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The FTX Contagion Spreads

InvestorPlace - Stock Market News, Stock Advice & Trading Tips The most expensive Thanksgiving ever … fun Turkey Day stats … more dominoes falling in the crypto sector … FTX was Sam Bankman-Fried’s “personal fiefdom” Before we jump into today’s Digest a quick note…Our InvestorPlace offices are closed tomorrow and Friday for Thanksgiving.If you need help from our Customer Service team, they will be glad to assist.... The post The FTX Contagion Spreads appeared first on InvestorPlace......»»

Category: topSource: investorplaceNov 24th, 2022

Bloodsuckers or bloated corpses? How science has tried to explain vampire myths.

People believed to be vampires in real life may have had a disease. Here's how people throughout history dealt with the beings famous in folklore. Nosferatu creeps up the stairs at the exhibition "Vampires: Art, History, Myths And Realities."Francisco Morales/DAMMPHOTO/Eyepix Group/Future Publishing via Getty Images Lore about vampires and other blood-drinking beings has existed for centuries. For hundreds of years, people have been coming up with scientific explanations. Some link diseases to vampire-like characteristics like pale skin and light sensitivity. In the early 1700s, a series of unusual events kicked off a "media sensation" about vampires. One physician described a "magical plague" in Serbia where "perfectly normal buried dead are arising from their undisturbed graves to kill the living."Articles and books on these vampire attacks soon appeared in Vienna, Berlin, Paris, and London. There was skepticism, but some observers treated the phenomenon of vampires almost scientifically. They noted eye-witness accounts of how the bodies looked and the evidence that the deceased had been harassing or murdering others. Was this a magical plague or a more typical one? Vampires were very real to people in the past, but there are many ways science can explain their characteristics, whether they come from folklore or fiction.What is a vampire? There are blood-drinking creatures hailing from many countries' folklore, dating back thousands of years. But many modern notions of vampires started with the 1700s media frenzy and continued with "Dracula" and other tales.According to many Slavic traditions, a vampire is an undead being that rises from the grave to drink blood and take its life force from the living. The vampire's victims might then become undead themselves.There were also many other ways to make a vampire. A page from the early 1800s penny dreadful "Varney the Vampire or the Feast of Blood."Hulton Archive/Getty ImagesPeople who were murdered or died by suicide or of the plague might become vampires. Supernatural beings, like witches and werewolves, were also candidates. Those who misused alcohol or were seen as disreputable could come back from the grave. Someone could also be born a vampire. In Romania, the seventh child was susceptible to vampirism. Babies who were born with teeth or were covered in a caul or amniotic membrane were suspicious, too. In many countries, it was important to watch over the body of a loved one before burial. Anything from a cat to a human leaping over a body could cause it to turn into a revenant. According to an early 19th-century Serbian anthropologist, "An honest man cannot vampirize, unless some bird or other living creature flies or jumps across his dead body." Was vampirism based on a real disease? Pale skin, fear of sunlight, pointy fangs, and a taste for blood — all the tropes of fictional vampires have long caused people to connect the characteristics to symptoms of real diseases, from rabies to leukemia to tuberculosis.Pediatrician Michael Hefferon favors porphyria, a group of rare disorders caused by a buildup of a chemical called porphyrin. They're needed to make hemoglobin, which carries oxygen to tissues. An excess causes a range of symptoms. "People might present firstly with illness and fatigue," Hefferon told Insider. They may also have sensitivity to light that causes blistered skin, and their urine may appear red or brown. A 2016 article in JAMA Dermatology called it a "dubious link" between the disorder and folkloric vampires. A neurologist suggested rabies, which animals can transmit to humans through a bite, as another potential disease people may have mistaken for vampirism. The disease can cause light sensitivity and affect sleep-wake cycles, leading to insomnia — a potential reason for vampires' nocturnal activities. Researchers who looked at early vampire novels thought leukemia might have been an inspiration. While people with leukemia can look pale, Hefferon said patients either recovered or died. "It's not like a vampire disease where people are wandering the earth for years and years getting to look more and more like vampires," he said. Folklorist Michael Bell attributes US cases of suspected vampirism in the 1700s and 1800s to tuberculosis. Those sick with TB grew fatigued, lost weight, and coughed up blood. Pellagra, caused by vitamin deficiency and which causes light sensitivity, has also been cited as a vampire-like condition.   Did Bram Stoker base Dracula on a cholera outbreak? Bram Stoker published "Dracula" in 1897. Arguably the world's most famous fictional vampire, Dracula embodied many of the hallmarks of vampires that now seem cliché: He was pale, charming, and dressed in black, "with peculiarly sharp white teeth." While sunlight sapped the count's powers, it was not until the 1922 film "Nosferatu" that the sun's rays killed vampires.  To create his immortal being, Stoker drew on a number of influences, including tales of Vlad the Impaler. He may have partially based Dr. Abraham Van Helsing, the vampire hunter, on his brother, a physician who performed some of the earliest modern brain surgeries. Portrait of Vlad III, also known as Vlad the Impaler, partially inspired Bram Stoker's book Dracula.Universal History Archive/UIG via Getty imagesOriginally, Stoker set the story in Austria. Later, he moved it further east and took names and bits of folklore from "Transylvanian Superstitions," an article written by Emily Gerard. "Every person killed by a nosferatu becomes likewise a vampire after death, and will continue to suck the blood of other innocent people until the spirit has been exorcised," she wrote. Cures included staking the corpse or firing a bullet into the coffin. Historian Marion McGarry has suggested Stoker also took inspiration from his mother, Charlotte. She wrote about a cholera epidemic she lived through as a girl. The disease spreads through contaminated water, but when Stoker's mother was a child, its means of transmission were unknown. In Charlotte Stoker's reminiscences, people with the disease were accidentally buried alive, a fear echoed in her son's novel. "Count Dracula treads a path very similar to cholera: a devastating contagion traveling from the East by ship that people initially do not know how to fight," according to McGarry. In 2014, an anthropologist posited that 17th-century bodies buried in Poland with sickles and rocks — presumably to prevent them from rising as vampires — may have died during a cholera epidemic. Vampire fiction versus folklore As a body decomposes, cells burst, leaking enzymes and chemicals. Blood pools in capillaries and veins, altering the skin's color. Bacteria digest tissue. The body bloats with methane, ammonia, and other gasses. The buildup of liquefied tissue and gas can either leak out of orifices or cause the stomach to burst. Much of this deterioration takes place within the first year, but it can take a decade or longer until only bones remain. Several conditions — like extreme temperature and soil acidity — can affect the rate of decomposition. In 1892, residents of Exeter, Rhode Island, exhumed the bodies of three women, all members of the same family who had died of consumption. Two had died nearly a decade earlier. One woman, Mercy Bell, had recently died. When her brother became sick, too, the villagers decided to examine the bodies.The older corpses had decomposed as expected. But Mercy Bell looked very fresh, seemingly still full of blood. The villagers burned her heart and mixed the ashes in with her brother's medicine in an attempt to cure him. He died several weeks later.Throughout history, many people have found or exhumed extraordinarily well-preserved bodies. Tightly sealed coffins or freezing temperatures can delay decomposition. In the case of Mercy Bell, she'd been buried for only a couple of months in the coldest months of winter.For centuries, people employed protection against vampires. Many involved ways of treating a dead body. Piercing various body parts with sharp objects; including candles, coins, alcohol, and other objects in the coffin; rubbing garlic on the body; and consuming blood from the corpse were all ways to prevent someone from rising from the grave. One folklorist saw vampires as scapegoats, accused because of "a need to determine the cause of misfortunes." To make sense of what was happening — perhaps the deceased's friends and family becoming ill, too — villagers might blame the first person to die from the plague or another epidemic. If they exhumed a body, some signs of decomposition could be misattributed to markers of life: a reddened face from pooling blood, a shifted position caused by bloating and escaping gas, and liquified tissue that resembled fresh blood. Dracula and other fictional vampires look very different from those described in Slavic folklore.Bettmann via Getty ImagesA corpse's beard and fingernails may appear longer, though it was an illusion created by shriveling skin. Driving a stake into the body, decapitating it, and cremation were all methods of trying to stop a vampire from killing others. As scientists began to learn and understand more about the body and death, stories about vampires started to evolve. In 1819, a physician named John Polidori revamped the supernatural beings' image, basing his wealthy, debonair Lord Ruthven in "The Vampyre" on the romantic poet Lord Byron.A suave monster, Ruthven was by turns alluring and appalling. That vampiric ability to transform makes them enduring, with an appeal that seems unlikely to die anytime soon.    Read the original article on Business Insider.....»»

Category: topSource: businessinsiderOct 27th, 2023

Are vampires real? Scientists have linked diseases and decomposition to all the historical tropes of Nosferatu

