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Last week’s discussions focused on the possible re-emergence of a banking crisis in the US due to unexpected weakness in New York Community Bancorp’s quarterly report.
In particular, investors were unnerved by fourth-quarter losses due to a sharp increase in loan loss reserves and a dividend cut from 17 cents to 5 cents.
Addressing the “rainy day” issue for which the financial institution is setting aside funds, it should be noted that approximately 60% of NYCB’s loan portfolio comprises commercial real estate.
Overall, the situation in the sector is satisfactory, with regional banks reporting paper losses of around $620 billion, which may affect banks’ ability to meet unforeseen liquidity needs.
In addition, due to high-interest rates, loan quality and profits of small and medium-sized banks are declining. In short, the risks associated with continuing last year’s recession remain.
The good news is that a return to the crisis of 2008 is improbable as, with elections coming up, the ruling party is unlikely to allow the situation to spiral out of control.
It is also true that the backdrop of a $34 trillion debt and escalating servicing costs suggests that the scope for intervention will likely be limited.
However, investor confidence in a positive trajectory may have provided some support to the market, if not prevented regional bank stocks from falling, at least offered general support.
Thus, the S&P 500 index rose during the week instead of a correction. Contributing factors included better-than-expected quarterly results from Meta and a better-than-expected January employment report.
The Federal Reserve meeting, scheduled for January 30-31 according to the economic data calendar, went largely according to plan. The regulator kept the interest rate within the 5.25-5.5% range, and the planned balance sheet reduction remained on track.
In particular, there were no indications of an imminent rate cut or a reduction in quantitative tightening.
On a positive note, the US Federal Reserve abandoned language emphasising the need for further monetary policy tightening, opting instead for a phrase that assesses the prospects for a rate cut.
However, the caveat remains that a greater degree of certainty is required for the first rate cut, specifically with regard to the sustainability of the slowdown in inflation.
However, due to the high geopolitical and economic uncertainty, it would be unwise to follow macroeconomic data, as the regulator will base its decision on incoming figures.
