3/10/2023 4:17:14 PM
It was a tumultuous week for investors to say the least. Markets encountered two distinct catalysts and neither supported equity valuations, but did induce significant volatility into fixed income markets. Initially all eyes were on Capitol Hill where Fed Chairman Powell testified on Tuesday and Wednesday. His remarks were clearly received as more hawkish than many investors may have hoped for. The door was kicked wide open for a 50 bps hike later this month after he implied the pace of tightening could re-accelerate depending on the upcoming data. Powell also acknowledged the March dots will be revised higher after January data and December revisions partly reversed softening trends, but how much higher remains unclear. The US 2-year yield surged above 5% and the 2-10 year spread inversion plunged well below -100 basis points before ADP employment and JOLTS jobs reports came in stronger than expected, supporting the Chairman’s message.
Separately ominous signs emerged that the Fed’s aggressive tightening campaign is starting reveal cracks in portions of the economy. Multiple US regional banks highlighted the difficulties that the rising cost of deposits are causing, and that this credit normalization is likely to hamper bank profitability going forward. Banking stocks came under significant pressure in the wake of those investor comments and the deepening inversion across the US Treasury yield curve. But, it was the implosion of Silicon Valley Bank that resulted in full blown panic reminiscent of the lead up to the 2008 Financial Crisis. SVB shares plunged more than 60% on Thursday after management said it would need to raise nearly $2.3B to cover unforeseen asset impairments mostly related to long term US Treasury holdings. Shares continued to plunge on Friday along with a host of other regional banks amid reports of an ongoing run on SVB by its depositors. The FDIC was forced to assume control of SVB, effectively shutting the institution down in what amounted to the largest bank failure since the 2008 financial crisis and the second-biggest failure in US history behind Washington Mutual. Many expected some sort of forced resolution this weekend in the form of a sale or bailout. Nevertheless a debate raged on several fronts on just how bad the fallout will be from the unforeseen demise of this key cog in the US venture capital ecosystem.
Friday’s jobs report largely offered a green light to those traders looking to park money in the relative safety of government backed debt. February payroll data stayed hot, but that was largely expected. It was the below-trend gain in average hourly earnings and another decline in the workweek that suggested take home compensation and wage trends in general may be softening more than anticipated. The volatility in US Treasury markets and in the 2-year yield in particular has been ferocious. That yield, which was approaching 5.10% mid-week, had careened to 4.6% which was the fastest 2-day decline since 2008. Expectations for a 50 bps hike later this month receded, as futures now favor 25 bps once again. The US dollar lost ground, trading down more than 1% broadly, while gold price jumped nearly 2%. The S&P dropped back below 3,900 and appears to be testing below the uptrend channel coming off the Oct 22nd low. For the week, the S&P sold off 4.6%, the DJIA lost 4.5%, and the Nasdaq was down 4.7%.
Outside of the regional banking sector upset, corporate news continued to focus on earnings reports and investor day presentations. Shares of Dicks Sporting Goods hit an all time high after its strong earnings report, proving business is still good in the post-pandemic period. GE shares moved out to 5-year highs after management told investors guidance is on track and that they are seeing significant free cash flow growth. Oracle earnings beat expectations and provided solid guidance, but shares were still caught in the riptide of Friday’s sell off. On the M&A front, Black Knight suffered a setback as the FTC officially decided to challenge the acquisition by ICE on the grounds it would limit competition in the mortgage loan technology business. Spirit Airlines faces a similar battle as the DOJ confirmed it would seek to block its proposed merger with Jetblue.
MON 3/6
(PT) ECB's Centeno (Portugal): ECB targets headline inflation, NOT core inflation; Asked about possible 50bps hike in Mar, says decision must be based on data; Notes interest rates have risen too fast
(EU) ECB chief Lagarde: Reiterates very likely to raise rates by 50bps in Mar
(AT) ECB's Holzmann (Austria): Calls for four more 50bps interest rate hikes by July 2023 [**Note: implies 4.50% terminal rate v 4.00% currently expected by markets]
CIEN Reports Q1 $0.64 v $0.36e, Rev $1.06B v $959Me
VST To acquire Energy Harbor Corp in deal valued at $3.0B plus 15% interest in Vistra Vision; Increases share buyback by $1B (12.2% of market cap)
(US) JAN FACTORY ORDERS: -1.6% V -1.8%E
SAVE Reportedly Spirit-Jetblue merger facing DoJ anti-trust suit as soon as Tuesday, DoJ said to see deal as anticompetitive - press
