Market Shifts Toward Credit Risk From Interest Rate Risk as PPI Takes a Hit; Fitch Foresees Ongoing Struggles for US Regional Banks; Corporate Bankruptcies Surge

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As we approach the new year, a shift toward credit risk is expected, replacing interest-rate concerns, according to Mohamed El-Erian. The recent steep drop in October’s Producer Price Index (PPI), the largest since April 2020 during the Covid lockdown, heightens worries. Fitch predicts ongoing challenges for US regional banks in 2024, and with earning trends deteriorating, the financial system demands more liquidity. Reuters notes that US corporate bankruptcies are now at their highest since 2020. This convergence paints a concerning economic landscape, raising alarms about the challenges ahead.

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Industrial Production Plunges in October – Worst Since the COVID Lockdowns

US Industrial Production experienced a significant downturn in October, dropping 0.6% month-over-month from a downwardly revised September figure. This decline, the most substantial since December 2022, marks a sharp contrast to last month’s surprising bounce. Furthermore, the year-over-year decrease of 0.8% is the most severe since the COVID lockdowns, indicating a notable slump in industrial activity.

Continuing Jobless Claims Keep Rising, Surges To 2 Year High

The number of first-time jobless claims in the US rose to 231,000 last week, marking the highest level since August and signaling a concerning trend in unemployment. Continuing claims also escalated to 1.864 million, the most significant since November 2021. This data, coupled with warnings from Goldman Sachs about seasonal distortions potentially inflating continuing claims by an additional 375,000 by March, paints a grim picture of the labor market’s health, indicating worsening conditions.

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