Market 05/07: Banks tighten credit standards - loan demand drops sharply

USD 58 billion 3Y Treasury bond auction successful 

USD 65 billion 3Y Treasury bond auction session quite successful due to return of foreign demand: USD 58 billion competitive bids.

• High Yield: 4.605% (market yield: 4.608% | previous session: 4.548%)

  => Stop through: 0.3bps

  • Successful bidders at High Yield: 87.59% (previous session: 34.81%)

• Bid-to-Cover: 2.45 (previous session: 2.47)

• Components:

  • Dealers: 14.87% (previous session: 19.31%)

  • Foreign investors: 65.52% (previous session only 60.26%)

  

Fed officials' statements: Barkin, Williams, Kashkari

Williams: Fed will eventually cut interest rates

• Fed will eventually cut interest rates - QT proceeding smoothly

• Consumers still spending, expected GDP growth ~ 2% - 2.5% this year.

Barkin: Strong labor market so Fed can wait longer

• Housing costs and services keeping inflation above 2%

• Confident that current interest rates can bring inflation to target.

• Strong labor market so Fed can wait to ensure inflation will decline.

Kashkari: Interest rates may stay at current level longer than market expectations

• Interest rates may stay current longer than markets think.

• The question is whether inflation is declining

• Neutral interest rate will rise from 2-2.5%

SLOOS survey: banks tighten credit standards while loan demand drops sharply

Fed Senior Loan Officer Opinion Survey (SLOOS) in Q1/2024 shows:

• Lending standards still tightened for large/medium companies

• Number of banks tightening standards in April slightly increased vs January.

Number of banks reporting increased commercial and industrial loan demand unchanged.

• Loan demand from large, medium and small businesses still in negative territory

• Lending standards remain tight for commercial real estate sector in particular …

  • … while demand for commercial real estate loans is gradually increasing…

China: strengthening easing of home purchase regulations

• Shenzhen, along with other major cities, eases home buying regulations as authorities try to revive frozen real estate market

• Chinese builder Logan gets more time to restructure debt after Hong Kong court rejects creditor's liquidation request for 2 business units

• Real estate developer Vanke says it has sufficient liquidity to repay 1.45 billion RMB (201 million USD) debt due on 05/25

Chinese tourists travel more during 5-day holiday, but still tighten purse strings → consumer sentiment remains weak

• Trip volume +28.2% but spending only up 13.5% vs 2019 holiday.

Americans' excess savings from the Covid period have been depleted - service sector unemployment pressure is gradually increasing

The latest estimate of the total excess savings (excess savings) after the pandemic in the US economy has turned negative.

US manufacturing and service sector employment has declined simultaneously for 3 consecutive months.

• In the past 20 years, this has ONLY happened 2 times, during the 2020 pandemic and the 2008 Financial Crisis

Earnings reports: Palantir, Walt Disney

Palantir

• Customer count +42% Y/Y to 554

• Revenue +21% Y/Y to 634 million USD (beat estimates by 17 million USD)

• Non-GAAP EPS: 0.08 USD (in line with expectations)

• FY24 earnings guidance:

  • Revenue +21% Y/Y to 2.68 billion USD (+23 million USD)

  • Profit margin 33% (+1pp)

Disney

• Revenue +1% Y/Y to 22.1 billion USD (missed estimates by 50 million USD)

• Non-GAAP EPS 1.21 USD (beat estimates by 0.1 USD)

• Segment profit margins:

  • Entertainment: 8% (+4 pp Y/Y)

  • Sports: 18% (-1 pp Y/Y)

  • Experiences: 27% (+1pp Y/Y)

• FY24 EPS guidance +25% Y/Y (previously 20%)

Other news

1. TikTok sues US government to block law forcing ByteDance to divest or ban TikTok in the US

2. Race among banks, asset managers, and European exchanges to develop "consolidated tape" technology - integrating multi-platform stock and bond prices has begun…

   • Europe aims to become a financial market competing with Wall Street.

3. Social Security Trust Fund now projected to be depleted by 2035.

   • Even after depletion, the program is estimated to pay about 80% of benefits.

4. Boeing investigated for allegedly falsifying aircraft certification records