Report: SpaceX has finalized the details of its IPO and plans to start the roadshow in June.

According to a report by Reuters on April 7, SpaceX convened its underwriting team on Monday evening to officially disclose key details of its IPO: the roadshow is set to start the week of June 8, with a target of raising $75 billion and a maximum valuation of $1.75 trillion. A source disclosed that one of the lead underwriters among the 21 underwriting banks informed the entire banking team that the retail demand and the size of the placement would be "unprecedented". According to the information obtained by the media, the IPO process will proceed at the following pace: Week of June 8: Officially launch the roadshow, with executives and bankers presenting to institutional investors. Retail participation is not limited to the United States. Ordinary investors in the United Kingdom, the European Union, Australia, Canada, Japan and South Korea all have the opportunity to subscribe. Valuation Surge: From 800 Billion to 1.75 Trillion In December 2025, SpaceX's latest employee stock offer (tender offer) valued the company at $800 billion. In February this year, after SpaceX merged with xAI, an AI startup owned by Musk, the combined entity was valued at $1.25 trillion. The underwriting team is equally star-studded: Morgan Stanley, Bank of America, Citigroup, JPMorgan Chase, and Goldman Sachs serve as active bookrunners, with another 16 banks handling institutional, retail, and international channels respectively. While SpaceX is racing towards its initial public offering (IPO), the IPO competition among Silicon Valley's AI unicorns is also picking up speed simultaneously. However, OpenAI's path to going public is not smooth. According to financial documents obtained by The Wall Street Journal, the company is projected to spend as much as $121 billion on computing power in 2028. Even if its revenue nearly doubles by then, it is still expected to suffer a loss of $85 billion that year. It is not until 2030 that it is likely to achieve overall break-even. If the IPOs of the two companies go ahead, both are expected to rank among the largest in history. For this reason, Wall Street bankers are lobbying major index providers to relax their inclusion criteria. Nasdaq recently announced that it would allow new listed companies to join its index more quickly. Investing involves risks. Please exercise caution. This article does not constitute personal investment advice and has not taken into account the individual investment objectives, financial situation or needs of any particular user. Users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Any investment made based on this article is at your own risk.

Will the Fed raise interest rates due to high oil prices? Goldman Sachs doesn't believe so.

The report emphasizes that if the economy falls into recession, the Federal Reserve is highly likely to cut interest rates, and an oil price shock will not prevent it from taking easing actions. This is mainly based on four reasons: Different economic starting points make inflation hard to spread: The labor market is softening, and wage growth has fallen below the level consistent with a 2% inflation target. Long-term inflation expectations are stable, which is different from the situation in the 1970s when expectations got out of control. The Federal Reserve usually does not respond to a mere oil shock: Historical analysis shows that there is no significant correlation between the mention of oil price shocks in the speeches of Federal Reserve officials and the release of signals for tightening policy. In contrast, there is a stronger correlation among the officials of the European Central Bank. The scale and breadth of the current oil price shock are far less than those of historical crises. More importantly, the current U.S. economy is far less dependent on oil than it was in the 1970s. Data shows that both the energy intensity of GDP and the share of gasoline in personal consumption expenditures (PCE) have dropped significantly since then. From the perspective of the inflation transmission path, the rise in oil prices will significantly boost overall inflation, but its impact on core inflation will be relatively limited. Moreover, this shock will fade over time as oil prices will not keep climbing year after year. The mainstream view in previous economic research also held that central banks should "turn a blind eye" to short-term energy price shocks, for reasons similar to those for tariff shocks. As oil price shocks are temporary and simultaneously suppress demand, monetary policy tightening would only exacerbate damage to the labor market and do little to curb inflation. The economic fundamentals lack the conditions to "fan the flames", and the probability of a secondary spread of inflation is low. Looking back at history, there is a common feature in the severe inflation periods of the 1970s and 2021-2022: the labor market was extremely tight and wage growth accelerated. In contrast, the US labor market is currently weakening, with wage growth falling below the level consistent with a 2% inflation target, while medium- and long-term inflation expectations remain well anchored. The starting point of monetary policy is more neutral, and the threshold for raising interest rates is higher. Currently, the Federal Reserve's federal funds rate is 50 to 75 basis points above the median estimate of the neutral rate in the Summary of Economic Projections (SEP) and is roughly in line with the recommendations of standard policy rules. In addition, since the conflict broke out, financial conditions have tightened by about 80 basis points, which further reduces the necessity of actively tightening monetary policy. Goldman Sachs' historical analysis shows that there is no significant correlation between the mention of oil price shocks in the speeches of Federal Reserve officials and the signals of tightening monetary policy, while there is a stronger correlation for the officials of the European Central Bank. At the same time, neither FOMC members nor the chair of the Federal Reserve have historically systematically raised policy rate projections in response to oil price shocks. Overall, Goldman Sachs believes that the current situation is fundamentally different from the "high-risk" backdrop of the 1970s and 2021-2022. Risk Warning and Disclaimer Clause

It's not US Treasuries! Amidst the flames of war, the only safe haven in the world turns out to be Chinese government bonds!

