New credit data suggests a wave of bankruptcies is coming
A wave of bankruptcies is likely still incoming according to the Fed SLOOS survey, while it is hard to see credit and equity markets celebrating meanwhile. Find the data here!
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The quarterly SLOOS survey from the Fed was released a bit more than an hour ago and the results resemble the quarterly credit surveys from Japan and Europe released ahead of the US ditto.
There is a sequential improvement in demand, while fewer banks tighten standards compared to Q3. So, is it good news or did the survey rather confirm the credit contraction? We lean towards the latter.
Let’s have a look at the highlights!
First, the demand side actually did improve from a marginal perspective. Fewer banks report weakening demand relative to Q4 and given how the survey is designed this ought to be seen as a positive compared to Q3.
Chart 1: Demand for loans
The demand side remains weak enough to cement the recessionary credit contraction ahead and the typical lag of 3-4 quarters is still awaited (im)patiently by markets and central banks.
The demand for loans, especially among SMEs, remains subdued relative to larger corporations. The survey result is in line with a 5-7% credit contraction, which is less bad than 2008 but worse than 2001 (See chart 2)
Chart 2: Demand is weak enough to create a contraction
To find the FULL study and our subsequent pieces on how to allocate in equity and credit markets given these findings, visit www.stenoresearch.com
You can use the code Macro30 to get 30% off your first subscription.