Please see the below market update from EPIC Investment Partners:
Moody’s cut the credit rating for 10 midsize and small US banks yesterday whilst warning that it may also downgrade some of the nation’s biggest lenders, believing that they are being squeezed by funding risks, possible regulatory capital weaknesses and increased risk exposure to commercial real estate loans.
The banks that had their ratings cut included Old National Bancorp, Fulton Financial Corp, M&T Bank Corp, BOK Financial Corp, Pinnacle Financial Partners Inc, and Webster Financial Corp with bigger lenders like State Street Corp, U.S. Bancorp, Truist Financial Corp, and Bank of New York Mellon Corp on review.
In the statement following the downgrades, the rating agency said: “Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital”. Adding, “This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline, with particular risks in some banks’ commercial real estate (CRE) portfolios.”
Overnight we also had a couple of Fed speakers hit the wires, Bowman and Bostic, who are at opposite ends of the hawk/dove spectrum, and true to form, they did not deviate.
Bowman repeated her view that the Fed may need to raise rates further to fully restore price stability, although it will still depend on incoming data. Bostic said that rates are in a restrictive stance, employment gains are slowing, and that there is no need to hike rates further. He added that he expects the Fed to be in restrictive territory well into 2024.
On this side of the pond, we heard from the Old Lady’s Chief Economist, Huw Pill, warning that while “substantial” falls on global food markets will eventually filter their way down to shoppers, it will only slow the rate of price increases rather than result in an actual fall.
“Unfortunately, the days of seeing food prices fall — that does seem to be something that we may not be seeing for a little while yet, if in the future at all. Our expectation at the moment is that food price inflation will fall back towards about 10% by the end of this year and then further next year”, he said. Adding, “That’s still not a very comfortable level.”
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Andrew Lloyd DipPFS
8th August 2023