Decline in German industrial production, credit conditions which continue to tighten in the United States, stable rates… what to remember from the news this week.
Investors have focused on events that have unfolded in the United States in recent months, particularly since the tensions in an important part of the American banking sector: the small and medium banks which provide a significant share of loans to the States -United.
In this context, the quarterly survey of senior loan officers (Senior Loan Officer Opinion Survey) of the US Federal Reserve (Fed) was eagerly awaited. It was one of the first measures of investor sentiment in the banking sector since the string of bank failures.
The survey indicates a further deterioration in credit conditions in the United States, but without accelerating. Banks tighten their credit conditions and see demand for loans fall. Fixed income investors were concerned about the risk that the banking turmoil could trigger a near-term recession. But two months after the collapse of US bank SVB, evidence of any significant impact remains limited. We continue to anticipate a recession for the 2nd quarter.
A new risk for the US economy is the legal limit on public debt, which must be raised by a majority of both houses of Congress. Indeed, as the national debt soared, the US Treasury Department had to borrow more money to pay for government spending. The legislative brake on this borrowing is known as the debt ceiling. When the Treasury Department spends the maximum amount allowed under the limit, Congress must vote to suspend or increase the borrowing limit. Unless there is an agreement, the Treasury could find itself running out of resources at the beginning of June, which would cause a risk of default and/or sudden cuts in public spending.
As in the past, the Republicans are trying to cash in their vote against promises of public spending cuts. The experience of 2011 suggests that the negotiation period can be perilous. In 2011, negotiations were tumultuous, and despite raising the debt ceiling, the rating agency S&P downgraded US Treasury debt, citing more uncertain governance. Credit spreads and the equity risk premium jumped immediately, as did implied equity volatility. A US default is highly unlikely, but a period of financial turbulence cannot be ruled out.
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2023-05-15 10:46:45
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