People believed to be vampires in real life may have had a disease. Here's how people throughout history dealt with the beings famous in folklore. Nosferatu creeps up the stairs at the exhibition "Vampires: Art, History, Myths And Realities."Francisco Morales/DAMMPHOTO/Eyepix Group/Future Publishing via Getty Images Lore about vampires and other blood-drinking beings has existed for centuries. For hundreds of years, people have been coming up with scientific explanations. Some link diseases to vampire-like characteristics like pale skin and light sensitivity. In the early 1700s, a series of unusual events kicked off a "media sensation" about vampires. One physician described a "magical plague" in Serbia where "perfectly normal buried dead are arising from their undisturbed graves to kill the living."Articles and books on these vampire attacks soon appeared in Vienna, Berlin, Paris, and London. There was skepticism, but some observers treated the phenomenon of vampires almost scientifically. They noted eye-witness accounts of how the bodies looked and the evidence that the deceased had been harassing or murdering others. Was this a magical plague or a more typical one? Vampires were very real to people in the past, but there are many ways science can explain their characteristics, whether they come from folklore or fiction.What is a vampire? There are blood-drinking creatures hailing from many countries' folklore, dating back thousands of years. But many modern notions of vampires started with the 1700s media frenzy and continued with "Dracula" and other tales.According to many Slavic traditions, a vampire is an undead being that rises from the grave to drink blood and take its life force from the living. The vampire's victims might then become undead themselves.There were also many other ways to make a vampire. A page from the early 1800s penny dreadful "Varney the Vampire or the Feast of Blood."Hulton Archive/Getty ImagesPeople who were murdered or died by suicide or of the plague might become vampires. Supernatural beings, like witches and werewolves, were also candidates. Those who misused alcohol or were seen as disreputable could come back from the grave. Someone could also be born a vampire. In Romania, the seventh child was susceptible to vampirism. Babies who were born with teeth or were covered in a caul or amniotic membrane were suspicious, too. In many countries, it was important to watch over the body of a loved one before burial. Anything from a cat to a human leaping over a body could cause it to turn into a revenant. According to an early 19th-century Serbian anthropologist, "An honest man cannot vampirize, unless some bird or other living creature flies or jumps across his dead body." Was vampirism based on a real disease? Pale skin, fear of sunlight, pointy fangs, and a taste for blood — all the tropes of fictional vampires have long caused people to connect the characteristics to symptoms of real diseases, from rabies to leukemia to tuberculosis.Pediatrician Michael Hefferon favors porphyria, a group of rare disorders caused by a buildup of a chemical called porphyrin. They're needed to make hemoglobin, which carries oxygen to tissues. An excess causes a range of symptoms. "People might present firstly with illness and fatigue," Hefferon told Insider. They may also have sensitivity to light that causes blistered skin, and their urine may appear red or brown. A 2016 article in JAMA Dermatology called it a "dubious link" between the disorder and folkloric vampires. A neurologist suggested rabies, which animals can transmit to humans through a bite, as another potential disease people may have mistaken for vampirism. The disease can cause light sensitivity and affect sleep-wake cycles, leading to insomnia — a potential reason for vampires' nocturnal activities. Researchers who looked at early vampire novels thought leukemia might have been an inspiration. While people with leukemia can look pale, Hefferon said patients either recovered or died. "It's not like a vampire disease where people are wandering the earth for years and years getting to look more and more like vampires," he said. Folklorist Michael Bell attributes US cases of suspected vampirism in the 1700s and 1800s to tuberculosis. Those sick with TB grew fatigued, lost weight, and coughed up blood. Pellagra, caused by vitamin deficiency and which causes light sensitivity, has also been cited as a vampire-like condition.   Did Bram Stoker base Dracula on a cholera outbreak? Bram Stoker published "Dracula" in 1897. Arguably the world's most famous fictional vampire, Dracula embodied many of the hallmarks of vampires that now seem cliché: He was pale, charming, and dressed in black, "with peculiarly sharp white teeth." While sunlight sapped the count's powers, it was not until the 1922 film "Nosferatu" that the sun's rays killed vampires.  To create his immortal being, Stoker drew on a number of influences, including tales of Vlad the Impaler. He may have partially based Dr. Abraham Van Helsing, the vampire hunter, on his brother, a physician who performed some of the earliest modern brain surgeries. Portrait of Vlad III, also known as Vlad the Impaler, partially inspired Bram Stoker's book Dracula.Universal History Archive/UIG via Getty imagesOriginally, Stoker set the story in Austria. Later, he moved it further east and took names and bits of folklore from "Transylvanian Superstitions," an article written by Emily Gerard. "Every person killed by a nosferatu becomes likewise a vampire after death, and will continue to suck the blood of other innocent people until the spirit has been exorcised," she wrote. Cures included staking the corpse or firing a bullet into the coffin. Historian Marion McGarry has suggested Stoker also took inspiration from his mother, Charlotte. She wrote about a cholera epidemic she lived through as a girl. The disease spreads through contaminated water, but when Stoker's mother was a child, its means of transmission were unknown. In Charlotte Stoker's reminiscences, people with the disease were accidentally buried alive, a fear echoed in her son's novel. "Count Dracula treads a path very similar to cholera: a devastating contagion traveling from the East by ship that people initially do not know how to fight," according to McGarry. In 2014, an anthropologist posited that 17th-century bodies buried in Poland with sickles and rocks — presumably to prevent them from rising as vampires — may have died during a cholera epidemic. Vampire fiction versus folklore As a body decomposes, cells burst, leaking enzymes and chemicals. Blood pools in capillaries and veins, altering the skin's color. Bacteria digest tissue. The body bloats with methane, ammonia, and other gasses. The buildup of liquefied tissue and gas can either leak out of orifices or cause the stomach to burst. Much of this deterioration takes place within the first year, but it can take a decade or longer until only bones remain. Several conditions — like extreme temperature and soil acidity — can affect the rate of decomposition. In 1892, residents of Exeter, Rhode Island, exhumed the bodies of three women, all members of the same family who had died of consumption. Two had died nearly a decade earlier. One woman, Mercy Bell, had recently died. When her brother became sick, too, the villagers decided to examine the bodies.The older corpses had decomposed as expected. But Mercy Bell looked very fresh, seemingly still full of blood. The villagers burned her heart and mixed the ashes in with her brother's medicine in an attempt to cure him. He died several weeks later.Throughout history, many people have found or exhumed extraordinarily well-preserved bodies. Tightly sealed coffins or freezing temperatures can delay decomposition. In the case of Mercy Bell, she'd been buried for only a couple of months in the coldest months of winter.For centuries, people employed protection against vampires. Many involved ways of treating a dead body. Piercing various body parts with sharp objects; including candles, coins, alcohol, and other objects in the coffin; rubbing garlic on the body; and consuming blood from the corpse were all ways to prevent someone from rising from the grave. One folklorist saw vampires as scapegoats, accused because of "a need to determine the cause of misfortunes." To make sense of what was happening — perhaps the deceased's friends and family becoming ill, too — villagers might blame the first person to die from the plague or another epidemic. If they exhumed a body, some signs of decomposition could be misattributed to markers of life: a reddened face from pooling blood, a shifted position caused by bloating and escaping gas, and liquified tissue that resembled fresh blood. Dracula and other fictional vampires look very different from those described in Slavic folklore.Bettmann via Getty ImagesA corpse's beard and fingernails may appear longer, though it was an illusion created by shriveling skin. Driving a stake into the body, decapitating it, and cremation were all methods of trying to stop a vampire from killing others. As scientists began to learn and understand more about the body and death, stories about vampires started to evolve. In 1819, a physician named John Polidori revamped the supernatural beings' image, basing his wealthy, debonair Lord Ruthven in "The Vampyre" on the romantic poet Lord Byron.A suave monster, Ruthven was by turns alluring and appalling. That vampiric ability to transform makes them enduring, with an appeal that seems unlikely to die anytime soon.    Read the original article on Business Insider.....»»

