Market turmoil continued last week, leading to considerable investor unease over impacts to the credit environment. Conviction on where we are in the credit cycle amongst the many market participants we interact with are low.
The data is mixed. Although the jobs data at the beginning of the month was strong, last week’s economic data – housing starts (down 2.5%), CPI (down .1%), retail sales ex-auto (down .1%), and the Philly Fed business survey (-3.5) was weak. What we can say definitively, based on the Citi Economic Surprise Index, is that markets are re-pricing to macro data that is coming in below expectations.
Consequently, the implied probability of a Q1 Fed rate hike has dropped to 22%. International bodies including the IMF and the Bureau of International Settlements are encouraging the Fed take a cautious approach to rate hikes given the low level of inflation.
While we focus on macro articles this week, other major developments last week include the continuation of platform-led funds (see SoFi article) as platforms seek to create sources of semi-permanent capital, and Digital Asset Holding’s major fundraise.
Note that Ram will be in SF for the China Credit Conference giving a talk on “Securitization: Opportunity for Marketplace Lenders.” Drop a note if you’d like to catch up!
Industry Update:
- US Fitch Fundamentals Index: Majority of Credit Indicators Turn Negative in Fourth Quarter (Reuters, 1/19/16) FFI indicators remained negative in Q4 due to the strain of sluggish global growth, falling commodity prices and signs of a slowdown in China. “The second half of the year was marked by broad-based indications of weakening credit conditions” although healing “the US labor and housing markets led to stability in mortgage delinquencies and stable credit quality for banks”
- Walled In: China’s Great Dilemma (Goldman Sachs, Jan 2016) A deep look by GS, which presents an unfavorable picture of China’s growth rates—burdened by debt, the rebalancing of their economy, structural fault lines and demographics
- SoFi Branches Into Buy-Side Role (ABA, 1/22/16, PDF attached) SoFi starting two new investment programs—one to create a fund that will buy personal loans, the other involves the launch of a REIT
- Blythe Masters Firm Raises Cash, Wins Australian Exchange Deal (Bloomberg, 1/21/16) Digital Asset Holdings raises $52 million; ASX invests $10.5 million of that to to speed up settlement in Australia stock market
- Final FRTB is a game of give-and-take, say dealers (Risk, 1/18/16, subscription required) Review of the several last-minute tweaks to the Basel Committee’s final FRTB version, which overhauled market risk rules in a range of areas: ditching the use of value-at-risk in favor of expected shortfall, redrawing the boundary between banking books and trading books, and strengthening the relationship between the standardized and internal models approach
- How Wall Street Finds New Ways to Sell Old, Opaque Products to Retail Investors (Bloomberg, 1/21/16) Review of the growth in proprietary, specialized indices and structured notes, including expansion into CDs and insurance annuities
- Blackstone Gains From Banks’ Financial-Crisis Pain (WSJ, 1/21/16) Blackstone has capitalized on freedom from heavy bank regulation, snapping up assets cast off by some banks and entering businesses others are abandoning
- Banks Face Losing $150 Billion to Startups, Oliver Wyman Says (Bloomberg, 1/19/16) Wall Street’s future will be dominated by firms that embrace technology