Global central banks are selling off US Treasuries at a frantic pace, with $82 billion worth of US debt being divested in a single month. Middle Eastern oil-producing countries are also cashing in their US bonds for hard currency.

The war in Iran has led to a sharp increase in energy prices. Central banks around the world are selling US Treasury bonds at the fastest pace in over a decade to stabilize their domestic economies and currencies. Data from the Federal Reserve shows that the scale of U.S. Treasury bonds held in custody by foreign official institutions at the New York Fed has dropped sharply by $82 billion to $2.7 trillion since February 25, hitting the lowest level since 2012. Meanwhile, the yields on two-year and ten-year U.S. Treasury bonds have risen by the most this month since 2024, with borrowing costs across the board on the rise. Meghan Swiber, a US interest rate strategist at Bank of America, said, "Foreign official sectors are selling US Treasuries." Middle Eastern oil-exporting countries, which hold about $300 billion in US Treasuries, could be a source of this decline. The shrinking of foreign exchange reserves and the selling of bonds have compounded the already pressured US bond market, and investors' concerns over the inflationary impact of the Middle East conflict have further intensified. This round of selling spree also reflects a deeper trend - global reserve management institutions have been continuously diversifying their dollar asset allocation for many years, and the status of US Treasuries as the world's leading reserve asset is being eroded more and more obviously. Oil-importing countries are the first to be hit, while oil-producing countries also join in the sell-off. Middle Eastern oil-exporting countries hold about 300 billion US dollars of US Treasury bonds, accounting for approximately 3.5% of the total holdings of foreign investors. Bank of America strategists believe that the reduction in holdings by these countries may have contributed to the recent decline in holdings. Saudi Arabia is one of the countries with a relatively large holding of US Treasury bonds. Meanwhile, as Iran blocked the Strait of Hormuz, global oil prices rose sharply, and oil-importing countries suffered the most direct impact. The passive shrinkage of foreign exchange reserves, coupled with the demand for intervention in the foreign exchange market, prompted many central banks to accelerate the liquidation of US Treasury bonds. Brad Setser, a senior fellow at the Council on Foreign Relations in the United States, said that oil-importing countries such as Turkey, India and Thailand are likely to be the main participants in this round of selling, as these countries have to pay higher oil prices in US dollars. Official data shows that since February 27, the day before Iran was attacked, the Central Bank of Turkey has sold $22 billion worth of foreign government bonds from its foreign exchange reserves. Setser believes that a considerable portion of these were US Treasuries. Independent data from the central banks of Thailand and India also show that the foreign exchange reserves of both countries have declined since the outbreak of the war, but it is not yet clear whether the reduction is in US Treasury holdings or in US dollar deposits. Setser said, "Many countries do not want their currencies to depreciate further because this would push up oil prices denominated in their own currencies, either meaning more fiscal subsidies or greater pain for residents. Therefore, countries generally decided to intervene in the foreign exchange market to limit the depreciation of their currencies and the rise in oil prices denominated in their own currencies." The US bond market is under pressure, with yields posting the biggest monthly increase in more than a year. At present, the US Treasury bond market is already under multiple pressures, and the concentrated selling by foreign official institutions has made the situation even more complicated. The scale of the sell-off reflected in the Fed's data is particularly notable. Swiber pointed out that since the Fed last recorded a similar-sized sell-off in 2012, the size of the US Treasury market has approximately tripled, making the current sell-off proportionally more significant. The yields on two-year and ten-year US Treasuries have both risen by the most this month since 2024, leading to a comprehensive increase in borrowing costs for the government, businesses, and households. Some investors believe that the strengthening of the US dollar itself will prompt central banks to rebalance their asset portfolios and sell US Treasuries to defend their own currencies, so there is a certain passive factor in the decline in holdings. However, there are also views that the current data more reflect the demand of various countries to actively use reserve funds during market turmoil. Stephen Jones, chief investment officer of Aegon Asset Management, described this behavior as countries "raising war chest funds", saying, "They are drawing on emergency reserves." Liquidity demand as the core driver Thomas Simons, a money market economist at Jefferies, believes that the core driver of the recent surge in US Treasury yields lies in "the high uncertainty in the risk market and the strong demand for liquidity." He said that some market participants, after liquidating risky assets, had to sell high-quality assets to hold cash, and US Treasuries are such assets. Simons added that "the market is extremely sensitive to the risk of foreign demand." He pointed out that in the past few years, the repeated wavering of confidence in the sustainability of foreign demand has triggered multiple sell-offs of US Treasuries. But for now, the reduced demand from foreign investors "is not helpful, but it is not the main driving force." It is worth noting that US Treasuries have traditionally been regarded as a safe-haven asset during uncertain times. However, for most of this month, investors have continued to reduce their holdings - this unusual phenomenon highlights the strong suppression of traditional safe-haven logic by inflation expectations. The trend of diversified allocation is accelerating, and the long-term reserve status of US Treasuries is under pressure. This round of selling is not an isolated incident but a microcosm of a longer-term structural shift. In recent years, the holdings of US Treasuries by foreign official institutions at the New York Fed have continued to decline, and global reserve management institutions are systematically reducing their exposure to dollar assets. As the proportion of official holdings drops, the importance of foreign private investors in the US Treasury market is rising, becoming a key force in supporting market liquidity. Swiber said that the recent sell-off "confirms a broader narrative - that foreign reserve management institutions and official accounts are diversifying out of US Treasuries." It is worth noting that analysts also caution that some of the US Treasury holdings may have been transferred to custodians other than the New York Fed rather than being directly sold in the market, which means the actual scale of the sell-off may be lower than the figures presented by the Fed. Nevertheless, the scale and trend reflected in the data have still drawn widespread attention from the market. Risk Warning and Disclaimer Clause Investing involves risks. Please exercise caution. This article does not constitute personal investment advice and has not taken into account the individual investment objectives, financial situation or needs of any specific user. Users should consider whether any opinions, views or conclusions in this article are suitable for their particular circumstances. Any investment made based on this article is at your own risk.