Category: topSource: businessinsiderOct 21st, 2023

Futures Extend Slide As Yields, Dollar Blow Out

Futures Extend Slide As Yields, Dollar Blow Out Global markets started the new week on the back foot with US equity futures, European bourses and Asian markets all sliding as Treasury yields resumed their grind higher, with 10Y yields rising above 4.50% and 30Y TSYs rising 6bps to 4.59% - both new cycle highs - as traders speculated central banks will keep interest rates elevated to quell inflation. The dollar hit its highest level since March as investors sought the "safety" of the "strong" US economy amid hopes the US can somehow decouple from the recession in Europe and China for the foreseeable future. The mood was depressed following the worst weekly selloff on Wall Street since March, and as of 7:45am, S&P 500 and Nasdaq 100 futures edged 0.2% lower while rates climbed across the board, mirroring moves in European and UK bond markets. WTI traded unchanged around $90/barrel, while gold and Bitcoin fell. In premarket trading, Warner Bros Discovery climbed about 4%, Disney was up 1%, and Netflix up 1.3%, leading film and TV producers higher, after striking Hollywood screenwriters reached a tentative new labor agreement. By contrast, Foot Locker and Nike were poised for a lower open as Jefferies analysts downgraded the stocks over looming consumer headwinds. Alector delined 3.6% after Goldman gives the clinical stage biopharmaceutical company its only sell rating in an initiation note, citing “significant clinical risk.” After the barrage of central bank decisions last week, traders are increasingly concerned that rising oil prices will further fan inflation, which will make it difficult for policymakers to reduce rates anytime soon. Oil resumed a rally as hedge funds piled on bets tightening supplies will stoke demand. Bloomberg’s Dollar Spot Index rose to the highest since March. “All central banks need to stick to this higher-for-longer rhetoric as inflation is nowhere close to their mandate,” said Pooja Kumra, senior European rates strategist at Toronto-Dominion Bank. Which is great, the only problem is that it means that US housing market is now effectively frozen for the middle class where nobody can afford to pay the current insane mortgages, and so it is only a matter of time before this becomes a major political issue. The monthly mortgage payment for purchasers of existing homes, using the 30-year average mortgage rate, stands at $2,309. This is a substantial increase from $977 in March 2020. pic.twitter.com/JQHIJGQp9u — Michael McDonough (@M_McDonough) September 25, 2023 Two Fed officials said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its 2% target. While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required. Meanwhile, the "shocking" surge in oil prices - which apparently nobody could have anticipated even though the senile occupant of the White House intentionally drained half the SPR just to lower gas for a few months and oil is now back above the average price at which SPR oil was sold - and a massive fiscal deficit are spurring losses in government debt, sending Treasury yields across the maturity curve the highest levels in more than a decade. The Treasury 10-year yield may rise to 4.75% before softer risk sentiment and tighter financial conditions push it lower into year-end, according to BofA strategists. European stocks were broadly lower, sending the Stoxx 600 down 0.8%; dragged by mining shares as China’s property problems weighed on the outlook for natural resources. Travel, mining and consumer products were the worst performing sectors in Europe after the German IFO business climate topped expectations. Here are the biggest European movers: SBB shares surge as much as 40%, most since June 2 after selling a stake in subsidiary EduCo to Brookfield for SEK242m and being repaid an inter-company loan. Bpost shares rise as much as 14% after the postal company finalized three compliance reviews and took a provision of €75m, which is well below KBC (hold) initial assumption of between €112 and €375m. Italian lenders outperformed after Bloomberg reported that they will be allowed to avoid paying a controversial windfall tax introduced last month if they set aside additional capital reserves, citing a government amendment. Ubisoft shares gain as much as 7.3% after BNP Paribas upgraded the shares to outperform, saying the market underestimates upside from new game releases. Anima shares rise as much as 4.9% in Milan trading - highest since March, after newspaper La Stampa reported on Sunday Amundi may raise its stake in the Italian asset manager and could consider a full takeover. Close Brothers shares gain as much as 2.8% as JPMorgan upgrades to neutral from underweight, noting the lender has materially lagged other UK banks over the past year. European miners and steelmakers shares fall after iron ore slumped as China’s persistently weak property market causes construction companies to hold back restocking of steel before the National Day holiday period. Aperam shares plunge as much as 12% after the steelmaker cut its outlook for third-quarter volumes, citing two “unforeseen” events. Degroof Petercam says co. faces a tough quarter after warning 3Q will “significantly” miss expectations and previous guidance. Victoria shares drop as much as 13%, to the lowest in about four months, after FT Alphaville noted the flooring company’s recent delay of audited results and statements made by auditor Grant Thornton relating to Victoria’s Hanover subsidiary. Alphawave IP shares drop as much as 11% after the semiconductor-intellectual-property firm gave a forecast that was no better than market expectations. Entain shares fall as much as 11% after the gambling company said net gaming revenue was “softer than anticipated” after the summer, and noted a simplification of group structures to reduce costs. Salzgitter shares drop as much as 3.9% after JPMorgan lowered its price target on the steel producer to a new Street low, citing downside risk to 2023 consensus and 2024 estimates after the company recently cut its guidance. Earlier in the session, Asian stocks also fell, extending last week’s loss, as Chinese stocks slid on renewed property-related concerns while investors also weighed the prospects of US interest rates remaining higher for longer.  The MSCI Asia Pacific Index declined as much as 0.4%, with Tencent and AIA Group among the biggest drags.  Asian equities have fallen below key support levels this month as worries over China’s economic woes in addition to high US rates and surging global crude prices weaken the case for region’s risk assets. The regional benchmark is on track for a second-straight monthly loss. Benchmarks fell in Hong Kong and mainland China, with property stocks sliding after distressed developer Evergrande scrapped a key creditor meeting added to fears about its debt pile. That’s compounding concern that global growth will stall as the economic engine of China sputters. Furthermore, China Aouyuan shares dropped by over 70% on the resumption of trade following a 17-month hiatus. Nikkei 225 outperformed amid stimulus hopes with the government considering 5yr-10yr tax benefits for firms producing semiconductors and storage batteries, as well as providing support in areas where firms face high entry risk and will reportedly boost take-home pay for part-time workers. Australia's ASX 200 was marginally lower with losses in mining stocks and financials overshadowing the resilience in the consumer and tech sectors. Key stock gauges in India ended flat on Monday dragged by information technology firms amid cautious sentiment across the region. Reliance Industries fell for a fifth consecutive session to its lowest level in almost three months, also dragging the the country’s most valuable firm to a level seen as oversold based on its 14-day RSI. In FX, the Bloomberg Dollar Spot Index reversed modest losses to gain 0.2%, up a fourth day. Investors mulled the week ahead that includes plenty of Fed speakers, jobless claims and PCE deflator data, with increasing concern about potential for a US government shutdown. The euro traded off the lows after German IFO beat expectations, although the single currency is still down 0.2% versus the greenback. The Swiss franc and Aussie dollar were the worst performers in G-10, falling 0.4%; the franc was the worst-performer in G-10 as it remains under pressure after SNB kept rates unchanged last week. USDJPY extended through 148.50, adding to cheapening pressure on Treasury yields. In rates, treasuries bear-steepened with long-end yields cheaper by up to 7bp on the day and 2s10s, 5s30s spreads near session wides heading into early US session. 10-year TSY yields were around 4.49% (after touching a fresh 2007 high of 4.50%) and more than 5bp higher on the day, near top of Friday session range and 30-year yields rose 6bps to 4.59% - a new cycle high; the German benchmark jumped six basis points to 2.80%, the highest since 2011. Long-end-led losses prolong curve-steepening trend, leaving US 2s10s, 5s30s spreads wider by 5.5bp and 3bp on the day; 2s10s reached -62bp, least inverted since May 24. Treasuries led by price action in core European rates, where German 30-year yields are cheaper by almost 9bp on the day. Into the move, German 10-year yields rise to highest since 2011 as central banks remain in higher for longer mode.  Dollar IG issuance slate contains three names so far; weekly volume is expected to total $15b-$20b. Treasury sells 2-, 5- and 7-year notes this week with auctions starting Tuesday. In commodities, oil prices pared an earlier gain. Spot gold fell 0.2%. Bitcoin prices remain subdued around the USD 26k mark. Mixin Network suspended services after a hack involving USD 200mln in funds, according to The Block. Today's calendar is relatively sparse: we get the Dallas Fed manufacturing activity at 10:30am. At 6pm Minneapolis Fed President Kashkari speaks Market Snapshot S&P 500 futures little changed at 4,360.25 STOXX Europe 600 down 0.4% to 451.27 MXAP down 0.5% to 159.33 MXAPJ down 0.7% to 493.69 Nikkei up 0.9% to 32,678.62 Topix up 0.4% to 2,385.50 Hang Seng Index down 1.8% to 17,729.29 Shanghai Composite down 0.5% to 3,115.61 Sensex little changed at 66,042.86 Australia S&P/ASX 200 up 0.1% to 7,076.53 Kospi down 0.5% to 2,495.76 German 10Y yield little changed at 2.78% Euro down 0.2% to $1.0632 Brent Futures up 0.7% to $93.92/bbl Gold spot down 0.2% to $1,922.02 U.S. Dollar Index up 0.12% to 105.71 Top Overnight News China central bank advisor says the country should pursue structural reforms instead of further monetary easing to bolster growth. RTRS Chinese property stocks tumble after China Evergrande Group suffered another setback in its restructuring and may be forced to liquidate. BBG China prevents a senior Nomura banker from leaving the mainland as part of an investigation, a move likely to further undermine global business community confidence in the country. FT Japan is considering a series of tax breaks to lower production costs in critical industries such as semiconductors, batteries, and biotechnology. Also, Japan is likely to come under growing pressure to intervene and stabilize the yen, w/the 150 level considered a potential trigger point. Nikkei ECB’s Villeroy says the recent rise in energy prices won’t derail the Eurozone’s underlying disinflation, as the goal is still to achieve 2% inflation in 2025. BBG Italy will allow banks to avoid a controversial windfall tax if they put 2.5x the tax amount toward strengthening their common equity tier 1 ratio. BBG Trump has a 10-point lead over Biden in a new Washington Post-ABC poll, and 3 in 5 Dems/Dem-leaning independents say they would prefer someone other than Biden on the ticket. WaPo Screenwriters reached a tentative deal with Hollywood studios, settling one of two walkouts that have shut down production. The writers gained concessions on key points, including higher wages, people familiar said. Initial votes on the pact by union boards may come as soon as tomorrow. The focus will then shift to reaching a deal with striking actors. Netflix and Disney gained premarket. BBG The US economy faces a slew of headwinds during the final months of the year, including the lagged effect of monetary tightening, the UAW strike, a potential gov’t shutdown, elevated oil/gas prices, and the resumption of student loan payments. WSJ Per GS’s PB book US equities were heavily net sold last week, driven almost entirely by short selling, which in notional terms was the largest since Sep ’22, driven by Macro Products and Single Stocks (~70/30 split). HFs have been pressing US shorts for 3 straight weeks (5 of the past 6). In cumulative notional terms over any 6-week period, the amount of shorting in US equities since mid-August is the largest in six months and ranks in the 98th percentile vs. the past decade. GSPB A more detailed look at global markets courtesy of Newsquawk APAC stocks traded mixed albeit with a mostly negative bias following the lack of major catalysts from over the weekend and amid Chinese developer woes, while attention this week turns to data releases and the US government shutdown deadline. ASX 200 was marginally lower with losses in mining stocks and financials overshadowing the resilience in the consumer and tech sectors. Nikkei 225 outperformed amid stimulus hopes with the government considering 5yr-10yr tax benefits for firms producing semiconductors and storage batteries, as well as providing support in areas where firms face high entry risk and will reportedly boost take-home pay for part-time workers. Hang Seng and Shanghai Comp were pressured amid developer-related concerns with Evergrande shares down more than 20% after it cancelled its creditor meeting and is scrapping its USD 35bln debt restructuring plan, while the Co. said it is unable to issue new debt under the present circumstances citing an investigation into its subsidiary Hengda Real Estate. Furthermore, China Aouyuan shares dropped by over 70% on the resumption of trade following a 17-month hiatus. Top Asian News PBoC adviser said China has limited room for further monetary policy easing and should pursue structural reforms such as encouraging entrepreneurs instead of relying on macroeconomic policies to revive growth, according to Reuters. Chinese state asset manager, China Reform Holdings is to set up a strategic emerging industry fund worth at least CNY 100bln, according to Bloomberg. Evergrande (3333 HK) cancelled its creditor meeting set for early this week and is scrapping its USD 35bln debt restructuring plan, while it noted that it is necessary to re-assess the terms of the proposed restructuring. Co. also stated that it is unable to issue new debt under the present circumstances citing an investigation into its subsidiary Hengda Real Estate. Chinese President Xi said in a meeting with South Korea’s PM that he welcomes a summit between China, South Korea and Japan at an opportune time and will seriously consider visiting South Korea, according to Reuters. US Department of Defense said the US and China will hold a working-level meeting on cyber issues and strategy, according to Reuters. EU’s Dombrovskis said the EU has no intention to decouple from China but needs to protect itself when its openness is abused. Dombrovskis also said that cooperation with Europe and China remains essential and if they talk candidly, they can make paths converge and re-energise engagement. Furthermore, he said that de-risking is a strategy to maintain openness not undermine it and that the strongest headwind is Russia's aggression against Ukraine and how China positions itself on the issue. Japan’s government is considering 5yr-10yr tax benefits for firms producing semiconductors and storage batteries as part of an upcoming economic stimulus package, while the government is considering providing support in areas where private-sector firms face high entry risks. Japan is to boost take-home pay for part-time workers, according to Yomiuri. BoJ Governor Ueda reiterated that BoJ must patiently maintain monetary easing; Japan's economy is recovering moderately. He added the policy framework has a big simulative effect on the economy but at times could have big side effects. Ueda noted stable and sustainable achievement of 2% inflation is not yet in sight, and Japan's economy is at a critical stage on whether it can achieve positive wage-inflation cycle. Japanese firms are changing prices more frequently than in the past, which is an important sign suggesting wages and inflation could move in tandem. Ueda said it is important for FX to move stably reflecting fundamentals; BoJ hopes to work closely with the government and scrutinise the impact of FX moves on the economy and prices. BoJ Governor Ueda said the BoJ will not directly target FX in guiding monetary policy. European bourses extended on losses since the cash open, despite no obvious catalyst to drive price action, and with no initial move seen in response to the German Ifo metrics - a release which on balance was better-than-expected. Sectors in Europe are lower across the board with Travel & Leisure and Basic Resources, and Consumer Products as the biggest laggards, while Healthcare, Energy, and Banks see their losses cushioned in comparison. US futures reversed their earlier gains and saw an acceleration in losses at one point despite a lack of fresh drivers at the time. The futures have since stabilised around flat levels intraday. Top European News UK PM Sunak is facing a renewed backlash from within the Tory party and opposition Labour politicians, as well as business executives and university leaders after the government refused to rule out scrapping the northern leg of the HS2 rail project, according to FT. BoE is reportedly set to delay the implementation of some Basel III reforms for a further 6 months but will disappoint banks by reducing the phase-in period, according to FT. ECB’s Villeroy said the recent increase in oil prices won’t derail the ECB’s fight to tame inflation and stated that patience is more important than raising rates further, according to Bloomberg citing an interview with France Inter ECB's Villeroy said maintaining the current level of interest rates will lower inflation, and sees a risk that the ECB could do too much in the future. He said they should focus on the persistence of rates rather than pushing rates up, and markets should not expect rate cuts before a sufficiently long time. ECB's De Cos said must avoid insufficient and excessive tightening; and if rates are kept at the current 4.0% long enough, we should reach the 2% goal, according to Bloomberg. Bundesbank faces hundreds of job reductions under a modernisation plan by Boston Consulting Group which was hired in an effort to make the central bank more agile and efficient, according to FT. Italy revisited the windfall tax on banks to give lenders the option to boost reserves instead of paying a levy, according to Reuters. Germany is to scrap stricter building insulation standards to help prop up the struggling property sector and Chancellor Scholz is to meet property industry leaders today. FX DXY retains an underlying bid in the wake of recent Fed rhetoric underlining that inflation remains too high, while the USD also benefits from a retreat in the Yuan on the back of Evergrande woe plus ongoing weakness in the Yen and Franc on policy divergence dynamics. AUD is among the laggards amid contagion from the Yuan and the decline in base metal prices, particularly iron and copper, while the CAD is underpinned by resilient crude prices. Sterling slipped to a new multi-month low against the USD, whilst the Euro faded above 1.0650 against its US counterpart even though German Ifo survey metrics either beat or matched expectations. Instead, EUR/USD seemed more inclined to remarks from ECB’s Villeroy and de Cos backing the rates have peaked scenario. Barclays on month-end rebalancing: model suggests strong USD buying vs. all majors as US equities have trimmed gains alongside a hawkish hold from the FOMC. Fixed Income Bears remain in control of proceedings as alluded to earlier, and momentum is building with little sign of underlying buyers turning the tide as more technical and psychological support levels are breached Bunds have now been down to 128.87 from a peak at 129.56 that matched their previous Eurex close. Gilts are now probing 95.50 to the downside after failing to retain 96.00+ status very early on Liffe, and T-note is rooted to the base of its 108-11/25+ range. Yields are extending to fresh peaks, and there may be some respite for bonds if the 10-year German benchmark holds around 2.80% and its US equivalent is capped at circa 4.50%. Commodities Crude November futures are firmer intraday despite the firmer Dollar, downbeat mood across stocks, and the Chinese property woes overnight, underpinned by bullish fundamentals. Dutch TTF prices are on the rise this morning despite bearish fundamentals at face value, with the Australian LNG strikes averted and Norway also ramping up gas output. There is no obvious reason for the surge in TTF prices which has also been gradual in nature. Spot gold briefly topped its 200 DMA (1,925.93/oz) but remains within Friday’s USD 1,918.95-28.89/oz range, while spot silver briefly rose above its 50 DMA at USD 23.63/oz before reversing back to session lows. Base metals are lower across the board, with the initial downside emanating from the losses across Chinese property names overnight, while the deterioration in sentiment in the European morning keeps industrial metals under pressure. Saudi Foreign Minister said the kingdom is keen to maintain stability, reliability, sustainability and security of oil markets, according to Reuters. EU energy official said Europe will have to rely on US fossil fuels for decades, according to FT. Russia mulls tweaks to exempt some oil productions from the export ban; Exemptions on bunker fuel and gasoils from its fuel ban, via Bloomberg. Geopolitics Ukrainian President Zelensky said he met with Mike Bloomberg and other top US financiers during his US visit to discuss reconstruction and investment, according to Reuters. Russian Foreign Minister Lavrov said the Ukraine peace formula is not feasible, while he stated regarding the latest proposals by the UN Secretary-General to revive the Black Grain deal that they do not reject them but noted the proposals are simply not realistic, according to Reuters. Iranian President Raisi told CNN that Iran has not said it does not want IAEA nuclear inspectors in the country, while he added that Israeli normalisation with Gulf Arab states will see no success. Iran’s intelligence ministry said 30 simultaneous explosives were neutralised in Tehran and 28 terrorists were arrested. French President Macron announced that France is to end its military cooperation with Niger in the months ahead following the military coup and decided to recall its ambassador from the African country, according to Reuters. US President Biden’s administration is reportedly in talks for a major arms transfer to Vietnam that may include fighter jets. Philippines strongly condemned the Chinese Coast Guard’s installation of a 300-metre floating barrier preventing Filipino boats from entering the Scarborough Shoal in the South China Sea. US Event Calendar 08:30: Aug. Chicago Fed Nat Activity Index, est. 0.05, prior 0.12 10:30: Sept. Dallas Fed Manf. Activity, est. -13.0, prior -17.2 Central Bank speakers 18:00: Fed’s Kashkari Speaks DB's Jim Reid concludes the overnight wrap It's nice to get back to the free form creativity of research after an highly scheduled weekend in sole charge of the kids as my wife went on a reverse hen do (2yrs after a covid wedding!). I was given a 3-page itinerary and instructions that included meal plans, 3 lots of swimming lessons, 2 separate golf lessons, violin and piano practise, Maths and English homework, a friend’s 8th birthday party and helping to design 2 fireworks posters. Oh and I had to lend the tooth fairy some money. I’m dropping them off to school this morning and then straight to the peace and quiet of a 7-hour flight to New York. Bliss. This week one of the main highlights will take markets through a full on Back to the Future and Quantum Leap (my favourite show as a teenager) moment as the-every-5-years US GDP revisions take place on Thursday alongside the final Q2 2023 revisions (unch at 2.4% expected). DB's Brett Ryan talks about the revisions here but he discusses how GDP will be revised from Q1 2005 through Q1 2023, although revisions prior to the first quarter of 2013 will be offsetting across industries within each period. Gross domestic income (GDI) and select income components will be revised from Q1 1979 through Q1 2023. You'll see our CoTD from a couple of weeks ago here that discussed how the current big gap between US GDI and GDP could possibly be explained by erroneous recent data showing that net interest payments have been going down in the US as rates and yields have been soaring in the last 2 years. It's possible that revisions could make GDI look more healthy (interest payments add income to parts of the economy) but also make interest costs in the economy look more realistic and hurt fundamental models of interest cover for those indebted. This is just an educated guess at this stage. Anyway, the revisions are potentially an important event and could make us think differently about the US economy in the recent past and therefore the future. It's also possible not much changes of course. That would make a boring time travel movie though. Outside of this the core PCE deflator on Friday is as important. Our economists point out that the data from the August CPI and PPI releases point to a slightly softer reading (+0.20% vs. +0.22% last month), which would have the effect of lowering the year-over-year growth rate by a little over 30bps (to 3.9%). As they highlight, the Fed's latest SEP forecast for Q4/Q4 core PCE inflation last week was 3.7%, which implies a modest re-acceleration in the monthly prints. This is one reason why our economists believe the bar is relatively high for the Fed to hike again before year-end. Staying with inflation, over in Europe, the flash September CPIs kick off with prints from Germany on Thursday. The numbers for the Eurozone, France and Italy will be out on Friday. Friday also sees Tokyo CPI which is an important economy wide lead indicator as the BoJ considers more radical changes to its monetary policy soon. Elsewhere in the US we have new home sales and consumer confidence tomorrow, durable goods on Thursday with trade numbers and personal income and consumption numbers on Friday. In Europe, Germany sees the Ifo survey today, consumer confidence on Wednesday and labour market data on Friday. In France, consumer confidence will be out on Wednesday and consumer spending data is due Friday. Sentiment gauges will also be out in Italy and the Eurozone on Thursday. Asian equity markets are mostly retreating this morning with Chinese stocks leading losses amid persistent concerns over the property market after embattled real estate developer Evergrande Group indicated that it will be unable to issue new debt due to an ongoing government investigation into its unit Hengda Real Estate Group. In terms of specific index moves, the Hang Seng (-1.43%) is emerging as the biggest underperformer while the CSI (-0.62%) and the Shanghai Composite (-0.42%) are also trading in negative territory. Elsewhere, the KOSPI (-0.57%) is also weak in early trade while the Nikkei (+0.58%) is bucking the regional trend. US stock futures are indicating a rebound though with those on the S&P 500 (+0.27%) and NASDAQ 100 (+0.34%) moving higher. 10yr US yields are back up +2.4bps to 4.458% as I type . This morning, Marion Laboure and Cassidy Ainsworth-Grace in my team have published the first instalment of their new series on the Future of Money – Cryptocurrencies: The return of faith, trust and, fairy dust. Focusing on the hot topic of cryptocurrencies, followed by a deep dive on stablecoins, they argue that despite the bankruptcies and negative news over the last 18 months, the crypto ecosystem has edged closer to the established financial sector. As a result, digital assets are here to stay. You can find their report here. Looking back on last week now, we had a run of flash PMI data on Friday. Starting with the US, the flash composite PMI for September surprised to the downside at 50.1 (vs 50.4 expected), with services weaker at 50.2 (vs 50.7 expected) and at its lowest level since January. Manufacturing on the other hand was stronger than forecast, at 48.9 (vs 48.2 expected). Digging deeper, in the services PMI, the employment component bounced to 52.6, the highest level in a year, pointing to a still robust US labour market. All other details were on the softer side, with backlogs in particular at its lowest level since the pandemic, at 44.5. The moderating activity signal of the PMIs on Friday helped US fixed income recoup some of its losses earlier in the week. US 10yr Treasury yields fell -6.1bps, and 2yr yields fell -3.4bps. However, 10yr yields still rose +10.1bps week-on-week to 4.435%, their highest weekly close since 2007. This followed on from the hawkish Fed meeting on Wednesday, and a strong weekly jobless claims print on Thursday that affirmed a higher-for-longer approach by the Fed. As such, the expected rate for December 2024 rose by +13.0bps week-on-week to 4.67% (-3.6bps Friday) . The European PMIs were a bit more of a whirlwind relative to the US. The composite PMI surprised to the upside, rising +0.3pts to 47.1 (vs 46.5 expected). The increase was driven by a +0.5pts increase in services (48.4 vs 47.6 expected), while manufacturing was mostly unchanged at 43.4 (vs 44.0 expected). However, the interesting tidbit came with the divergence between France and Germany. For the former, the composite PMI surprised to the downside, falling to 43.5 (vs 46.0 expected), whereas German PMI rose to 46.2 (vs 44.7 expected). Off the back of this, German 10yr bund yields traded largely flat on the day (+0.3bps). In weekly terms, the 10yr bund yield followed the US, up +6.4bps. Equities struggled last week against the backdrop of rising yields, as the S&P 500 fell -2.93% week-on-week (-0.23% Friday) in its largest down move since March (and its lowest level since early June). Tech stocks saw a modest outperformance on Friday, with the NASDAQ down a marginal -0.09%. However, the tech-heavy index slipped -3.82% in weekly terms, its third consecutive week of losses, and a c.8% decline from its July peak. In Europe, the STOXX 600 laboured last week, falling back -1.88% (and -0.31% on Friday). Finally, in commodities, the oil price rally ran out of steam last week.Brent was down -0.70% to $93.27/bbl (-0.03% Friday) after rising by over +11% over the previous three weeks. WTI saw a similar down move of -0.82% to $90.03 (+0.45% Friday). Nonetheless, energy supply risks remained in focus last week. For instance, on Thursday Russia temporarily banned most gasoline and diesel exports with immediate effect . We’ll see how we go this week as we hit the business month-end on Friday. Tyler Durden Mon, 09/25/2023 - 08:28.....»»