KEY Cuts FY23 NII outlook to +1-4% from 6-9% prior (assumes cumulative beta in the mid to high 30's v mid-to-high 20% guid) - investor presentation
(CN) China's new Foreign Min Qin Gang : US's China policy entirely deviated from the rational and sound track; US means to contain and suppress China in all respects and get the two countries locked in a zero-sum game - first speech since taking office
TUES 3/7
(UK) FEB HALIFAX HOUSE PRICE INDEX M/M: 1.1% V 0.0% PRIOR; Y/Y: 2.1% V 1.9% PRIOR (fastest M/M increase since June 2022)
(TW) Taiwan Feb Trade Balance: $2.4B v $3.9Be
(CN) CHINA FEB FOREIGN RESERVES: $3.133T V $3.157TE (1st decline in 5 month
DKS Reports Q4 $2.93 v $2.86e, Rev $3.60B v $3.41Be; Guides FY23 strong; Raises Quarterly dividend 105.1% to $1.00 from $0.4875 (indicated yield 3.03%)
Feb Manheim Used Vehicle Value Index: +4.3% M/M; -7.0% Y/Y (inline with mid-Feb update)
(NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -0.7% v -1.5% prior
(US) FED CHAIR POWELL: WE WILL STAY THE COURSE UNTIL THE JOB IS DONE; ULTIMATE PEAK LIKELY TO BE HIGHER THAN EXPECTED; PREPARED TO INCREASE PACE OF RATE HIKES IF NEEDED; LATEST ECONOMIC DATA HAS BEEN STRONGER THAN EXPECTED
(US) 2-year Treasury yield touches 5% for first time since 2007
(US) JAN CONSUMER CREDIT: $14.8B V $25.3BE
UPS Affirms FY23 Rev $97.0-99.4B v $97.9Be, adj Op margin 12.8-13.6%, Capex $5.3B, FCF $8B in base case - conf slid
WED 3/8
ADS.DE Reports final Q4 FY22 Net -€482M v +€123M y/y, Op -€724M v -€717Me, Rev €5.21B v €5.29Be; Cuts annual dividend 79% to €0.70/shr from €3.30/shr
(DE) GERMANY JAN RETAIL SALES M/M: -0.3% V 2.3%E; Y/Y: -4.6% V -5.0%E
(UK) BOE’s Dhingra (dove; dissenter): Further tightening is a bigger risk to output; Prudent strategy would be to hold policy steady
(US) FEB ADP EMPLOYMENT CHANGE: +242K V +200KE; Pay growth "still quite elevated"
(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATE UNCHANGED AT 4.50%; AS EXPECTED [**Note: becomes 1st G7 Central Bank to pause in current tightening cycle]
(US) JAN JOLTS JOB OPENINGS: 10.824M V 10.55ME
(US) DOE CRUDE: -1.7M V +0.5ME; GASOLINE: -1.1M V -2ME; DISTILLATE: +0.1M V -1ME
(US) Atlanta Fed GDPNow: raises Q1 GDP from 2.0% to 2.6%
(US) USDA WORLD AGRICULTURAL SUPPLY AND DEMAND ESTIMATES (WASDE) CROP REPORT: End 2022/2023 US Stocks (M bu): Soybeans: 210 v 219e; Corn: 1,342 v 1,299e; Wheat: 568 v 576e
(US) FERC: Allows Freeport LNG production up to the max capacity authorized
(US) President Biden budget proposes to tax incomes >$400K at 39.6%; Proposes to impose a 25% minimum tax on billionaires - US financial press
(CN) CHINA FEB CPI M/M: -0.5% V +0.8% PRIOR; Y/Y: 1.0% V 1.9%E [slowest annualized pace since Feb 2022]
- PPI Y/Y: -1.4% v -1.3%e
THRS 3/9
ANNOUNCES TECHNICAL DELAY OF PUBLICATION OF 2022 ANNUAL REPORT; Notes last-minute SEC call to comment on certain revisions to its consolidated cash flow statements from 2019-2020
WAF.DE Reports FY22 Net €434.4M v €289.6M y/y, Rev €1.81B v €1.41B y/y; Notes start into 2023 was rather muted
(US) Sen. Lindsey Graham (R-SC): To introduce a bill laying the groundwork for Pres Biden to use US military force against Mexican drug cartels; I would get tough on Mexico - Fox News interview
GE Affirms FY23 $1.60-2.00 v $1.95e, Rev 'high single digits'; Notes significant FCF growth continues into 2023 - investor day slides
GE CEO Culp: See's FY23 "high-growth", Feel very good about our affirmation of our financial projections today – CNBC
BKI FTC officially votes to challenge the ICE/BKI deal
(US) INITIAL JOBLESS CLAIMS: 211K V 195KE (highest since late Dec 2022); CONTINUING CLAIMS: 1.72M V 1.66ME (highest in 13 months)
SBNY Issues Updated Financial Figures as of March 8, 2023; Reiterates Strong Financial Position and Limited Digital-Asset Related Deposit Balances in Wake of Industry Developments
(US) BIDEN ADMINISTRATION PROPOSED BUDGET: PROJECTS $1.846T DEFICIT IN FISCAL 2024, $17.054T DEFICIT OVER 2024-2033; Annual deficits over $1T each year through 2033, projects annual deficits 4-6-6.8% of GDP through 2033
(US) Q4 FINANCIAL ACCOUNT HOUSEHOLD CHANGE IN NET WORTH: +$2.927T V -$392B PRIOR
(US) TREASURY $18B 30-YEAR BOND REOPENING DRAWS 3.877% V 3.585% PRIOR; BID TO COVER 2.35 V 2.45 PRIOR AND 2.38 OVER LAST 8 REOPENINGS
ORCL Reports Q3 $1.22 v $1.20e, Rev $12.4B v $12.4Be; Raises Quarterly dividend 25% to $0.40 from $0.32 (indicated yield 1.81%)
(JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED
FRI 3/10
TSM Reports Feb Rev (NT$) 163.2B, +11% y/y and -18.4% m/m; YTD Rev 363.2B +13.8% y/y
(UK) JAN MONTHLY GDP M/M: 0.3% V 0.1%E
DTG.DE CFO: No signs of weakening demand; Expects further partial supply chain difficulties in 2023, but no production disruptions expected - post earnings comments
(IT) Italy Jan PPI M/M: -9.9% v +3.8% prior; Y/Y: 11.6% v 39.2% prior (slowest annual pace since Aug 2021)
(RU) Russia Foreign Min Lavrov: Talks with US Sec of State Blinken on G20 sidelines were constructive; Discussed Ukraine and nuclear arms issues
*FDIC: Moving to protect insured depositors of Silicon Valley Bank; Bank closed by California regulator; SVB is the first insured institution to fail this year