Both the market and central banks have started to "turn hawkish". Goldman Sachs discusses: How to hedge?

The energy price shock, coupled with the hawkish shift of central banks, is reshaping the logic of global asset pricing, and the hedging conundrum faced by investors is unprecedented. In their latest report, Goldman Sachs strategists Dominic Wilson and Kamakshya Trivedi warn that the hawkish repricing by both the market and central banks has clearly overcorrected. There is a significant asymmetry in interest rate pricing, and front-end yields offer attractive long opportunities across multiple scenarios. Meanwhile, as Fed officials have sent out ambiguous signals that interest rates could rise or fall, market expectations of the end of the rate-cutting cycle have continued to rise, further compressing the upside potential of risky assets. From the perspective of asset prices, the interest rate market has been the area that has adjusted most sharply in this round of shock, while the stock and credit markets have so far maintained overall resilience and have not fully priced in the risk of a deep downturn. Goldman Sachs believes that in the current extremely wide range of scenarios, the top priority for investors is to maintain flexible positions while selectively building hedges. The hawkish repricing has clearly overshot. Goldman Sachs' report indicates that since the surge in energy prices, the hawkish repricing at the front end of the interest rate curve has been the most prominent feature among all market changes. Take the UK as an example; market pricing shifted from expecting a 54 basis point interest rate cut within the year to a sudden expectation of a 102 basis point increase. In Hungary, the expectation changed from a 77 basis point rate cut to a 118 basis point increase. Before the situation showed signs of easing on the 23rd, the market had priced in a 92 basis point increase for the European Central Bank, a 23 basis point increase for the Federal Reserve, a 128 basis point increase for South Korea, and a 70 basis point increase for Mexico. The radical repricing is driven not only by energy prices themselves but also by the unusually hawkish statements from central banks. Federal Reserve Chair Powell explicitly stated that a moderately restrictive policy is still appropriate; no member of the Bank of England's Monetary Policy Committee voted in favor of a rate cut; and several officials of the European Central Bank publicly indicated that a rate hike might be discussed at the April meeting. According to The Wall Street Journal, there has been a subtle but significant shift in signals within the Federal Reserve. Austan Goolsbee, president of the Chicago Fed, has become one of the first officials to explicitly mention the possibility of raising interest rates, saying, "If inflation doesn't improve, I can envision a scenario where we need to raise rates." Christopher Waller, previously seen as dovish, also stated that the inflation risk posed by the Iran war has led him to support keeping rates unchanged in March. Mary Daly, president of the San Francisco Fed, warned that the dot plot carries the risk of conveying "false certainty," and there is no single most likely path for interest rates. The central bank may be "engaging in a war". Despite the aggressive hawkish repricing, two strategists at Goldman Sachs stress that this round of pricing has clearly exceeded the reasonable range in most benchmark scenarios and put forward a core judgment: this radical repricing is partly due to the "psychological trauma" left by the underestimation of the 2022 inflation shock, and the high attention of G10 central bank officials to indirect effects, second-round effects and the risk of inflation expectations decoupling is also similar to that time. This round has several key differences from 2022: fiscal impulse is significantly weaker, and any fiscal support is more targeted; the widespread supply chain disruptions caused by the COVID-19 pandemic have not recurred; and the labor market is notably weaker compared to the post-pandemic period. It is worth noting that central banks in emerging markets - which usually react more acutely to inflationary shocks - are currently taking a relatively balanced stance, as is the case in Brazil, the Czech Republic and Hungary. This phenomenon is seen as one of the "signals" that the current hawkish pricing is excessive. Meanwhile, according to Bloomberg, Ian Lyngen, the head of US rates strategy at BMO Capital Markets, also pointed out that the front end of the Treasury yield curve no longer views energy prices as a follow-on inflation risk, but is more focused on the downside risks to economic growth and risky assets. Recently, while oil prices have continued to rise and US stocks have been sold off, US bond yields have not climbed as usual but have instead dropped significantly, completing a clear logical decoupling. Regarding this abnormal phenomenon, some analyses suggest that the market is more concerned about the deterioration of expectations for the economic fundamentals. From