Category: blogSource: zerohedgeSep 25th, 2023

The Real Story Is Real Yields

The Real Story Is Real Yields By Peter Tchir of Academy Securities While we are engaged in discussions on “sticky” inflation and long/variable lags, etc., the “real” story is likely real yields. For reference, I’ve used the Federal Reserve Real Yields. There are various other “real yield” calculations out there, but they all tell similar stories. I chose the 5-year partly because it was the most dramatic (with inverted yield curves, the 10-year real yield is lower), and also because 5 years seems like a reasonable timeframe to think about. The last time the 5-year real yield was above 2% for an extended period of time was in 2006 and early 2007. We all know what happened after that. While a 2% real yield is great for savers, it may place an increasingly difficult burden on borrowers and growth. New projects need to meet a considerably higher hurdle rate to warrant funding those projects. Inflation Expectations Seem “Reasonable” I don’t like to think about real yields “in isolation.” We already know nominal yields are between 4.25% and 5% depending on where you are on the curve. But I want to keep an eye on inflation expectations (mainly because the Fed pays attention to this data). The average for this metric is 2.8%. Yes, we are at 3%, but that is barely above the average. In almost 25 years, this measure has NEVER hit 2%. We can debate until we are blue in the face about whether 2% is a realistic target or not. Powell says that it is their target, but I suspect that anything sub 3% on inflation allows him to be “patient” on hiking. In any case, high real yields are becoming a potential issue for the economy and that is not being accompanied by a big shift in future inflation expectations. 5-Year, 5-Year Forward Breakeven Yield Let’s be honest, I only use this because saying anything as complicated as “5-year, 5-year forward breakeven yield” must make me sound smart. If I think really hard about it, I can understand what it actually means, and I know that others (including the Fed) are keeping an eye on this. We are hovering right around the long-term average, which seems like a decent place to be. We’ve been bouncing around this level for months now. I’m not exactly sure about the significance of this (it is low on my “radar” screen) and it doesn’t seem to be setting off any alarm bells about inflation, rates, or the shape of the curve. From my perspective, this fits my current view of the Fed quite well: High hurdle to hike. Incredibly high hurdle to cut. But I’m digressing from the real yield discussion and the potential impact on the economy. Borrowing Costs We all know that credit spreads have done well (at least for investment grade and high yield bonds). This is less so for leveraged loans, but even there we see a decent bid and if we get a short squeeze rally in credit, it will start with the lev loan/CLO market. But what about smaller issuers or those who we don’t see every day (or possibly ever)? We already have a stock market that focuses on the “Magnificent Seven,” but have we thought enough about what is occurring as you move to smaller companies, especially on the borrowing side? We’ve discussed these relative performance charts multiple times this year, but now I want to think about them from a different angle. What do we think is happening to companies smaller than those included in the Russell 2000 (i.e., small private companies)? The two relevant indices are: The Russell 2000. Basically, flat this year, but underperforming the Nasdaq 100 by 27% and the S&P 500 by 12%. How much would even smaller companies be underperforming by? If the Russell 2000 companies can only break even, what does it say about the state of smaller companies as a whole? I presume nothing good. The KBW Bank Index is also important as it reflects the performance of banks, which are in turn the preferred supplier of credit for smaller companies. While large companies rely on banks, it is more often than not for revolvers that are unlikely to be drawn. For smaller companies, bank loans are a primary source of borrowing. How do they get those loans when the banks themselves are under pressure? Bank deposits are back to declining (and are shifting from smaller banks into larger banks). I don’t know what the borrowing opportunities are for smaller companies, but I suspect that they aren’t great given the data that we have and where it seems to be pointing. One counterargument I’ve heard is that the Russell 2000 has many banks and that is part of the underperformance, but that doesn’t explain the “Magnificent Seven” and the divergences between equal weighted and market cap weighted indices. Small Businesses Academy’s client base is predominantly large corporations. It is great that these companies are chugging along (I’m currently bullish stocks and credit spreads). Having said that, it is best when the economy is firing on all cylinders! In this report we started with facts (real yields are historically high), but we have waded into conjecture (small companies are under pressure). My friend, Joe Brusuelas, who I think has a great take on the small and mid-sized company economy, published this Commentary in Barron’s. In this report he points out that according to their survey of “middle market businesses,” about 35% of them are going to the shadow market and getting rates averaging 13.7%. IG yields are around 5.75% and HY yields are around 8.5%. 13.7% seems to be in the realm of CCC borrowers. I take this seriously, partly because it is important to the economy, but also because it tends to be important to politicians. One thing that the troubles surrounding Silicon Valley Bank (for example) showed me is how connected politicians are to their local banks and businesses. We saw lots of politicians discuss the messages that they were getting from the banks in their districts. While the Fed learned from the GFC to act early and aggressively and to never let problems spread within the banking system, the level of political support helped them act as well. So, when I start hearing that those most connected to small businesses are advocating for a pause, I suspect that there is a big and powerful movement behind it. Basically, new to my list, is the likelihood that there is a powerful lobby in the works to send a clear message to D.C. that the rate hikes are hurting these small businesses. While the Fed is apolitical, the arguments seem economic which should sway the Fed. From a market standpoint, if politicians and the media start focusing on some of this risk, I think that we will price in fewer hikes, which should help yields and the broader market. CRE Too One client in particular has argued profusely (and I completely agree with them) that the Fed pays extreme attention to CRE. The argument is that the Fed can ignore problems in the high yield market because it is a niche market. As big as it is, it is understood to be risky and is small relative to U.S. GDP. Regarding IG, they can tolerate larger moves in spreads because these companies are good and have a lot of runway and the ability to manage any spread widening. In addition, similar to COVID, if it gets bad enough the government will intervene, but they don’t need to worry unless the spread widening and dislocations become severe. CRE is a different animal. It is a simply massive market. It is also generally viewed as safe (one condition that I watch closely for contagion or bubble risk) and in many cases, the loans are held in the banking system (another thing that I watch closely for contagion risk). While CRE will not be “bailed out” by the Fed or D.C., they have absolutely zero incentive to push it over the edge. We’ve made it this far in the fight with inflation and haven’t toppled CRE (most indices have bounced significantly since their late April lows, but are far from the highs before the Fed started hiking into a WFH environment). It would seem prudent for the Fed to give this sector an opportunity to work itself out, i.e., to refinance, restructure, and to take losses where needed (but not push it too far). Bottom Line While a lot of the data we get may point to inflation (and I continue to expect economic data to show slowing), there is a lot more for the Fed to worry about behind the scenes. CRE might seem obvious, but a lot is private and not marked to market, so the Fed has to feel its way around. Small businesses (and their borrowing) are another example of an area where we don’t get a report the first Friday of every month, but it is potentially equally important to the Fed. If anything, I’m tempted to change my view on the Fed to one where it takes an incredibly high hurdle to hike or to cut. Somehow, I started with “real yields” and wound up with “middle market businesses and commercial real estate,” but it is all part of the same story and one that the Fed needs to watch closely. Tyler Durden Wed, 09/13/2023 - 18:00.....»»

