US banks tightened lending standards in Q1 2023

The Fed’s Senior Loan Officer Opinion Survey (SLOOS) in April showed a modest tightening in lending standards since January. The net % of banks tightening lending standard on business loans increased to 46 from 44 in January, but lending standards for commercial real estate loans have tightened to levels last seen in 2008 and 2020. Standards on consumer loans (autos, credit cards and other) have also tightening significantly. The survey also indicated that higher borrowing costs are leading to a drop in demand for credit from large and mid sized fims, also to levels last seen during the financial crisis. In a separate financial stability report, the Fed indicated that a decline in bank lending could accelerate an economic downturn, with commercial real estate being highlighted as a particular area of risk for banks.

Treasury Secretary Janet Yellen again warned Congress that there were “no good options” to avert a debt crisis other than raising the debt ceiling. The Treasury is expected to run out of cash on 1 June. Republicans are demanding significant spending cuts in order to approve an increase in the debt ceiling. Discussions between the White House and the Republican leadership in Congress are expected to continue this week.   

China's exports rose 8.5% y/y in USD terms in April, faster than had been expected, while imports declined -7.9% y/y. The decline in imports implies weaker than expected domestic demand, but likely also reflects lower commodity prices than in April 2022. 

Today’s Economic Data and Events

• 10:00 GE CPI (April, final) forecast 0.6% m/m and 7.6% y/y
• 16:30 US CPI (April) forecast 0.4% m/m and 5.0% y/y
• 16:30 US core CPI (April) forecast 0.3% m/m and 5.5% y/y

Fixed Income

• US Treasuries opened the week on a softer footing with yields up across the curve. The 2yr UST yield added about 9bps to close at 4.0012% while the 10yr yield added 7bps to 3.5072%. A heavy load of corporate issuances appeared to be behind the weaker performance.
• European bonds also had a soft start to the week with yields higher across all major eurozone economies. Bund yields added 3bps to 2.315%.

FX

• It was a quiet start to the week for most major FX pairs though the dollar edged higher against majors. EURUSD dropped by a bit more than 0.1% to 1.1004 while GBPUSD dropped by the same amount to 1.2618. USDJPY nudged higher by 0.2% to close at 135.10.
• Commodity currencies fared better with NZDUSD leading the way, up by 0.8% to close at 0.6344 while AUDUSD added 0.5% to 0.6782 and USDCAD closed near flat at 1.3374.

Equities

• Early gains in US regional banking stocks faded with results from the Fed’s Senior Loan Officer Opinion Survey pointing to tighter lending standards this year. This left the NASDAQ marginally stronger, gaining 0.2% on Monday, while the S&P 500 rose 0.05%. The Dow Jones in contrast closed down 0.2% by the end of trade on Monday.
• In Europe, there were gains on both the EuroStoxx 50 and CAC indices, rising 0.2% and 0.1% respectively on Monday. The DAX fell slightly, to end the day 0.05% lower. The UK was closed for a holiday.
• Locally, the DFM dropped 0.01% while the Tadawul was flat.  

Commodities

• Oil prices rallied for a second day running to begin the week with Brent futures up 2.3% at USD 77.01/b and WTI adding 2.6% to USD 73.16/b. Wildfires in the major oil producing Canadian province of Alberta have disrupted output there with more than 230k b/d shut in.