Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Tier1 Alpha, dashing the hopes of soft-landing enthusiasts with today’s bonus chart. Over the past 12 to 18 months, we've observed a significant deceleration in Eurozone bank lending to households, dropping to depths unseen since the heights of the pandemic, the Global Financial Crisis, and the Dotcom bust. This isn't a result of households flush with cash or rising interest rates; it's primarily due to heightened lending standards. Ominously, we're now witnessing similar patterns in the US.

Tier 1 Alpha: Eurozone Lending Standards Approach Historical Recession Peaks - 9.12

A widely known fact is that around $1.5 trillion in commercial real estate loans need refinancing by 2025. These stricter lending standards haven't emerged from reserve requirements, a stagnated repo market, or Basel III limits but from growing counterparty risk concerns.

Post the initial COVID-19 shutdown shock, there was a momentary lapse in demand for CRE loans. However, as rates plummeted and stimulus infinity entered the market, this demand surged, only to plunge again when the Fed began increasing rates. Interestingly, current data shows demand is rebounding. In just the past quarter, 15% of banks reported a surge in CRE loan demand on a percentage change basis. Yet, with cycle to date high interest rates and lending standards nearing historical recession peaks, money is undeniably tight. Tier1, a flows desk, where we track macro trends for employment cues, this situation is waving a red flag.

Learn more about the Market Situation Report written by Tier 1 Alpha.