Category: blogSource: zerohedgeSep 13th, 2023

Rickards: The Greater Financial Crisis Of 2024

Rickards: The Greater Financial Crisis Of 2024 Authored by James Rickards via DailyReckoning.com, You’re probably aware that Fitch has downgraded the credit rating of the United States from AAA to AA+. It was big news last week. That’s nothing to cheer about, though it’s not likely to have much impact on the markets in the short run. It’s more of a long-term problem. But it’s certainly another straw in the wind showing that the U.S. is on a non-sustainable fiscal course that can only end in default, hyperinflation or protracted depression-level growth. Meanwhile, another major credit ratings agency, Moody’s, has just issued its own downgrades that may foretell a much more immediate threat. And they don’t involve the government. Downgraded! On Monday, Moody’s cut the credit ratings of 10 small and midsize U.S. banks, while placing six large banks on watch for potential downgrades. The six large banks include Bank of New York Mellon, U.S. Bancorp, State Street and Truist Financial. Moody’s has also lowered its outlook to negative for 11 major banks, including Capital One, Citizens Financial and Fifth Third Bancorp. Here’s what Moody’s said yesterday: Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital. This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline, with particular risks in some banks’ commercial real estate (CRE) portfolios. It Won’t Be Subprime Mortgages Next Time We all remember the Global Financial Crisis of 2007–08, which was allegedly caused by subprime mortgages in the residential real estate sector. In reality, subprime loans played a role in the crisis, but they were more a symptom than a cause. The real cause was excessive monetary tightening by Ben Bernanke in 2006–07. With that as background, pundits are again looking at residential mortgages and inflated home values as a potential source of crisis. But they’re looking in the wrong place. Since 2009, conditions for mortgage loans have tightened considerably. A down payment of 20% or more is routinely required. Full documentation (tax returns, W-2s, employment verifications, title insurance, etc.) is necessary and co-signers are often required. This does not guarantee loans don’t default, but there will certainly be far fewer defaults and larger owner equity cushions to absorb any losses. For warning signs this time, investors might do well to look at commercial real estate, as Moody’s downgrades indicate. The Looming CRE Crisis CRE is crashing on several levels. In the first place, valuations are falling and vacancies are rising, partly in response to the post-pandemic work-from-home movement and the general urban flight due to high crime and vagrancy. At some point, owners are underwater on rents and just drop off the keys with the lender and walk away. The other problem is that new building construction is not financed with long-term mortgage, but with short-term construction loans. I don’t want to get too deep in the weeds here, but it’s important to understand the basic dynamics. These short-term loans have two- or three-year maturities. When the building is finished, the developer gets a long-term mortgage and pays off the construction loan in full. The difficulty arises when credit conditions charge materially between the time the project is started and when it is completed. That’s exactly what happened in 2021 during the post-pandemic boom, and what will happen in 2024 when a lot of the construction loans are due. If developers can’t get the long-term financing on favorable terms, that becomes another reason to walk away. Then you’re looking at a cascading crisis as the losses pile up. “I Want My Money Back!” Each financial crisis begins with distress in a particular distressed sector and then spreads from sector to sector until the whole world is screaming, “I want my money back!” First, one asset class has a surprise drop. The leveraged investors sell the sinking asset, but soon the asset is unwanted by anyone. Margin calls roll in. Investors then sell good assets to raise cash to meet the margin calls. This spreads the panic to banks and dealers who were not originally involved with the weak asset. Soon the contagion spreads to all banks and assets, as everyone wants their money back all at once. Banks begin to fail, panic spreads and finally central banks step in to separate winners and losers and reliquefy the system for the benefit of the winners. Typically, small investors (and some bankrupt banks) get hurt the worst while the big banks get bailed out and live to fight another day. That much panics have in common. Fighting the Last War What varies in financial panics is not how they end but how they begin. The 1987 crash started with computerized trading. The 1994 panic began in Mexico. The 1997–98 panic started in Asian emerging markets but soon spread to Russia and the big banks. The 2000 crash began with dot-coms. The 2008 panic was triggered by defaults in subprime mortgages. And the next panic might well be triggered by defaults in commercial real estate. Risk hasn’t gone away, it’s simply shifted. But today the regulators are like generals who are fighting the last war. They’re too focused on the last war to know where the next one will begin or how to fight it. They’ll be blindsided, along with most investors. There’s Time to Prepare Does that mean we’re going to see a crisis tomorrow? No, not necessarily. Both the panics of 1998 and 2008 began over a year before they reached the level of an acute global liquidity crisis. Investors had ample time to reduce risky positions, increase cash and gold allocations and move to the sidelines until the crisis abated. At that point there were bargains galore for those with cash. An investor with cash in 2008 could have preserved wealth during the crisis and nearly made six times his money since then by buying the Dow Jones index at 6,550 (it’s trading over 35,300 today). Relatively few investors did this. Instead they suffered from “fear of missing out” as markets rose until the panic began. They persisted in the mistaken belief that they could “get out in time” if markets reversed, not realizing that reversals happen much faster than rallies. They held onto losing positions hoping they would “come back” (they did after 10 years) and so on. Investors don’t need to worry about subprime home loans this time around. But they would do well to pay attention to the CRE space. That’s one canary in the coal mine of the next global financial crisis. I advise you to plan accordingly. Tyler Durden Thu, 08/10/2023 - 09:55.....»»

Category: personnelSource: nytAug 10th, 2023

Regional Banks Rally After Fed Proposes Higher Capital Requirements For Smaller Banks

Regional Banks Rally After Fed Proposes Higher Capital Requirements For Smaller Banks After a 'holistic review' of capital for large banks "to enhance their resilience and ability to serve communities, households, and businesses," Fed Vice-Chair of Supervision, Michael Barr said in a report this morning that he's leading a multi-year effort to increase capital requirements for banks. Barr managed expectations by explaining that the focus of the review was on building resilience rather than attempting to address every conceivable risk, as the financial system is complex and constantly evolving. “The proposed rules would end the practice of relying on banks’ own individual estimates of their own risk and instead use a more transparent and consistent approach,” he said. Among the many regulatory recommendations by Barr to be introduced over time is to apply enhanced risk-based capital rules to banks with $100 billion or more in assets, down from a threshold of $700 billion. "Our recent experience shows that even banks of this size [$100 billion in assets] can cause stress that spreads to other institutions and threatens financial stability," Barr said in his speech at the Bipartisan Policy Center. "The risk of contagion implies that we need a greater degree of resilience for these firms than we previously thought." Specifically, Barr is proposing to require banks with assets of $100 billion or more to account for unrealized losses and gains in their available-for-sale (AFS) securities when calculating their regulatory capital. "This change would improve the transparency of regulatory capital ratios, since it would better reflect banking organizations' actual loss-absorbing capacity," Barr said. "Realizing the losses from these securities, without adequate capital to protect from those losses, was an important part of the set of events that triggered the run on Silicon Valley Bank (SVB)." The bottom line: Under the plan, the largest banks could be required to hold an additional 2 percentage points of capital, or an additional $2 of capital for every $100 of risk-weighted assets. For now, Regional bank shares are rallying on the news... Read the full speech below: Thank you to the Bipartisan Policy Center for the opportunity to speak today. I'm here to report on my holistic review of capital for large banks and to outline steps that I believe are appropriate to update our capital standards so that banks can continue to serve our communities, households, and businesses.1 The review was a top priority because capital is fundamental to safety and soundness. I approached the task with humility. We need to be skeptical about the ability of bank managers or regulators to anticipate all emerging risks. Events over the past few months have only reinforced the need for humility and skepticism, and for an approach that makes banks resilient to both familiar and unanticipated risks. Our dynamic financial system is complex and constantly evolving. Regulators and bank managers are limited in our ability to comprehensively identify risks and to measure them. We cannot fully appreciate how a specific vulnerability can interact with other vulnerabilities to amplify and propagate risk in the face of a shock, or multiple shocks. It is extremely difficult to identify shocks in advance. And we also cannot fully predict how firms and markets adapt to changes in the environment or to the behavior of regulators or other participants. So, instead of trying to design rules to address every conceivable risk, regulators must focus broadly on resilience—ensuring that banks and the financial system can withstand challenges, wherever they emerge and however they are transmitted through the system. Fortunately, there is a component of bank funding—equity capital—that is well suited to building resilience.2 Banks rely on both debt and capital to fund loans and other assets, but capital is what allows the bank to take a loss and keep on operating. The beauty of capital is that it doesn't care about the source of the loss. Whatever the vulnerability or the shock, capital is able to help absorb the resulting loss and, if sufficient, allow the bank to keep serving its critical role in the economy. Higher levels of capital also provide incentives to a bank's managers and shareholders to prudently manage the bank's risk, since they bear more of the risk of the bank's activities. Holistic Review of Capital Standards I initiated a review of capital standards as one of my first actions as Vice Chair for Supervision. This review was focused on capital requirements for large banks with more than $100 billion in total assets. Capital requirements are multi-layered with different components. A holistic approach is important because the requirements function as a system—each component treats risks and associated capital needs differently, but all components together result in a certain amount of capital required. Banks manage their operations with an eye on the entire system, and as such, adjustments to one part of the regime may imply adjustments to another. To that end, over the last nine months, I have engaged with a wide range of parties: policymakers and staff from the Federal Reserve and other agencies, banks and financial sector groups, public interest groups, members of Congress, and academics to get a broad perspective on how the Fed's capital standards interact with each other and the result they together achieve. In the midst of this review, we once again learned the importance of resilience when a sudden bank run and contagion caused three large banks to fail and we experienced significant stress in the banking system, stemmed only by invocation of the systemic risk exception and creation of an emergency lending facility. This should make us very humble indeed. I reviewed whether changes would be appropriate to better align capital requirements with risk-taking, to help ensure that our banking system is sufficiently resilient to serve its vital role in our economy. Any proposed changes would go through the standard notice-and-comment rulemaking process, allowing all interested parties ample time to weigh in on the proposed changes. Any final changes to capital requirements would occur with appropriate transition times. I will be pursuing further changes to regulation and supervision in response to the recent banking stress, including how we regulate and supervise liquidity, interest rate risk, and incentive compensation, as well as improving the speed, agility, and force of the Federal Reserve's supervision. I expect to have more to say on these topics in the coming months. Multiple Measures of Risk Our system of capital requirements uses multiple measures of risk, which work collectively to achieve an overall level of resilience. We have a set of risk-based requirements that are based on the risk of a bank's activities to its safety and soundness and to the financial system, and a set of non-risk-sensitive backstops, which are simple measures the market and regulators can use to understand and protect against the possibility that the risk-sensitive measures get the risk wrong and result in capital requirements that are too low. And we use stress testing as a complement to point-in-time capital requirements. Stress tests measure bank resilience against a hypothetical shock. These equity capital requirements are complemented by long-term debt requirements, which help provide an additional cushion to restructure, sell, or wind down a bank that has entered resolution. These multiple ways of measuring and mitigating risk are helpful for the resiliency of banks and the robustness of the system. Any single way of measuring bank risk would miss or underplay some aspect of risk, and each of the different approaches tends to measure risks not captured or measured as well by the others. Further, a capital framework with multiple ways of measuring risk is harder for banks to game. Of course, there are also downsides to having multiple approaches to measuring risk in calculating capital requirements. The greater complexity itself introduces risk. But on balance, I think multiple approaches are warranted. Conclusion of the Holistic Review Now let me turn to the conclusion of the holistic review. In sum, I believe that the existing approach to capital requirements is sound. As a result, my proposals build on that foundation. The existing approach includes the risk-based requirements, stress testing, the risk-based capital buffers, and the leverage requirements and buffers. Let me quickly summarize the proposal and then turn to each in more detail. With respect to risk-based requirements, the standards should be updated to better reflect credit, trading, and operational risk. To help promote international comparability, the updates to the standards should be consistent with international standards adopted by the Basel Committee. The international standards were developed through a rigorous, lengthy process, have been under discussion for nearly a decade and will improve on the extent to which capital requirements fully reflect the risks posed by different banks engaged in a variety of activities. With respect to stress testing, I believe that the stress capital buffer framework is sound.3 At the same time, I believe that the stress test should continue to evolve to better capture risk. The exploratory analysis conducted this year demonstrates the capacity of supervisory stress testing to test for a wider range of risks and the value of doing so. Any changes to the stress test should be complementary to the changes to the risk-based capital framework I mentioned above. With respect to the other capital buffers—the global systemically important bank (G-SIB) surcharge4 and the countercyclical capital buffer (CCyB)5—I am not recommending fundamental changes. For the G-SIB surcharge, I am recommending that we improve the measurement of systemic indicators under the G-SIB surcharge framework, reduce "cliff effects," and increase the sensitivity of the surcharge to changes in a bank's risk profile. With respect to the enhanced supplementary leverage ratio (eSLR), I am not recommending changes to the calibration at this time. With the revisions in risk-based capital requirements I mentioned above, the eSLR generally would not act as the binding constraint at the holding company level, where Treasury market intermediation occurs. We will carefully monitor Treasury market intermediation, and if problems arise, will consider appropriate policy responses. Basel III Endgame An important aspect of my proposals will be to implement the changes to the risk-based capital requirements, referred to as the Basel III endgame, which are intended to ensure that our minimum capital requirements require banks to hold adequate capital against their risk-taking. There was a consensus among the Basel jurisdictions that current rules underestimate risks for the largest, most complex banks. The proposed reforms reflect our current understanding of risks and how to best measure those risks. The international agreement to implement these reforms was finalized more than five years ago, in 2017. Implementing these reforms in a timely way is important, and I am pleased we are beginning that process. And lastly, before I walk through the main areas of changes, I'd like to emphasize that any changes would not be fully effective for some years because of the notice and comment rulemaking process and any final rule would provide for an appropriate transition. First, for a firm's lending activities, the proposed rules would end the practice of relying on banks' own individual estimates of their own risk and instead use a more transparent and consistent approach. Currently, large banks use their own internal models to estimate certain types of credit risk. These internal models for credit risk suffer from several deficiencies. Experience suggests that banks tend to underestimate their credit risk because they have a strong incentive to lower their capital requirements. In addition, the data doesn't lend itself to robust modeling and back testing in some cases because defaults are relatively infrequent. And estimates of credit risk for similar exposures can vary substantially across firms. So, skepticism is in order. Standardized credit risk approaches—meaning we apply the same requirements to each bank and not let each bank develop their own requirements—appear to do a reasonably good job of approximating risks. And we have the additional rigor of a supervisory stress test to assess the credit risk of lending activities. Second, for a firm's trading activities, the proposed rules would adjust the way that the firm measures market risk, which is the risk of loss from movements in market prices, such as interest rate, equity price, foreign exchange, and commodities risk. The proposed changes better align market risk capital requirements with market risk exposure and provide supervisors with improved tools. The proposal would continue to permit firms to use internal models to capture the complex dynamics of most market risks but would not rely on banks modeling certain market risks that are too hard to model. Internal models of market risk can be more readily validated than internal models of credit risk because they are based on daily data and outcomes generally are known relatively quickly. The proposal would raise model quality standards. Firms would also be required to model risk at the level of individual trading desks for particular asset classes, instead of at the firm level. The proposal would also introduce a standardized approach that is well-aligned with the modeled approach, for use where the modeled approach is not feasible. These changes would raise market risk capital requirements by correcting for gaps in the current rules. Requiring banks to model market risk at the level of individual trading desks better reflects the observation that correlations across risks can change dramatically in times of stress. Requiring banks to use a standardized approach for hard-to-model risks is appropriate, in light of the weaknesses that were exposed in the 2008 financial crisis, when many firms did not have acceptable models for their risks. In addition, the proposal appropriately charges more capital for positions that are less liquid, in order to better capture the risks of illiquid trading positions. Third, for operational losses—such as trading losses or litigation expenses—the proposed rules would replace an internal modeled operational risk requirement with a standardized measure. The proposal would approximate a firm's operational risk charge based on the firm's activities, and adjust the charge upward based on a firm's historical operational losses to add risk sensitivity and provide firms with an incentive to mitigate their operational risk. One important question involves the size of institutions that the new risk-based capital rules should apply to, and I will recommend that the enhanced capital rules apply to banks and bank holding companies with $100 billion or more in assets. A threshold of $100 billion would subject more banks to our most risk-sensitive capital rules compared to the current framework, which applies to firms that are internationally active or have $700 billion or more in assets. This expanded scope is appropriate for two reasons. First, the proposed rules are less burdensome for banks to implement than the current requirements, since they don't require a bank to develop a suite of internal credit risk and operational risk models to calculate regulatory capital. Second, our recent experience shows that even banks of this size can cause stress that spreads to other institutions and threatens financial stability. The risk of contagion implies that we need a greater degree of resilience for these firms than we previously thought, as the losses posed to society by the failure of a given firm are greater, and the probability that another firm may be a victim to another firm's failure are higher. The enhancements to the capital rules should improve the resilience of these firms. Importantly, the proposed adjustments would require banks with assets of $100 billion or more to account for unrealized losses and gains in their available-for-sale (AFS) securities when calculating their regulatory capital. This change would improve the transparency of regulatory capital ratios, since it would better reflect banking organizations' actual loss-absorbing capacity. Realizing the losses from these securities, without adequate capital to protect from those losses, was an important part of the set of events that triggered the run on Silicon Valley Bank (SVB). If the bank had already been required to include those losses in its reported capital, it is less likely that the market and depositors would have reacted the same way. Furthermore, banks that were required to reflect unrealized losses on AFS securities in regulatory capital managed their interest rate risk more carefully, suggesting that the requirement to include gains and losses on AFS securities in regulatory capital leads to stronger risk management as well. These changes would increase capital requirements overall, but I want to emphasize that they would principally raise capital requirements for the largest, most complex banks. We will have additional information when the proposal is published, but for now, let me put the proposed increases in context. Recall that banks are, by nature, very leveraged and fund only a small portion of their assets with capital. One can think of the proposal's more accurate risk measures as equivalent to requiring the largest banks hold an additional 2 percentage points of capital, or an additional $2 of capital for every $100 of risk-weighted assets. While this increase in requirements could lead to some changes in bank activities, the benefits of making the financial system more resilient to stresses that could otherwise impair growth are greater. That is not to ignore concerns that changes in capital requirements may cause firms to change their behavior and the way that financial services are provided to our economy. We intend to consider comments carefully and any changes would be implemented with an appropriate phase-in. This phase-in will allow ample time for banks to adjust their balance sheets and activities, and to build capital over time. In fact, most banks already have enough capital today to meet the new requirements. For the banks that would need to build capital to meet the requirements, assuming that they continue to earn money at the same rate as in recent years, we estimate that banks would be able to build the requisite capital through retained earnings in less than 2 years, even while maintaining their dividends. Changes to the Stress Test to Improve Risk Capture As part of the holistic review, I have evaluated the Board's stress testing framework. In particular, I have considered whether the proposed changes to the risk-based capital framework should prompt adjustments to stress testing, and whether there are ways the stress test can be improved to make it a more effective test of banks' resilience. I have concluded that the framework for stress testing generally remains sound, but that we should review our global market shock and the stress test's approach to estimating operational risk so that they provide a complementary lens to our risk-based standards on market risk and operational risk, respectively. Banks have raised concerns that the changes to the risk-based capital framework I described earlier, combined with the stress test, result in a "double counting" of risk that is already captured in the minimum requirements. Conceptually, this shouldn't be the case, as the changes in the risk-based capital requirements affect the way that minimum capital requirements are calculated, and the stress test is used to calculate the buffer. But we will seek comments on all elements of the proposed risk-based capital adjustments, including whether interaction with the stress test results in an inappropriate treatment. Fourteen years of stress testing, and the real-life surprises during that time, including the pandemic and the bank stresses this spring, have made it clear that stress tests need to be stressful to adequately prepare banks for unanticipated events. A key strength of stress testing is its ability to be responsive to the rapidly changing conditions by testing bank resilience to emerging or growing risks. In addition, stress testing can be used to assess banks' resilience to different kinds of stress in the financial system. For example, we have long known—and the recent experience with SVB reinforced—the importance of banks' resilience to funding stress. The stress test should evolve to better capture the range of salient risks that banks face. In addition, the Board could use a range of exploratory scenarios to assess banks' resilience to an evolving set of risks and use the results to inform supervision. Minimal Adjustments to the G-SIB Surcharge to Improve Precision As part of the holistic review, I have evaluated whether the proposed changes to the risk-based capital framework should prompt revisions to the G-SIB surcharge. I am not recommending fundamental changes to the underlying framework at this time, but I will be recommending a series of adjustments of a more technical nature that would not reduce the resiliency of the largest banks or the strength of the surcharge. Specifically, I will recommend that the Board propose to adjust the G-SIB surcharge framework to better match a firm's systemic footprint. First, the proposal would measure on an average basis over the full year the indicators that are currently measured only as of year-end. This change would more accurately reflect the systemic risk profile of a firm and reduce incentives for a firm to reduce its G-SIB surcharge by temporarily altering its balance sheet at year end through so-called "window dressing."6 Second, the proposal would reduce "cliff effects" in the G-SIB surcharge by measuring G-SIB surcharges in 10-basis point increments instead of the current 50-basis point increments.7 Third, the proposal would make improvements to the measurement of some systemic indicators to better align them with risk. These changes would ensure that the G-SIB surcharge better reflects the systemic risk of each G-SIB. Some have argued that certain fixed dollar elements of the G-SIB surcharge should be updated for changes in the economy since the surcharge was adopted. I am not recommending changes to the fixed elements of the calibration of the surcharge. Maintaining the fixed elements of the G-SIB surcharge should help to provide a further incentive for G-SIBs to reduce their systemic footprint, and to promote competitive opportunities for large banks that are not-G-SIBs in order to maintain the diversity of our banking system, while providing further protections against systemically risky events. Continuous Assessment of Capital Needs and the CCyB As part of the holistic review, I have evaluated whether to adjust the CCyB framework. I do not plan to recommend to the Board that we adjust the CCyB framework. The goal of the countercyclical capital buffer is to build buffers in good times to help prepare for bad times. As called for under our current CCyB framework, I would recommend that the Board activate a positive buffer if macroeconomic conditions suggested that it would be appropriate. Conversely, where times of stress would justify lowering capital buffers, we will consider taking accommodating actions as we did in the midst of the COVID-19 crisis. Calibration of the Enhanced Supplementary Leverage Ratio As part of the holistic review, I have also evaluated whether to adjust the enhanced supplementary leverage ratio. While we should continuously improve our risk-based capital requirements to reflect our understanding of risks, experience has shown that there will be times when banks and regulators are unable to accurately measure all risks. That is why regulators have adopted a leverage ratio, which compares the amount of capital held by banks with their total assets. Leverage requirements do not vary based on risk-weighted assets. They provide a simple, transparent measure of solvency that is useful to banks, markets, and regulators, and a floor on the risk-based approaches. Yet problems can sometimes emerge if leverage ratios are the most binding of the capital requirements because then banks may have an incentive to do less low-risk, low-return activity, and to engage in higher-risk, higher-return activities. Some have argued that when banks are close to the eSLR as a binding constraint that it has reduced Treasury market intermediation. The evidence on that is inconclusive. To the extent it matters, the revisions in risk-based capital requirements I discussed today would mean that the eSLR generally would not act as the binding constraint at the holding company level, where Treasury intermediation occurs. To the extent that there are problems with Treasury market intermediation in the future for which the eSLR might matter, the Board could consider an adjustment. Long-Term Debt A related proposal will be to introduce a long-term debt requirement for all large banks. Long-term debt improves the ability of a bank to be resolved upon failure because the long-term debt can be converted to equity and used to absorb losses. Such a measure would reduce losses borne by the Federal Deposit Insurance Corporation's (FDIC) Deposit Insurance Fund, and provide the FDIC with additional options for restructuring, selling, or winding down a failed bank. I support applying a long-term debt requirement to all institutions with $100 billion or more in assets. This would add an important safeguard to a class of banks that came under pressure this spring after the failure of Silicon Valley Bank. If SVB had enough long-term debt outstanding, it might have reduced the risk of a run by uninsured depositors; and it might have given the FDIC more options to resolve the bank or merge it with a healthy institution. And importantly, more long-term debt at SVB would have reduced the cost to the FDIC of its resolution. All of these factors would have reduced the risk of contagion to other banks. Conclusion The comprehensive set of proposals that I have described here today would significantly strengthen our financial system and prepare it for emerging and unanticipated risks, such as those that manifested themselves in the banking system earlier this year. The holistic review began well before then, of course, and the steps proposed here address shortcomings in capital standards that did not begin in March of 2023. But in an obvious way, the failures of SVB and other banks this spring were a warning that banks need to be more resilient, and need more of what is the foundation of that resilience, which is capital. Some industry representatives claim that inadequate capital had nothing to do with those bank failures. I disagree. It was an unsuccessful attempt by SVB to raise capital that caused uninsured depositors to look more closely at how the bank was capitalized. Some industry representatives have claimed that SVB's problems were really related to poor management and shortcomings in the Federal Reserve's supervision. Indeed, those failings were thoroughly documented in a report I released in May, and steps by the Fed to address those issues will be announced in coming months. But it is not logical to argue that failings in supervision must mean that SVB was adequately capitalized—it wasn't—or that supervision by itself can somehow assure safety and soundness throughout the banking system. It is not a choice between supervision and capital regulation—capital is and has always been the foundation of a bank's safety and soundness. Some industry representatives have claimed that raising capital requirements will push activity outside of the regulated financial sector. As I discussed in my speech on capital last December, we need to worry, a lot, about nonbank risks to financial stability.8 The answer, however, is not lower capital requirements for banks, but more attention to those nonbank risks. Further, as stress in nonbank financial markets is often transmitted to the banking system, both directly and indirectly, it is critical that banks have enough capital to remain resilient to those stresses. For the reasons I have outlined today, we need to strengthen capital standards for large banks. That process will be deliberative and open to public participation and implementation of any changes agreed to will take a least several years, which is why it is so important to begin now. Everyone in America depends on a safe and stable financial system. By strengthening capital standards, we are ensuring that businesses have credit to grow and hire workers, and deal with the ups and downs in the economy. Stronger capital standards mean workers can depend on getting their paychecks and families can save and borrow to plan for the future. Our goal is a financial system that works for everyone, and having strong capital rules is essential for that. Tyler Durden Mon, 07/10/2023 - 10:15.....»»

