When the Federal Reserve starts raising interest rates, the market immediately starts to wonder: What will break? During the last cycle of rising rates, which started in 2022, one thing that broke was regional banking. Lenders such as Silicon Valley Bank, which had invested low-cost deposits into low-yielding bonds, saw the value of those bonds plummet as yields surged, opening up capital holes that contributed to customer outflows. This culminated in a mini banking crisis by early 2023.
However, the situation in U.S. banking now has some important differences from four years ago. Spending is rising because prices are climbing and Americans are buying more stuff, despite long-running frustrations over inflation. The September ISM services survey highlights the Federal Reserve’s dual mandate tensions. In the survey, the ‘prices paid’ index rose to its highest level since July 2022. “The ISM nonmanufacturing survey underscores the need for the Federal Reserve to raise rates in October and December as it seeks to unwind the rate cuts from 2025,” a note from Oxford Economics said.
European energy majors’ earnings are set to more than double on the same period last year, Barclays analyst Lydia Rainforth writes. The sector should report earnings close to $35 billion with underlying free cash flow around $45 billion, she says. The benchmark refining margin is at unseen levels of around $40 a barrel, which, coupled with trading, will drive downstream earnings, she adds. Meanwhile, European natural gas prices are the key driver of upstream earnings, she says.
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing