Stephen Innes
SPI Asset Management
So far, it's been comparatively calm in markets to start the week as Investors better understand the problems facing American banks today are not remotely similar to the subprime mortgage crisis when underwater borrowers defaulted on loans en masse. Instead, banks are warehousing long-duration high-quality paper but fund the book at higher short-term rates; hence they are bleeding profits on mismatched interest rate positions.
While bigger banks have hedged a good chunk of this risk through interest rate swaps, Regional Banks' Treasury departments are not as savvy.
So given the regulatory oversight, banks in this condition will likely be less willing to extend loans at any given interest rate level, which could hurt many small business owners.
The good news for markets is the FOMC moves less gradually during recessions, so in other words, if things got ugly, one could expect the Fed to cut twice the speed of the distance effectively travelled to hike.
While Asia has provided a bit of an oasis amid the transatlantic banking storm, investors are still waiting for China's slingshot recovery to show up in the data. China's industrial profits contracted 22.9% in the first two months of 2023 compared to a year ago, indicating that factories are yet to fully come out of the Covid-induced slump. So, investors will remain somewhat cautious about the strength of consumption recovery.
SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.
Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.
Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
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