said:
"We're seeing banks tighten lending standards, a trend consistent with historical recessions, and even as the Fed starts to ease policy, it will take some time for the broader economy and consumer borrowing costs to feel the easing impact. ”Businesses are also starting to feel the pain of an uncertain outlook and a squeeze in incomes. Toy maker Hasbro plans to cut 20 percent of its workforce due to a decline in holiday sales. And Ford cut its production target for its iconic electric vehicles in part because customers were discouraged from doing so. Moody's downgraded Walgreen Boots Alliance Co to junk this month, citing factors such as a weak consumer environment.
In 2023, we saw the collapse of Credit Suisse, the global systemically important bank, while in the US, there was a run on regional banks, and it was only the intervention of larger banks,** and regulators that prevented further contagion.
In addition, with the deterioration of commercial real estate lending, the development of many smaller banks will be dragged down in the coming years.
According to Trepp Incdata from next year to 2028, the United States will have more than 2$8 trillion in commercial real estate debt matures, most of which is held by banks. Since the peak, office buildings have been worth 35% of their value, which means banks will face billions of dollars in losses.
Fitch**, U.S. commercial real estate mortgage delinquencies will soar to 8 in 20241%, which will reach 9 in 20259%。
The U.S. National Bureau of Economic Research said in an article this month that "as long as interest rates remain high, the U.S. banking system will be at risk of bankruptcy for a long time." ”
The return of the bankruptcy cycle after the era of cheap money is over could engulf some CCC-rated bond issuers who had relied on lower interest rates to survive the pandemic. While the bond size is small, at less than $176 billion, it is still well above the level of bankruptcies that soared during the financial crisis.
The failure to narrow the spreads between these bonds with a relatively high risk of default and other corporate bonds after Fed Chair Jerome Powell's remarks last week suggests that bondholders remain cautious about risk.
Oksana Aronov, an analyst at JPMorgan Asset Management, said this month that as credit markets as a whole are more inclined towards lower-quality bonds than ever, liquidation will come at some point, accompanied by a dramatic repricing. She said:
"Are there any companies that shouldn't have survived 2020 but survived because of the Fed's support, and now the Fed doesn't. ”Wall Street news, welcome **app to see more.