In today’s briefing:
- A Pause ≠ A Pivot
- How the Market Could Break Up to a Blow-Off Top
- Positioning Watch: FX Market Positioning Is Completely Out of Sync with the Rest..
- Rotation from Interest Rate to Credit Risk Looms as Bank Lending Standards Set to Tighten Further
- The Real Deal
A Pause ≠ A Pivot
- Is it time for the Fed to pause? Under what conditions would the Fed pivot to cutting rates?
- We believe the Fed may pause rate hikes, but it’s unlikely to ease until it’s too late and a crisis erupts.
- Expect a recession in H2 2023. Such an environment should be supportive of Treasury prices, but create headwinds for stock and commodity prices.
How the Market Could Break Up to a Blow-Off Top
- We continue to believe the path of least resistance for stock prices in the intermediate term is down.
- However, the odds of an upside breakout and a blow-off top are rising, followed by a collapse in the stock market.
- We would estimate the chances of the breakout and melt-up scenario at about one in three.
Positioning Watch: FX Market Positioning Is Completely Out of Sync with the Rest..
- Fixed Income and parts of equity space have already prepared for the recession
- Commodity positioning is slowly but surely adjusting to a cyclical downturn as well
- FX positioning remains in la-la-land with heavy longs in carry currencies
Rotation from Interest Rate to Credit Risk Looms as Bank Lending Standards Set to Tighten Further
- The Fed’s latest quarterly survey of Senior Loan Officers conveyed that banks continued to tighten lending standards in Q1. Notably, all forms of commercial real estate (CRE) lending were tightened.
- Banks expect lending standards to tighten further in 2023 H2 for commercial & industrial and CRE loans, but residential mortgages will be more selectively targeted.
- Investors have hitherto focussed on interest rate risks at banks, but deteriorating credit quality should become an issue as lending standards tighten further.
The Real Deal
- Our economic system is ultra-financialized and dependent on leverage.
- That’s why understanding the incentive scheme for both investors and borrowers is an important step to piece the global macro puzzle together.
- Real yields play a crucial role in that puzzle.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
