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According to the Wall Street Journal: Spirit Airlines is preparing to file for bankruptcy again.The Dow Jones Industrial Average closed down 92.02 points, or 0.20%, to 45,544.88 on Friday, August 29; the S&P 500 closed down 41.60 points, or 0.64%, to 6,460.26 on Friday, August 29; and the Nasdaq Composite closed down 249.61 points, or 1.15%, to 21,455.55 on Friday, August 29.The Federal Reserve announced on Friday, August 30, that it had finalized new capital requirements for the largest U.S. banks following the June stress test, but added that Morgan Stanley (MS.N) is seeking a reassessment of its upcoming capital requirements. The new capital requirements will take effect on October 1 and could be updated if the Fed adopts a proposal under consideration to average the results of two years of stress tests. Based on its annual financial stress test of large banks, the Fed assesses banks performance under a hypothetical economic downturn scenario and sets their capital buffers accordingly. Morgan Stanley is requesting a reconsideration of its results, and the Fed will announce its decision by the end of September.The U.S. Commodity Futures Trading Commission (CFTC): As of the week ending August 26, stock fund speculators increased their net short position in the S&P 500 CME futures by 62,459 contracts to 428,262 contracts. Stock fund managers increased their net long position in the S&P 500 CME futures by 3,284 contracts to 867,359 contracts.U.S. Commodity Futures Trading Commission (CFTC): As of the week ending August 26, crude oil speculators increased their net short positions in WTI futures by 1,978 contracts to 13,357 contracts.

After A Fed Rise, The U.S. Banks Stress Index Might Deteriorate

Aria Thomas

Jun 17, 2022 11:09

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An indicator of credit risk in the U.S. banking sector may be exhibiting symptoms of strain as the Federal Reserve's aggressive rate rise path heightens economic pain forecasts.


According to Refinitiv data, the so-called FRA-OIS spread, which measures the difference between the U.S. three-month forward rate agreement and the overnight index swap rate, jumped to 29.50 basis points on Thursday, its widest level since May 23. The value was -11.66 basis points earlier in the week.


Widely regarded as a barometer for banking sector risk, a wider spread indicates that interbank lending risk has increased.


The recent increase in the margin between forward rate agreements and overnight index swap rates is worrisome, according to J.P. Morgan Asset Management global market analyst Jordan Jackson. "As the Fed becomes more hawkish, recession fears increase, hence boosting the underlying credit risk."


The Federal Reserve hiked interest rates by 75 basis points on Wednesday, its largest rise since 1994. Markets have been rocked by the prospect of more dramatic tightening, and fears of a future recession have intensified.


This month, the central bank also started letting bonds to expire off its more than $8 trillion balance sheet without replacing them, a procedure known as quantitative tightening that Jackson warned may possibly deplete the financial system's liquidity.


As the world's biggest holder of U.S. government debt lowers its market presence, this sentiment is shared by other investors who are concerned that market conditions may deteriorate.


"Now that quantitative tightening has formally begun, reserve draining has been rather steady over the last several months," Jackson said, adding that he expects the FRA-OIS disparity to become much wider.


Wall Street also perceives an increase in the likelihood of default by large banks.


On Thursday, credit default swap (CDS) spreads for JP Morgan, Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and Bank of America (NYSE:BAC) were nearing two-year highs.


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