Almost 1.5 trillion USD of US commercial real estate debt comes due for repayment before the end of 2025. The big question facing those borrowers is who’s going to lend to them? “Refinancing risks are front and center” for owners of properties from office buildings to stores and warehouses, Morgan Stanley note this past week. “The maturity wall here is front-loaded. So are the associated risks.” Office and retail property valuations could fall as much as 40% from peak to trough, increasing the risk of defaults. Adding to the headache, small and regional banks, the biggest source of credit to the industry last year, have been rocked by deposit outflows following the demise of Silicon Valley Bank, raising concerns that will crimp their ability to provide finance to borrowers. The wall of debt is set to get worse before it gets better. Maturities climb for the coming four years, peaking at 550 billion USD in 2027. Banks also own more than half of the agency commercial mortgage-backed securities, bonds supported by property loans and issued by US government-sponsored entities such as Fannie Mae, increasing their exposure to the sector. “The role that banks have played in this ecosystem, not only as lenders but also as buyers,” will compound the wave of refinancing coming due. Rising interest rates and worries about defaults have already hurt CMBS deals. Sales of the securities without government backing fell about 80% in the first quarter from a year earlier. Amid the gloom, there are some slivers of good news. Conservative lending standards in the wake of the financial crisis provide borrowers, and in turn their lenders, with some degree of protection from falling values. Sentiment toward multifamily housing also remains much more positive as rents continue to rise, one reason why Blackstone Real Estate Income Trust had a positive return in February even as rising numbers of investors lodge withdrawal requests. The availability of agency-backed loans will help owners of those properties when they need to refinance. Still, when apartment blocks are excluded, the scale of the problems facing banks becomes even starker. As much as 70% of the other commercial real estate loans that mature over the next five years are held by banks. “Commercial real estate needs to re-price and alternative ways to refinance the debt are needed,”. European real estate issuers, meanwhile, have the equivalent of more than 24 billion EUR due for repayment over the remainder of the year.

US inflation was largely unwavering in March, with economists projecting a monthly increase in consumer prices on par with advances seen over the previous half year that will test the Federal Reserve’s mettle.  Government figures Wednesday are expected to show a 0.4% monthly gain in the core consumer price index, which excludes food and energy and better reflects the scope of underlying inflation facing American households. While softer than the 0.5% advance in the prior month, such an increase would match the September-February average and keeps year-on-year figures stubbornly high. That may help tip the scales toward another interest rate hike at the Fed’s May meeting, despite stress in the banking system and signs of a slowing economy. Meanwhile, minutes of the Fed’s March 21-22 meeting, also released on Wednesday, may provide clues about the appetite for further policy tightening as well as views on the health of the banking system and lending. US core CPI is seen rising 5.6% from a year ago, which would be an acceleration from February’s annual gain. Including food and fuel, the price gauge is forecast to climb by 5.1%, the smallest advance in nearly two years. The central bank’s goal, based on a different inflation metric, is 2%. Since soaring to a four-decade high of 9.1%, the overall CPI has been retreating in step with falling energy prices. Those costs, however, may start to rise again after the OPEC+ announcement on April 2 of a surprise cut in crude production. Rising crude oil prices may bleed through to gasoline and jet fuel just as Americans begin their summer vacation planning. Meanwhile, central banks in Canada, South Korea and Peru may all keep rates unchanged in the coming days.

Lengthy streak of underperformance and concerns over economic outlook leads asset managers to diversify portfolios.  US fund managers are increasing investments in international stock markets after rising interest rates and fears of an economic slowdown brought an end to more than a decade of domestic dominance. US stocks have vastly outperformed most other developed and emerging markets since the financial crisis, but the trend began to reverse last year. The Europe-wide Stoxx 600 index has now posted stronger returns than Wall Street’s S&P 500 for four consecutive quarters, its longest period of outperformance since 2008. European stocks did decline in the middle of last year, but losses were milder than in the US, and asset managers that rode the US growth trend have recognised the need to diversify. The BlackRock Investment Institute has also said it expected US equities to underperform stocks in emerging markets, Europe and China over the coming decades, albeit with a wide range of potential outcomes for China. Meanwhile, PineBridge Investments, which manages 143 billion USD in assets, said in its latest strategy note it had adopted a “more cautious stance on broader US stocks, particularly given today’s overvaluation teamed with the upcoming tightening in credit and risk aversion by banks” as well as the Federal Reserve’s withdrawal of bond market support. It has a more positive stance on emerging markets including China and India. Investors have pulled 34 billion USD from US equities funds so far this year, according to data provider EPFR. Europe, in contrast, has seen 10 billion USD of inflows. The US retains comfortably the biggest stock market in the world. The market capitalisation of the S&P 500 stands at 34 trillion USD, compared with just under €10tn on the Euro Stoxx 600. Still, a combination of macroeconomic factors and differences in market structure are encouraging a shift. US dominance over the past decade was powered by outsized gains for large tech groups, which have been particularly badly hit as rising interest rates reduce the relative appeal of long-term growth assets.

Musk deepens China investment amid growing trade tensions. The US carmaker already has an automotive factory in Shanghai. Tesla Inc. will build a new battery factory in Shanghai, increasing investment in China at a time of brewing tensions between Beijing and Washington. Tesla will manufacture its Megapack large-scale energy-storage unit in the new facility, which adds to its factory for electric vehicles in Shanghai. The company led by Elon Musk, who is said to be visiting China this weekend, made the announcement at a signing ceremony for the project in Shanghai. Tom Zhu, Tesla’s senior vice president of automotive, and Shanghai government officials including vice mayor Wu Qing attended, with Tesla Vice President Tao Lin signing the contract. Construction is scheduled to begin in the third quarter of this year and the plant will commence production in the second quarter of 2024, the company said in a statement. Tesla’s deepening China investment comes shortly after France’s Airbus SE announced plans to double its production capacity in the country for one of its top-selling jets. The European planemaker will add a second final assembly line for A320 narrow-bodies at its existing factory in Tianjin, under a deal signed by Chief Executive Officer Guillaume Faury in Beijing on Thursday. The new manufacturing projects give a boost for Chinese industry as other firms like Apple Inc. rethink production in the nation amid heightened tensions with the US over everything from an alleged Chinese spy balloon being shot down over American skies to Beijing’s partnership with Russian President Vladimir Putin. The Megapack is intended as a massive battery to help stabilize energy grids, with the company saying each unit can store enough energy to power an average of 3,600 homes for one hour. The new factory will initially produce 10,000 Megapacks every year, equal to around 40 GWh of energy storage, and the products will be sold worldwide. China, home to rising global electric vehicle star BYD Co., is an extremely important market for Tesla. Its existing car factory on the outskirts of Shanghai, which the US firm owns outright, produced almost 711,000 cars last year, or 52% of its worldwide output — even with production being disrupted by the China’s now-abandoned Covid Zero policy. Authorities rolled out the red carpet to help Tesla set up its first plant outside the US in early 2019, and Shanghai government officials assisted the company with resuming production in a timely manner after pandemic-related disruptions. Musk’s time operating in China hasn’t been entirely smooth, however. An expansion of the Shanghai EV plant was delayed over data concerns about Tesla’s connections to Musk’s internet-from-space initiative Starlink, people familiar with the matter said earlier this year, days after angry Tesla owners swarmed showrooms in China to complain about missing out on another round of price cuts.