Category: dealsSource: nytJul 10th, 2023

: Fed vice chair of supervision Michael Barr proposes new capital requirements for banks with $100 billion or more in assets

Michael S. Barr, vice chair for supervision at the U.S.. Federal Reserve, on Monday said he’s leading a multi-year effort to increase capital requirements for banks. Among the many regulatory recommendations by Barr to be introduced over time is to apply enhanced risk-based capital rules to banks with $100 billion or more in assets, down from a threshold of $700 billion. “Our recent experience shows that even banks of this size [$100 billion in assets] can cause stress that spreads to other institutions and threatens financial stability,” Barr said in his speech at the Bipartisan Policy Center. “The risk of contagion implies that we need a greater degree of resilience for these firms than we previously thought.” Barr is proposing to require banks with assets of $100 billion or more to account for unrealized losses and gains in their available-for-sale (AFS) securities when calculating their regulatory capital. “This change would improve the transparency of regulatory capital ratios, since it would better reflect banking organizations’ actual loss-absorbing capacity,” Barr said. “Realizing the losses from these securities, without adequate capital to protect from those losses, was an important part of the set of events that triggered the run on Silicon Valley Bank (SVB).”Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news......»»

Category: topSource: marketwatchJul 10th, 2023

The Hidden Side Of "Gender-Affirming Care" Driving Transgender Mental Health Problems And Suicide

The Hidden Side Of 'Gender-Affirming Care' Driving Transgender Mental Health Problems And Suicide Authored by Dustin Luchmee via The Epoch Times (emphasis ours), Wearing a black cowboy hat, a red “America First” T-shirt, and a silver cross, you would never know Matt Rey was born female. At 24, Rey transitioned from female-to-male (FTM). Now 32, Rey is experiencing serious health complications resulting from an overprescription of testosterone and a mastectomy. Rey is part of a growing number of “detransitioners” returning to the gender of their birth—now warning youth considering “gender-affirming care” not to do it. “While I understand transition does not go badly for everyone, many trans people can have health complications later in life. If you are young, please don’t do this to yourself. Transitioning is NOT for kids. Parents, don’t do this to your children! The risks are too high,” Rey wrote on Twitter. “Gender-affirming care,” which includes the administration of hormones and sex reassignment surgery, is claimed by advocates to save lives, however, this proposed remedy may actually be what’s driving the high mortality rate in the transgender community. Authors of a recent Danish study of transgender suicide wrote: “Transgender individuals may be exposed to systemic negativity regarding their trans identity in the form of bullying, discrimination, exclusion, and prejudice, which in turn may result in alienation and internalized stigma, mental health problems, and, ultimately, suicidal behavior.” The Lure of Incentivized ‘Gender-Affirming Care’ Rey experienced gender dysphoria at a young age. “When I was 5, my mom walked me over to the girls’ clothing section and she was looking at girly outfits. I was looking at the boys section, and wondering why she wasn’t taking me there,” Rey told The Epoch Times. As a confused and isolated teenager, Rey looked to the internet for answers. FTM individuals who shared glamorous stories about transitioning convinced Rey that a new identity was the solution to happiness. Turning to the gender identity clinic at the Tavistock Institute in the UK, Rey was surprised to learn that access to “gender-affirming care” was so easy—one visit with a primary doctor, two consultations at the gender identity clinic, then bloodwork—were all it took to begin the transitioning process. Rey’s bloodwork indicated high levels of testosterone. “One of the doctors said I was ‘intersex’ because of this, but that is not how you diagnose that,” said Rey. “I probably had PCOS, which was not diagnosed at the time. I didn’t even question it, because when you go to a doctor, you expect to be told the truth. When they told me that I was intersex, it made me want to transition, because it made sense as to why I experienced all this confusion all my life.” The “I” in “LGBTQIA+” represents “intersex,” an umbrella term used to categorize a person having both male and female sex characteristics. These include differences in anatomy, hormones, chromosomes, or reproductive organs. A typical intersex diagnosis requires a physical examination and genetic testing, neither of which were included in Rey’s medical evaluation. “Gender-affirming care” services are being incentivized by both public and private institutions. Patients like Rey are often steered in the wrong direction of care, jeopardizing their mental and physical health (pdf). Organizations providing “gender-affirming care” can contribute to the confusion around gender identity, sexuality, and the possibility of an individual being intersex, a condition that is actually very rare. Rey, like many in the LGBT community, is against the push for children to transition and is concerned these procedures are being incentivized by the medical community. “Therapists are being paid today to affirm gender rather than do thorough work on a client’s psyche,” said Rey. A Social Contagion With Dire Consequences Dr. Miriam Grossman, a board-certified child and adolescent psychiatrist and author of “Lost in Trans Nation: A Child Psychiatrist’s Guide Out of the Madness,” in an interview with MG Show stated that the idea of being born in the wrong body is dangerous for kids and has no foundation in medicine or biology. Grossman says kids are being indoctrinated to believe these ideas and when authorities, teachers, guidance counselors, and internet influencers tell kids this—they believe it. “This is why we have something like a 5,000 percent increase in the number of kids who are identifying as something other than what their body is,” she said. “It’s a social contagion.” A social contagion is a phenomenon of feelings or behaviors that spreads among peer groups, usually with adolescents and more common with girls, explained Grossman. There are many examples in psychiatry of past social contagions, such as suicidal behaviors, cutting, and eating disorders. “That’s why we have entire groups of girls who are friends from school or from online, and they are going together to a Planned Parenthood or to a gender clinic to get injected with testosterone,” she said. Grossman is urging parents to become educated and to inoculate their families against this destructive contagion. Indoctrination Under the Guise of Affirmation As an outspoken critic of gender ideology, Rey is an active member of Gays Against Groomers, a nonprofit organization of gays against the sexualization, indoctrination, and medicalization of children under the guise of acceptance and equality. “If the truth is told, gender ideology is removed from schools, kids are not taken to drag shows, and agendas are not being pushed down people’s throats, only then will we be able to recover and prevent these atrocities from happening,” said Rey. The social obsession over gender is doing more harm than good by pressuring individuals to take drastic steps to fit into an identity without considering the implications on their well-being, explained Rey. In 2021, Rey noticed that Hollywood was beginning to push transgenderism, and shortly thereafter, mainstream media followed suit. The craze surrounding gender affirmation is a social trend that according to Rey, is doing irreparable harm with intentional coercion tactics to exploit vulnerable people. Anyone calling them out is referred to as “transphobic,” including Rey, who embraced transgenderism. Rey believes this radical pressure is driving the high transgender mortality rate. “There’s this cult-like mentality to be a victim and romanticize this ideology, it sets you up for failure. The only way for people to really help is by telling the truth. The lies are causing a lot of harm to actual trans people,” said Rey. “The radicals are forcing their beliefs on everyone else so that public tolerance is dwindling and people with actual gender dysphoria are not getting the help they need.” The Unseen Side of Transitioning “Would you rather have a living daughter or a dead son?” This fearmongering phrase is commonly used to manipulate parents into supporting their child’s “gender-affirming care.” In Rey’s experience, “gender-affirming care” is sold as the only solution to improve the mental health of individuals struggling with gender dysphoria. Yet “gender-affirming care” can exacerbate mental health problems rather than improve them. “When the facade goes away and you see that you can’t really be the opposite sex, it begins to wear on you. It sets you up for a lot of disappointment,” said Rey. Read more here... Tyler Durden Wed, 07/05/2023 - 23:40.....»»

