The Fed, banks and... default? How will the reporting season end in the States
Alexey Bobrovsky
American markets are anxiously entering the next season of corporate reporting. Companies publish their quarterly reports 4 times a year, and the market evaluates the state of not only the companies themselves, but also the prospects of the entire economy based on these data. Given that 52% of the adult population in the United States has some kind of securities, the reporting season is a notable event that somehow affects the well-being of many Americans.
Goldman Sachs analysts expect that this time only 3 sectors – energy, industrial and consumer – will report profit growth. Everyone else is waiting for losses, and the reporting season as a whole will be the worst since the pandemic. You may ask: why do we need to know about this? Russian investors are cut off from the American market, most of our citizens are not interested in this at all. The fact is that the moment of truth for the American economy is approaching. And to understand what is happening, it is necessary to monitor the policy of the Fed, the banking sector, as well as the debt market. If you understand what will happen to them, it will be easier to predict the geopolitical processes in the United States and even in the world.
The fact is that the moment of truth for the American economy is approaching. It is necessary to monitor the policy of the Fed, the banking sector, as well as the debt market. If you understand what will happen to them, it will be easier to predict the geopolitical processes in the United States and even in the world.
One of the markers of this reporting season will be American banks. And the main intrigue is whether the problems of regional banks will spread to large ones. If the market does not see signs of hope in the reports of the banking sector, then the crisis will continue to develop along an understandable trajectory.
The escape from deposits of regional banks will continue, but the trouble is that the fear of depositors is already beginning to affect the state of large American banks. But this is just the tip of the iceberg.
Already, 1.5 trillion in debt problems are looming on American commercial real estate, and hence on banks. All this huge amount should be repaid by the end of 2025. And in the slowing US economy, not all owners of offices, shops and warehouses will be able to refinance their loans.
But the main question is: who will provide refinancing from the banking sector? These can only be regional banks - the largest source of credit in the commercial real estate sector. An increase in the Fed rate and problems with over-crediting will squeeze market demand even more, and therefore lower prices. Including the real estate that is pledged by banks. If it has to be sold, then according to the estimates of American investment bankers, the cost of office and retail real estate in the United States will collapse by 40%, which will further increase the risk of defaults by banks and borrowers.
An increase in the Fed rate and problems with over-crediting will squeeze market demand even more, and therefore lower prices. Including the real estate that is pledged by banks. If it has to be sold, then the cost of office and retail real estate in the United States will collapse by 40%, which will further increase the risk of defaults by banks and borrowers.
The second problem is the Fed's policy, which really has a stalemate - the regulator is fighting inflation and deliberately slowing down the US economy. But the US Central Bank will continue to raise the rate, which, as we have seen, only creates problems for regional banks. Clients simply run out of them, switch to American debt securities - there are higher rates, and there are fewer risks. The intrigue is not whether the Fed will raise the rate by a quarter or half a percent at its next meeting, but when the Central Bank will end this cycle of increase. The Fed can end the cycle of increase at any meeting - in May or in July, and after that, usually, the market begins to collapse ... 10 or 20% - will depend just on the reports of banks and technology corporations - the flagships of the market. A falling market is an almost guaranteed recession and the keys to the White House for the Republican candidate. A falling market for a re-elected president is almost guaranteed political ruin.
A falling market is an almost guaranteed recession and the keys to the White House for the Republican candidate. A falling market for a re-elected president is almost guaranteed political ruin.
It is worth noting that this time not only the United States itself has created a crisis situation. OPEC+ is actively approaching a recession and related problems for the US economy. The decrease in production is a sure sign of a new surge in inflation in Western economies and the movement of oil prices to $90, and possibly to $100 per barrel. Although it cannot be fast.
For the American, and therefore for the global economy, the summer is expected to be hot. Republicans will also "throw coal to the country" in disputes with Democrats over the debt ceiling. Any delay in its upward movement is political profits for the Republicans themselves. In an economic sense, it is an increase in the effect of the problems described above. And in the end - an increase in the chances of a serious debt crisis in the United States, with a possible exit to a technical default of America.