07 February 2024
If you are covering the latest news in financial markets, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“Despite the recent run of strong macroeconomic data coming out of the US, there are still clearly banana skins to slip on, particularly in a period when commercial property from Shanghai to Frankfurt, New York and London faces ongoing falling occupancy, coinciding with a wall of refinancing requirements.
“We heard last week from New York Community Bancorp, last year’s saviour of failed Signature bank, that losses on real estate loans were higher than investors were expecting. Overnight, Moody’s downgraded its credit rating to ‘junk’, which now sees the shares down nearly 60% year to date, adding another property-related casualty to a growing list that includes Germany’s Signa Developments and China’s ‘Evergrande’. While the chance of systematic risk still seems very low, given the impact of regulation and prompt reaction from governments and institutions, this is a reminder that business models which worked at lower interest rates may not at current levels, particularly when a sector is already struggling to adapt to a fast-changing world.
“Turning back to Germany, data out today showed industrial production declined 1.6% month on month in December, worse than expectations for a fall of 0.4%, with production now 10% below pre-Covid levels and the most significant declines coming from energy-intensive industries and power generation.
“Chemicals saw a steep decline of 7.6% on November, and construction declined 3.4%, whilst automotive production grew 4%. This is a further signal of the manufacturing malaise that has hung over the global economy for 18 months, with Germany feeling the brunt of this. High energy costs and raw material prices, as well as the lack of orders, have made life difficult for European firms that quite often rely on global supply chains, once again facing disruption, to run smoothly. While there is growing hope that depleted inventories will soon have to be restored, prompting a turn in the trend, there is scant evidence yet to suggest this is imminent.”