a fundamental perspective, the risk pricing of the Fed's interest rate hikes and the expectations of multiple rate hikes in Europe are both overly hawkish, offering a clear asymmetric opportunity to go long on front-end interest rates. Front-end interest rates: The most prominent opportunity for asymmetry The asymmetry in the interest rate market has been the most clearly changing area since this round of shock, especially for investors who can withstand short-term fluctuations, increasing front-end long positions or extending the duration in the portfolio is highly attractive. Specifically, selling put options on the front-end interest rates in Europe and the UK can be considered, with the break-even point corresponding to multiple rate hikes. Hedging against a deeper decline in interest rates (or the associated decline in the USD/JPY) and the joint scenario of interest rates and stocks falling simultaneously is also worth incorporating into the medium-term risk management framework. The historical experience of the 1990s shows that even if it is eventually proven that the interest rate hikes were excessive, yields are unlikely to rebound significantly until energy prices show a clear decline - although the peak in yields may come earlier than the peak in oil prices. This rule further strengthens the logic of building a long position at the front end at present. US equities and credit: The downside tail remains underpriced Compared with the sharp adjustment in the interest rate market, the US stock market and the credit market have so far significantly underpriced the deep downside tail risk. The implied volatility of short-term S&P 500 index put options remains far below the level seen during the tariff shock in April 2025 and also lower than that during the growth scare in August 2024. The experience of a rapid policy reversal after the tariff shock has made investors more reluctant to hedge against downside risks, but the resolution path for the current situation is clearly more complex. Given the convexity characteristics of the oil price trend and the uncertainty of growth outcomes, the deep downside tail risks of US equities and credit remain underestimated. The report suggests that under the current baseline scenario, it is still reasonable to maintain or even increase downside protection positions in equities, credit and cyclical foreign exchange, and continue to be optimistic about the upward trend of long-term equity implied volatility. For option hedging, the prices of call options on US and European stocks (as well as European foreign exchange) are on the high side, but they are not extreme compared to previous major market downturns. If the upside potential is constrained by pre-war concerns (such as AI disruptions, overvaluation, and private credit turmoil), the spread-based call option strategy also makes sense. The scenarios are widely distributed, and the path remains highly uncertain. The core challenge currently faced by the market lies in the exceptionally broad distribution of scenarios, where even minor changes in the perception of tail risks can trigger sharp, two-way fluctuations in asset prices. In an optimistic scenario, a rapid easing of the situation will first drive the assets that have been under the greatest pressure to rebound, including European and cyclical assets, non-US currencies and front-end interest rates. The declines in South Korean stocks and the Hungarian forint may be the first to be recouped. In a pessimistic scenario, if oil prices continue to soar and trigger clear recession concerns, it will cause a broader impact on risky assets. Even previously relatively resilient assets such as copper, the Brazilian real, and the Australian dollar will not be spared. At that time, G10 safe-haven currencies such as the Japanese yen and the Swiss franc are expected to strengthen, and the yield center will also systematically shift downward. Between the two extremes, under the middle path, the market may witness partial recovery, but the divergence in energy trade conditions will be more prominently reflected in foreign exchange and stocks. Assets of energy-exporting countries (such as Brazilian stocks and the Australian dollar) will still benefit relatively. Furthermore, the market concerns that accumulated before the Iran war - the unexpected disruption of AI, overvaluation, and the volatility of private credit - have not dissipated. Once the geopolitical situation eases marginally, these issues may quickly return to the market's focus and become the main force suppressing any potential rebound. Risk Warning and Disclaimer Clause Investing involves risks. This article does not constitute personal investment advice and has not taken into account the individual investment objectives, financial situation or needs of any particular user. Users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Any investment made based on this article is at the user's own risk.

The president of the world's largest asset management firm: Investors underestimate risks, even if the Iran war ends soon.

According to Bloomberg, BlackRock President Rob Kapito said on Thursday that even if the war in Iran ends soon, the impact on economic growth and inflation will persist. Investors' current optimistic expectations are clearly underestimating the risks. He warned that oil prices could still soar to $150 per barrel as damaged supply chains will take time to return to normal. The above remarks have intensified market concerns over investors' excessive optimism. Since the outbreak of the war nearly a month ago, the S&P 500 index of the US stock market has declined by less than 5%, and the performance of traditional safe-haven assets such as gold and US Treasuries has also deviated significantly from historical patterns. Kapito said at the Asia-Pacific Financial and Innovation Conference held in Melbourne that the current market's response to the risk of war in Iran is significantly different from historical experience. Kapito said his biggest concern is that investors have not seriously examined the potential impact of the conflict but have simply assumed an optimistic outcome. "What does this conflict lasting a week, six months or a year mean for the companies I hold?" he said. Kapito warned that even if the war were to end tomorrow, oil prices could still soar to $150 a barrel because it would take time for the disrupted supply chains to return to full capacity. Bloomberg previously reported that JPMorgan Chase strategists had also pointed out that investors were overly complacent about the possibility of war with Iran. U.S. consumer confidence is under pressure and the risk of recession is rising. "This is not a true interest rate shock, but rather a confidence shock in consumer spending in the world's largest economy," Zelter said. He warned that if the conflict persists, the risk of the US economy falling into recession will rise significantly, and the credit cycle will also face greater pressure. Investing involves risks. Please exercise caution. This article does not constitute personal investment advice and has not taken into account the individual investment objectives, financial situation or needs of any particular user. Users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Any investment made based on this article is at the user's own risk.

The cost of high interest rates? The Federal Reserve has suffered losses for three consecutive years, with cumulative losses exceeding 200 billion US dollars.

On Wednesday, March 25th, the Federal Reserve released its audited financial statements for 2025, revealing that the central bank recorded an operating loss of 18.7 billion US dollars last year. This figure is significantly lower than the previous two years, with losses of 114.3 billion US dollars in 2023 and 77.6 billion US dollars in 2024. Since 2022, the Federal Reserve has raised interest rates significantly to curb high inflation, resulting in the interest paid on reserves to banks consistently exceeding the income from its bond investments. Currently, the Fed pays a rate of 3.65% on approximately $3 trillion in reserves, compared to 4.4% on $3.4 trillion in reserves a year ago. It is worth noting that the above-mentioned losses do not affect the daily operation of the Federal Reserve. The institution does not need to apply for funds from Congress nor rely on capital injection from the Treasury. Once it makes profits in the future, it will first repay the deferred assets and then remit the profits to the US Treasury. Unlike other federal agencies, the Federal Reserve does not need to seek financial support from Congress to cover losses. When the Federal Reserve's expenditures exceed its revenues, resulting in a net loss, due to its status as a central bank and the absence of a capital structure like that of a regular enterprise, it cannot record a "negative net asset" or "loss carried forward to owner's equity" as commercial banks do. It is not a genuine asset but an accounting expedient used to balance the balance sheet and ensure the Federal Reserve continues to operate within the legal framework. Before this, the Federal Reserve had long been a significant "contributor" to the Treasury. From 2012 to 2021, the Federal Reserve remitted over 870 billion US dollars to the Treasury in total, with as much as 109 billion US dollars in 2021 alone. The market involves risks, and investment should be made with caution. This article does not constitute personal investment advice and has not taken into account the individual user's specific investment objectives, financial situation or needs. Users should consider whether any opinions, views or conclusions in this article are suitable for their particular circumstances. Investment based on this article is at your own risk.

Goldman Sachs: Will Private Credit Trigger a New Financial Crisis?

Amid the intensifying turmoil in the private credit sector and the successive restrictions on redemptions by several leading asset management institutions, Goldman Sachs economist Manuel Abecasis has made a clear judgment: The pressure in the private credit market itself is unlikely to trigger a large-scale macroeconomic spillover effect, but the broader tightening of financial conditions poses a greater threat. Alternative asset management giants such as Apollo, Ares and BlackRock have recently imposed restrictions on investors due to a surge in redemption requests from retail and high-net-worth clients, raising widespread concerns about whether the private credit crisis will spill over. In a report, Goldman Sachs systematically evaluated the potential impact of private credit losses on the overall loan scale and GDP growth in the economy using a default scenario stress test as a framework, noting that even in an extreme scenario where the default rate rises to 10%, the drag on GDP would only be 0.2% to 0.5%. The report also pointed out that banks have recently accelerated their lending to enterprises, and the overall health of corporate balance sheets remains sound. The growth in AI-related investment demand will also provide support for the credit market, which can partially offset the tightening of private credit. Goldman Sachs emphasized that the greater risk lies in the possibility that the uncertainty surrounding the AI outlook could lead to a broadening of overall credit spreads or a more widespread tightening of financial conditions. However, there are also more pessimistic voices in the market. UBS recently raised its benchmark forecast for private credit default rates to 15% - already far higher than the worst-case scenario set by Goldman Sachs - and warned of the possibility of "chain defaults" and widespread contagion risks, in sharp contrast to Goldman Sachs' conclusion. Private credit scale: Rapid expansion but still marginal According to a Goldman Sachs report, the private credit industry currently holds approximately $1.7 trillion in corporate leveraged loans, accounting for about 4% of all credit in the private non-financial sector. Goldman Sachs pointed out that although the industry has expanded rapidly in recent years, it remains limited compared to the overall size of the financial system. As a reference, residential mortgage loans accounted for about 45% of private non-financial sector credit before the 2008 financial crisis, far higher than the current level of private credit. Goldman Sachs used this to counter the view in the market that the current pressure on private credit is comparable to the 2008 financial crisis, including a similar analogy previously made by Bank of America strategist Michael Hartnett. In terms of current loan performance, the available indicators cited by Goldman Sachs show that overall loan performance as of the fourth quarter of 2025 is roughly on par with the average since 2023. The proportion of underperforming loans in private credit companies' portfolios rose slightly in the second half of 2025, but remained below the level of 2023. Additionally, while the share of loans with payment-in-kind (PIK) options has increased, this mainly reflects the greater inclusion of PIK options in the terms of newly issued loans recently, rather than borrowers being forced into PIK due to financial stress. The proportion of borrowers voluntarily opting for PIK has remained stable recently. Software exposure: The most concentrated risk point The disruptive impact on the software industry brought about by the AI wave is the core catalyst for the recent sharp deterioration in the sentiment of the private credit market. Goldman Sachs equity analysts estimate that the software industry accounts for slightly less than 25% of the loan portfolios of business development companies (BDCs). Meanwhile, the leverage of technology company borrowers is higher than that of other types of borrowers in the private credit sector, and the recovery rate of software loans may be lower than that of other industries - the reason being that software companies lack tangible assets that can be used as loan collateral. Apart from software exposure, fraud incidents in a few large loans and the credit risks accumulated from the rapid expansion of private credit in recent years have also intensified market concerns over the deterioration of loan quality. Goldman Sachs also pointed out that the connection between the private credit industry and other financial institutions has deepened continuously in recent years: insurance companies have significantly increased their allocation to this sector, while also increasing leverage and relying more on short-term wholesale financing; banks have formed closer ties with private credit through providing loans and credit lines. Stress Testing: Quantification of Shocks in Two Scenarios Goldman Sachs set up two default scenarios for stress testing and conducted a quantitative assessment by integrating the observations of equity analysts on the inter-institutional correlation, the conservative estimates of credit strategists on the recovery rate, and the extent to which different types of financial institutions are willing to contract loans under the shock. Under the baseline scenario, the default rate of private credit will rise from around 1% in 2025 to 3% to 4% (corresponding to the lower end of the historical default rate range for leveraged loans), resulting in approximately $45 billion in additional defaults. Assuming a recovery rate of 40%, this would translate to about $25 billion in actual losses. In this scenario, the drag on the loan stock would be around 0.2% or less (equivalent to about 1.5% or less of the total new loan flow), and the drag on GDP would be approximately 0.1%. In an extreme scenario, if the default rate rises to 10% (the upper limit of the historical range for leveraged loans), it would result in approximately $150 billion in defaults. Assuming a recovery rate of 40%, this would correspond to about $90 billion in losses. If the recovery rate for software loans drops to 30%, the losses would expand to approximately $105 billion. Considering the impact on private credit providers such as banks, this scenario could lead to a reduction in private non-financial sector credit of $350 billion to $400 billion, equivalent to 5% to 6% of the total new loan flow, and a drag on GDP of 0.2% to 0.5%. For reference, during the 1990 recession and savings and loan crisis, private sector loan flows declined by about 30%, and after the 2008 financial crisis, they dropped by approximately 55%. Goldman Sachs also pointed out that the contraction in lending will not be transmitted to output decline in a proportional manner - unimpacted lending institutions can partially fill the gap. According to its vector autoregression model based on the financial conditions index and the Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS), a 1% decline in the loan-to-GDP ratio corresponds to a decline in real GDP of approximately 0.3% to 0.4%. The Controversies and Limitations Behind the Optimistic Conclusions Goldman Sachs' conclusion is based on several important premises. The report explicitly mentions that the Iran war can be resolved quickly without triggering a global stagflationary recession and that the AI bubble does not burst. The report also acknowledges that if the shock triggers large-scale psychological panic in the market and leads to the active contraction of lending institutions beyond their direct exposure and regulatory constraints, the indirect effects may exceed the estimates of the existing model. Goldman Sachs also added two technical notes: First, a default on a private credit loan is not as directly equivalent to a monetary loss as it is for other types of loans, because private credit contracts typically contain more covenants that can trigger default protection before a borrower misses an interest payment; second, private credit loans currently occupy a relatively senior position in a borrower's capital structure, which means that a higher default rate on private credit could overlap significantly with losses in other asset classes, posing an adverse factor for the overall market. In contrast to Goldman Sachs, UBS's recently proposed base scenario of a 15% default rate is already far higher than the extreme assumption set by Goldman Sachs, and it has warned of possible "chain defaults" and widespread contagion effects. The significant divergence between the two institutions reflects the high uncertainty in the market's assessment of the risk path of private credit and also reminds investors to be cautious when referring to institutional predictions. Risk Warning and Disclaimer Clause Investing involves risks. Please exercise caution. This article does not constitute personal investment advice and has not taken into account the individual investment objectives, financial situation or needs of any particular user. Users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Any investment made based on this article is at the user's own risk.

What conditions are needed for the Federal Reserve to raise interest rates?

After the market had almost completely priced out the possibility of interest rate cuts, investors began to shift their focus to another direction - could the Federal Reserve possibly resume raising interest rates? The answer given by Bank of America economists is: the threshold is extremely high, but it is not impossible. In a research report released on March 20, Aditya Bhave, an economist at Bank of America Merrill Lynch in the United States, pointed out that for the Federal Reserve to raise interest rates, at least three conditions must be met simultaneously: the labor market remains stable (the unemployment rate is below 4.5%), core inflation further rises (core PCE exceeds 3.2%), and Powell still holds the position of chair. The report holds that the above conditions are most likely to hold simultaneously under the scenario where the Iranian shock is sustained but moderate, corresponding to an average WTI crude oil price range of $80 to $100. In terms of market pricing, the situation has undergone a dramatic shift within this month. Just under three weeks ago, the market was pricing in about 60 basis points of rate cuts this year; now, expectations of rate cuts have almost vanished, and investors' risk assessment of rate hikes and cuts has become more balanced. A Bank of America report points out that supply shocks themselves create a bimodal risk for monetary policy, and the policy direction depends on whether policymakers are more concerned about inflation or employment. The labor market is the primary prerequisite. A Bank of America report lists the stability of the labor market as the top condition for the Federal Reserve to consider raising interest rates. The report cites the 2022 precedent, noting that the Fed was able to raise rates aggressively during the technical recession at that time because the unemployment rate was below 4% and continued to decline, and the average monthly increase in non-farm payrolls was close to 400,000. The report holds that for this round of interest rate hikes to be resumed, the unemployment rate must remain below 4.5%. If the situation is close to the critical value, then moderate wage growth, stable initial claims for unemployment benefits, and the stabilization or recovery of the job vacancy rate will jointly form supplementary arguments in support of the interest rate hikes. Although the Federal Reserve has made it clear that its policy target is employment rather than GDP, resilient consumer demand will provide more room for interest rate hikes. Internal credit card and debit card aggregation data from Bank of America shows that consumer spending, excluding oil and gas, remains strong, indicating that consumers' wallets have not been significantly pressured by rising oil prices. Core inflation must break through the key threshold. Even if the labor market stabilizes, the Federal Reserve still needs to see that the Iranian shock has been transmitted to core inflation in a substantive way, rather than just remaining at the level of energy prices. The report points out that this transmission could occur through two channels: one is that the increase in energy prices raises the input costs of core goods and services - the Federal Reserve estimates that a 10% increase in WTI will contribute about 7 basis points to core inflation over a period of time; the other is that the shock evolves into a broader supply chain disruption similar to that from 2021 to 2022, and the simultaneous rise in current shipping costs and the prices of bulk commodities such as natural gas, fertilizers, and aluminum has already increased this risk. The report indicates that core PCE inflation is currently at an unsettling high level. Both Bank of America and the Federal Reserve predict that the year-on-year reading for February will reach 3.0%. If the core PCE inflation rate reaches 0.24% or higher on a month-on-month basis for three consecutive months in the future, pushing the year-on-year rate to 3.2% or even higher, it may trigger a policy shift. However, the report also points out that if the upward trend in inflation is significantly driven by tariffs, the Federal Reserve may choose to tolerate it temporarily, as the tariff effect is expected to start fading by mid-year. In contrast, a sustained increase in core services inflation will be more alarming to policymakers. In terms of inflation expectations, long-term inflation expectations remain quite stable at present, in contrast to the slight increase seen after "Independence Day" last year. However, the report points out that even if long-term expectations remain stable, as long as the immediate inflation increase is significant enough, the Federal Reserve may still invoke the logic of 2022 and raise interest rates on the grounds of preventing expectations from becoming unanchored. The choice of the chairperson influences the policy threshold. The report lists whether Powell remains at the helm of the Federal Reserve as the third necessary condition for raising interest rates and holds that this factor cannot be ignored in terms of its impact on the policy threshold. Bank of America characterizes Powell as a moderate dove who tends to prioritize protecting the labor market when the risks of inflation and employment are roughly balanced. In contrast, the nominee for the chair of the Federal Reserve, Warsh, is expected to take a more dovish stance, which means that under his leadership, the threshold for raising interest rates will be significantly higher. The report acknowledges that it is difficult to simply categorize Warsh's stance - during his tenure as a Federal Reserve governor and throughout the inflation cycle from 2021 to 2022, he demonstrated a strong hawkish inclination, but his recent public statements have emphasized the urgent need for interest rate cuts, leaving the market uncertain about his policy orientation upon taking office. On the timeline, Bank of America previously expected Warsh to be confirmed before the June meeting, but this schedule now faces the risk of delay. Senator Tillis has made it clear that he will not allow Warsh's nomination to proceed in the Senate Banking Committee until the Powell case is resolved, and he happens to be a key vote in the committee. Powell himself confirmed at the March press conference that if the new chair is not in place by then, he will preside over the June meeting. Bank of America believes that June is the earliest possible meeting for the Fed to start raising interest rates, and whether Powell is still in his position at that time will directly affect this possibility. Risk Warning and Disclaimer Clause Investing involves risks. Please exercise caution. This article does not constitute personal investment advice and has not taken into account the individual investment objectives, financial situation or needs of any particular user. Users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Any investment made based on this article is at your own risk.

"International peers are cutting production, while Chinese gold miners are on a buying spree!" Domestic mining enterprises are expected to lead the world in performance this year.

While international gold mining giants are facing a decline in production, Chinese mining companies are turning the high gold price into a performance lever through active overseas mergers and acquisitions and capacity expansion. According to the latest forecast by Bloomberg, driven by high gold prices and aggressive expansion plans, Chinese gold mining companies are expected to continue outperforming their global peers in 2026. Companies such as Zijin Gold International Co., Shandong Gold, and Chifeng Gold are steadily moving towards their profit peaks in 2026. Previously, in 2025, the soaring gold prices and increased production had already pushed the profits of these enterprises to record highs. Earlier this year, gold prices once broke through $5,000 per ounce, supported by geopolitical tensions and safe-haven demand. Although the recent rebound of the US dollar, the rise in oil prices and inflation concerns triggered by the Middle East war have led to a pullback in gold prices - they have dropped by more than 10% since February 28 - the widespread economic uncertainty and risk aversion sentiment may still provide support for gold prices. Chinese mining companies expand against the trend While international rivals are grappling with declining production and limited project reserves, Chinese gold mining companies are striving for higher output and actively acquiring overseas mines. One of the most notable deals was Zijin Gold's acquisition of Canadian Allied Gold for C$5.5 billion (about US$4 billion). Allied Gold operates mines in Africa. This expansion move sets Zijin Gold in sharp contrast to Western rivals such as Newmont Corp. and Fresnillo Plc, which are cutting production this year. "Chinese mining companies are snapping up mines that global giants are shunning," said Eric Xiao, sales director of CMC Markets in Singapore. Although Xiao added that these transactions brought challenges including local instability and operational risks, Howard Lau, a materials analyst at HSBC China, pointed out that Chinese producers are experiencing record profit margins, which will provide strong operational leverage. "With the expansion of production from recently completed or newly acquired projects, as well as organic growth achieved through project expansions, there is still room for profit growth in 2026," Lau said. The performance of domestic mining enterprises is outstanding. Zijin Gold is set to release its first full-year financial report since its IPO in September last year on March 20. The company has previously hinted at strong performance in 2025, with preliminary data showing that its net profit has more than tripled. Bloomberg's estimates suggest that its profit is expected to more than double again this year. Competitor Shandong Gold said its net profit rose by as much as 66%, and market consensus expects it to grow by 70% in 2026. Although Chifeng Gold may have achieved an 81% growth last year, it is expected that its growth rate will slow to 31% this year. International giants face challenges. In contrast, although gold mining companies in Europe and America have reported solid results in recent weeks, concerns over production declines have dampened market sentiment. Hochschild Mining, a British-listed mining company, benefited from the "extraordinary rise" in precious metal prices, with its full-year profit growth exceeding analysts' expectations. Peer Fresnillo reported that its earnings before interest, taxes, depreciation and amortization (EBITDA) jumped by 81%. In the United States, Newmont, the world's largest gold miner, reported record quarterly profits, and Barrick Mining Corp. of Canada also exceeded expectations in terms of earnings. However, due to concerns over capital expenditures and production slowdowns, the share prices of both companies declined after the earnings announcements. Newmont expects its production to decline in 2026, partly due to planned upgrades at some of its mines and a drop in output from its two joint ventures with Barrick Gold. Hochschild's output also slightly declined due to planned work at one of its mines, while Australia's Northern Star Resources Ltd. saw its share price plunge after it cut its production guidance. Expenditure is another concern. Fresnillo's capital expenditure budget for 2026 is higher than expected, causing the share price to fall as investors question when these investments will translate into growth. "Upward potential may hinge on ongoing capital constraints and higher shareholder returns," said Grant Sporre and Umesh Agarwal, analysts at Bloomberg Intelligence. They added that rising costs could put pressure on mining companies' profit margins in the second half of this year. Risk Warning and Disclaimer Clause Investing involves risks. This article does not constitute personal investment advice and has not taken into account the individual investment objectives, financial situation or needs of any particular user. Users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Any investment made based on this article is at the user's own risk.