Previous Research US Mortgage Risk Premia has Bottomed
According to recent SLOOS (Senior Loan Officer Opinion Survey) data, delinquencies may be on the rise in the coming months. The data reveals that the net percentage of banks tightening lending standards has increased this quarter. This is particularly noteworthy as SLOOS data has been a reliable predictor of economic recessions over the past three decades.
When lending standards become stricter, it becomes harder for weaker businesses to secure capital, leading to delinquencies. Typically, it takes about 12 months for an increase in lending standards to translate into an uptick in delinquencies. Given this timeline, we can expect delinquencies to surge in the following quarters.
Additionally, the data indicates that the US has ended up in a recession every time the net percentage of banks tightening standards for large and middle market firms has surpassed 40%. In the last quarter, this figure reached 46%.
While the central bank sets the cost of capital, banks determine the amount of credit that can be pushed into the economy at that cost. Therefore, this survey is critical for assessing credit expansion in the economy in the near future. One more flashing sign for a hard landing.
Can US Skip the Recession?
The most recent labor market data paints a concerning picture of overall weakness. Typically, the effects of changes in interest rates take some time to ripple through the economy. Historically, this lag has been around 18 months. Interestingly, this pattern held true as, precisely 18 months after the initial rate hike in March 2022, we are now witnessing the visible impact this month. The Federal Reserve consistently raised rates throughout 2022, suggesting that the consequences of these consecutive hikes will continue to materialize as the year unfolds.
SP500 & Inflation Update: Aug 2023
Airtham Macro Research: The July headline CPI release followed predictions of a slight increase, yet the actual magnitude was less significant than anticipated. This outcome sparked optimism within the market, leading to a surge in activity and speculation of a potential pause in rate hikes. However, this optimistic rally was short-lived as market participants quickly adjusted their expectations. The weaker-than-expected inflation reading meant a potential decline in economic demand. This perspective gains support from jobless claims data released a few days back, that showed claims rising to a 1.5-year high. Consequently, there's now a debate over whether further inflation reduction is beneficial or detrimental to the markets.
What’s Happening to US Tax Receipts?
One of the most crucial indicators for gauging the health of a country lies in its government tax receipts. When tax receipts rise in tandem with economic growth, it signals a thriving nation. Conversely, economic downturns often witness an accompanying decline in tax receipts. However, what's truly concerning is when tax receipts decline despite a healthy and expanding economy.