Rising rates, oil spike, Treasuries dump and wholesale issuance — funding & NIM pressure
Key Questions
What factors are contributing to funding and NIM pressure?
Rising rates, oil price spikes to $92.5-111 due to Iran tensions, Treasuries dumping, and wholesale issuance are key pressures. BofA economists warn that inflation and war could delay Fed rate cuts, while Dimon highlights oil, recession, and tariff risks reinforcing NII pressure. Central banks are dumping $400B amid $10T refinancings, with Fed holding rates at 3.5-3.75%.
How has the oil spike impacted market expectations?
Oil prices surging to $92.5-111 amid stagflation fears from Iran Strait deadlines have led to warnings of delayed Fed cuts. BofA notes potential for only 2x25bp cuts in June/July instead of more aggressive easing. This reinforces recession risks and NII pressure as per Dimon.
What is BofA's outlook on chemical stocks like Dow?
BofA downgraded Dow to Underperform amid a rally driven by temporary earnings surges and unsustainable tailwinds. Concerns include economic headwinds and recent share price rallies in US chemical companies. Similar downgrades applied to LyondellBasell and others.
Why does JPMorgan view the current sell-off differently from 2022?
JPMorgan's equity strategy team states the current market sell-off is unlike 2022 due to cooling wages and a potentially short conflict. They urge investors to use weakness to add exposure to US banks. This contrasts with broader funding pressures from rates and oil.
What trends are seen in mortgages and delinquencies?
Mortgage applications dropped 10%, while delinquencies are rising, per recent reports. Annual home price growth slowed to 0.4% in March according to the ICE Mortgage Monitor. These reflect broader funding pressures amid rising rates.
What is the status of central bank and Fed actions?
Central banks dumped $400B in assets amid $10T refinancings, with BofA cash holdings up 48% and GSIB cuts. Fed is holding rates at 3.5-3.75%, with MMFs at $8.3T and TipRanks noting fading NII. BAC holds $100B in unrealized losses.
How are banks managing cash and redemptions?
BofA cash surged 48% with GSIB cuts, alongside $2.8B notes redemption and cash hoarding trends. This occurs amid wholesale issuance pressures and NII fading per TipRanks. JPM views differ from 2022 sell-off dynamics.
What risks do war and inflation pose to earnings?
BofA warns of zero earnings growth if Iran war continues, amid stagflation fears cutting Nifty targets to 8.5%. Inflation and war delay Fed cuts, per economists. Broader concerns include NII pressure and economic headwinds like those prompting managed care outlooks.
Stagflation Iran/$92.5-111 oil/Strait deadline; BofA economists warn inflation/war delays 2x25bp Fed cuts June/July; Dimon oil/recession/tariff warns reinforce NII press/BofA downgrades (Dow chem Underperform); CB dumps $400B/$10T refi; Fed hold 3.5-3.75%; BofA cash +48%/GSIB cuts; mortgages apps -10%/delinq up/MMFs $8.3T; TipRanks NII fading; BAC $100B unrealized; cash hoarding; $2.8B notes redemption; JPM views sell-off unlike 2022 (cooling wages/short conflict).