High valuations of companies may pose a risk to the economy, warns the IMF. This optimism has pushed valuations to unsustainable levels, making them vulnerable to shocks. Credit markets, especially for riskier borrowers, are a particular concern, as well as commercial real estate, due to the shift to remote work. The IMF highlights that inflation remains a risk, as does uncertainty around interest rates.
The Federal Reserve is now considering waiting until at least September before cutting interest rates, which is later than the expected timeline. The central bank is focused on combating inflation, which is still elevated at around 3%. Some economists believe a rate cut may not happen until 2025. Despite the resilient economy, higher rates for longer could pose risks to the labor market and finance sector.
The Swiss government has proposed new regulations to tighten its control over big banks, particularly UBS, after the collapse of Credit Suisse. The government's plan includes giving more power to regulators and increasing capital requirements. However, an expert believes these measures will hinder UBS's ability to compete with global banks and may put Switzerland's economy at risk.
US Treasury Secretary Janet Yellen is visiting China for meetings with officials on issues like trade and industrial overcapacity. She hopes to improve communication between the two countries, which have had a strained relationship. Yellen will specifically address China's export strength and its impact on global economies.
Investment experts predict raw materials could increase in value this year, but there are concerns about inflation and financial stability. While analysts are bullish on stocks, they also worry about market stability and consider the bond market to be in the middle of its cycle. The Fed's unclear stance on inflation and unemployment is adding to uncertainty.
Despite the collapse of three large banks last year, many smaller banks remain vulnerable due to high exposure to commercial real estate and rising interest rates, which have driven down bond and loan values. Regulators have ordered some banks to address capital and staffing issues. Merger activity has slowed due to uncertainty around regulatory approvals and the impact of portfolio markdowns on capital levels. However, industry experts expect an increase in mergers this year as bank executives recognize the need to consolidate and older leaders consider retirement.
