1. Banks underpricing risks
2. The Yield Curve is lagging the oil move
3. Credit: Good News Fully Priced?
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1.Banks underpricing risks
Higher energy, fiscal drag and tighter conditions could herald risks for H2 — a bad mix for loan growth, credit and ultimately earnings.
Lending standards are tightening, delinquencies are picking up and credit risk is creeping higher. Yet KBE vs SPY is ~1σ rich on Qi, with a strong history of mean reversion when FVG gets stretched. See the chart below.
Bottom-line, stagflation + credit risk look underpriced in banks. The top two upside drivers on Qi’s valuation model for the sector is lower inflation expectations and tighter HY credit spreads.
Continue reading our analysis by downloading the PDF above
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