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US credit conditions tighten

The conditions of loans for US businesses and consumers tightened at the start of this year, according to a survey of banking professionals conducted by the US Federal Reserve (Fed). The survey showed both declining demand for loans and higher costs of borrowing, which can be indicators of a weakening economy. Equity markets ignored the credit survey results and largely traded flat on Monday as market participants waited for the US Consumer Price Index to be released on Wednesday.

Shane Strowmatt, LGT
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5 minutes
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The Fed’s Senior Loan Office Opinion Survey, commonly referred to as SLOOS, showed about half of US banks tightened the terms for business loans. The survey also concluded that companies of all sizes were showing less demand for loans than in the previous survey, conducted three months earlier. Not only access to credit was becoming more difficult, but respondents said the size of loans were shrinking and the costs of borrowing were increasing. The data is watched closely by the Fed as a way to measure the health of the financial sector and the real economy. Just last week, the Fed increased rates by 25 basis points but signalled it may pause its current rate hiking cycle.

Economic data from Germany released Monday also painted the picture of a weakening economy. Industrial output plummeted in March, bringing up the option that Europe’s largest economy may be in a recession. Industrial production fell 3.4% in March from February. One of the main drivers for the drop was a decrease in output from the country’s large automobile sector, which fell 6.5% versus the previous month. Germany’s gross domestic product was flat in the first quarter of 2023 after contracting 0.5% in the last quarter of 2022. Should GDP be revised downward, Germany would fall into a recession, which is typically defined as two consecutive quarters of economic contraction.

Equity markets in New York struggled to find a direction on Monday, following large gains on Friday. The Dow Jones Industrial lost 0.17% to finish at 33,618.69 points and the S&P 500 made marginal gains to close at 4,138.12 points. The tech-heavy Nasdaq-100 gained 0.25%. The US banking sector had a fairly calm session on Monday after multiple days of double-digit swings. PacWest’s shares gained 3.65%, while Western Alliance shares put on 0.59%.

In Asia, markets were trading mixed after China released trade data that was difficult to interpret. Imports into the world’s second-largest economy fell by 7.9% while exports increased 8.5%. Most economists had not expected the steep fall in imports as most expected Chinese demand to pick up after ending the country’s strict Covid policies. Nevertheless, the total trade surplus came in at 90.2 billion dollars, higher than market expectations. In mainland China, the Shanghai Composite gained 0.6% and the Shenzhen Component increased slightly. Stocks slid in Hong Kong with the Hang Seng Index dropping 0.4% and the Hang Seng Tech Index down more than 1%. In Japan, the Nikkei gained more than 1%.

Corporate news in focus: Q1 figures Fresenius, Hochtief, Nintendo, Alcon.

Economic data in focus: Chinese trade balance, French trade balance (08:45 CET), US weekly oil report (22:30).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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