Category: blogSource: zerohedgeJul 6th, 2023

Fed"s Waller Drops Bombshell: "Climate Change Risks Not Material To US"

Fed's Waller Drops Bombshell: 'Climate Change Risks Not Material To US' This will not go down well with the climate alarmists and ESG grifters... No lesser mortal than Fed Governor Christopher Waller has dared to proclaim that climate change does not pose such "significantly unique or material" financial stability risks that the Federal Reserve should treat it separately in its supervision of the financial system. "Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States," Waller said in remarks prepared for delivery to an economic conference in Spain. "Risks are risks ... My job is to make sure that the financial system is resilient to a range of risks. And I believe risks posed by climate change are not sufficiently unique or material to merit special treatment." His comments echo Chair Powell's more conservative attitude towards The Fed's responsibility for climate issues than its counterparts in Europe, who previously said that the U.S. central bank was not a climate policymaker and would not steer capital or investment away from the fossil fuel industry, for example. So presumably this means The Fed does not believe the world will end within a decade in a devastating flood and fireball? Read Waller's full (carefully and diplomatically worded) statement below: (emphasis ours) Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States. Risks are risks. There is no need for us to focus on one set of risks in a way that crowds out our focus on others. My job is to make sure that the financial system is resilient to a range of risks. And I believe risks posed by climate change are not sufficiently unique or material to merit special treatment relative to others. Nevertheless, I think it's important to continue doing high-quality academic research regarding the role that climate plays in economic outcomes, such as the work presented at today's conference. In what follows, I want to be careful not to conflate my views on climate change itself with my views on how we should deal with financial risks associated with climate change. I believe the scientific community has rigorously established that our climate is changing. But my role is not to be a climate policymaker. Consistent with the Fed's mandates, I must focus on financial risks, and the questions I'm exploring today are about whether the financial risks associated with climate change are different enough from other financial stability risks to merit special treatment. But before getting to those questions, I'd like to briefly explain how we think about financial stability at the Federal Reserve. Financial stability is at the core of the Federal Reserve and our mission. The Federal Reserve was created in 1913, following the Banking Panic of 1907, with the goal of promoting financial stability and avoiding banking panics. Responsibilities have evolved over the years. In the aftermath of the 2007-09 financial crisis, Congress assigned the Fed additional responsibilities related to promoting financial stability, and the Board of Governors significantly increased the resources dedicated to that purpose. Events in recent years, including the pandemic, emerging geopolitical risks, and recent stress in the banking sector have only highlighted the important role central banks have in understanding and addressing financial stability risks. The Federal Reserve's goal in financial stability is to help ensure that financial institutions and financial markets remain able to provide critical services to households and businesses so that they can continue to support a well-functioning economy through the business cycle. Much of how we think about and monitor financial stability at the Federal Reserve is informed by our understanding of how shocks can propagate across financial markets and affect the economy. Economists have studied the role of debt in the macroeconomy dating all the way back to Irving Fisher in the 1930s, and in the past 40 years it has been well established that financial disruptions can reduce the efficiency of credit allocation and have real effects on the broader economy. When borrowers' financial conditions deteriorate, lenders tend to charge higher rates on loans. That, in turn, can lead to less overall lending and negatively affect the broader economy. And in the wake of the 2007-09 financial crisis, we've learned more about the important roles credit growth and asset price growth play in "boom-bust" cycles. Fundamentally, financial stress emerges when someone is owed something and doesn't get paid back or becomes worried they won't be paid back. If I take out a loan from you and can't repay it, you take a loss. Similarly, if I take out a mortgage from a bank and I can't repay it, the bank could take a loss. And if the bank hasn't built sufficient ability to absorb those losses, it may not be able to pay its depositors back. These dynamics can have knock-on effects on asset prices. For example, when people default on their home mortgage loans, banks foreclose and seek to sell the homes, often at steep discounts. Those foreclosure sales can have contagion effects on nearby house prices. When a lot of households and businesses take such losses around the same time, it can have real effects on the economy as consumption and investment spending take a hit and overall trust in financial institutions wanes. The same process works when market participants fear they won't be paid back or be able to sell their assets. Those fears themselves can drive instability. The implication is that risks to financial stability have a couple of features. First, the risks must have relatively near-term effects, such that the risk manifesting could result in outstanding contracts being breached. Second, the risks must be material enough to create losses large enough to affect the real economy. These insights about vulnerabilities across the financial system inform how we think about monitoring financial stability at the Federal Reserve. We identify risks and prioritize resources around those that are most threatening to the U.S. financial system. We distinguish between shocks, which are inherently difficult to predict, and vulnerabilities of the financial system, which can be monitored through the ebb and flow of the economic cycle. If you think about it, there is a huge set of shocks that could hit at any given time. Some of those shocks do hit, but most do not. Our approach promotes general resiliency, recognizing that we can't predict, prioritize, and tailor specific policy around each and every shock that could occur. Instead, we focus on monitoring broad groups of vulnerabilities, such as overvalued assets, liquidity risk in the financial system, and the amount of debt held by households and businesses, including banks. This approach implies that we are somewhat agnostic to the particular sources of shocks that may hit the economy at any point in time. Risks are risks, and from a policymaking perspective, the source of a particular shock isn't as important as building a financial system that is resilient to the range of risks we face. For example, it is plausible that shocks could stem from things ranging from increasing dependence on computer systems and digital technologies to a shrinking labor force to geopolitical risk. Our focus on fundamental vulnerabilities like asset overvaluation, excessive leverage, and liquidity risk in part reflects our humility about our ability to identify the probabilities of each and every potential shock to our system in real time. Let me provide a tangible example from our capital stress test for the largest banks. We use that stress test to ensure banks have sufficient capital to withstand the types of severe credit-driven recessions we've experienced in the United States since World War II. We use a design framework for the hypothetical scenarios that results in sharp declines in asset prices coupled with a steep rise in the unemployment rate, but we don't detail the specific shocks that cause the recession because it isn't necessary. What is important is that banks have enough capital to absorb losses associated with those highly adverse conditions. And the losses implied by a scenario like that are huge: last year's scenario resulted in hypothetical losses of more than $600 billion for the largest banks. This resulted in a decline in their aggregate common equity capital ratio from 12.4 percent to 9.7 percent, which is still more than double the minimum requirement. That brings us back to my original question: Are the financial risks stemming from climate change somehow different or more material such that we should give them special treatment? Or should our focus remain on monitoring and mitigating general financial system vulnerabilities, which can be affected by climate change over the long-term just like any number of other sources of risk? Before I answer, let me offer some definitions to make sure we're all talking about the same things. Climate-related financial risks are generally separated into two groups: physical risks and transition risks. Physical risks include the potential higher frequency and severity of acute events, such as fires, heatwaves, and hurricanes, as well as slower moving events like rising sea levels. Transition risks refer to those risks associated with an economy and society in transition to one that produces less greenhouse gases. These can owe to government policy changes, changes in consumer preferences, and technology transitions. The question is not whether these risks could result in losses for individuals or companies. The question is whether these risks are unique enough to merit special treatment in our financial stability framework. Let's start with physical risks. Unfortunately, like every year, it is possible we will experience forest fires, hurricanes, and other natural disasters in the coming months. These events, of course, are devastating to local communities. But they are not material enough to pose an outsized risk to the overall U.S. economy. Broadly speaking, physical risks could affect the financial system through two related channels. First, physical risks can have a direct impact on property values. Hurricanes, fires, and rising sea levels can all drive down the values of properties. That in turn could put stress on financial institutions that lend against those properties, which could lead them to curb their lending, and suppress economic growth. The losses that individual property owners can realize might be devastating, but evidence I've seen so far suggests that these sorts of events don't have much of an effect on bank performance. That may be in part attributable to banks and other investors effectively pricing physical risks from climate change into loan contracts. For example, recently researchers have found that heat stress—a climate physical risk that is likely to affect the economy—has been priced into bond spreads and stock returns since around 2013. In addition, while it is difficult to isolate the effects of weather events on the broader economy, there is evidence to suggest severe weather events like hurricanes do not likely have an outsized effect on growth rates in countries like the United States. Over time, it is possible some of these physical risks could contribute to an exodus of people from certain cities or regions. For example, some worry that rising sea levels could significantly change coastal regions. While the cause may be different, the experience of broad property value declines is not a new one. We have had entire American cities that have experienced significant declines in population and property values over time. Take, for example, Detroit. In 1950, Detroit was the fifth largest city in the United States, but now it isn't even in the top 20, after losing two-thirds of its population. I'm thrilled to see that Detroit has made a comeback in recent years, but the relocation of the automobile industry took a serious toll on the city and its people. Yet the decline in Detroit's population, and commensurate decline in property values, did not pose a financial stability risk to the United States. What makes the potential future risk of a population decline in coastal cities different? Second, and a more compelling concern, is the notion that property value declines could occur more-or-less instantaneously and on a large scale when, say, property insurers leave a region en masse. That sort of rapid decline in property values, which serve as collateral on loans, could certainly result in losses for banks and other financial intermediaries. But there is a growing body of literature that suggests economic agents are already adjusting behavior to account for risks associated with climate change. That should mitigate the risk of these potential "Minsky moments." For the sake of argument though, suppose a great repricing does occur; would those losses be big enough to spill over into the broader financial system? Just as a point of comparison, let's turn back to the stress tests I mentioned earlier. Each year the Federal Reserve stresses the largest banks against a hypothetical severe macroeconomic scenario. The stress tests don't cover all risks, of course, but that scenario typically assumes broad real estate price declines of more than 25 percent across the United States. In last year's stress test, the largest banks were able to absorb nearly $100 billion in losses on loans collateralized by real estate, in addition to another half a trillion dollars of losses on other positions. What about transition risks? Transition risks are generally neither near-term nor likely to be material given their slow-moving nature and the ability of economic agents to price transition costs into contracts. There seems to be a consensus that orderly transitions will not pose a risk to financial stability. In that case, changes would be gradual and predictable. Households and businesses are generally well prepared to adjust to slow-moving and predicable changes. As are banks. For example, if banks know that certain industries will gradually become less profitable or assets pledged as collateral will become stranded, they will account for that in their loan pricing, loan duration, and risk assessments. And, because assets held by banks in the United States reprice in less than five years on average, there is ample time to adjust to all but the most abrupt of transitions. But what if the transition is disorderly? One argument is that uncertainty associated with a disorderly transition will make it difficult for households and businesses to plan. It is certainly plausible that there could be swings in policy, and those swings could lead to changes in earnings expectations for companies, property values, and the value of commodities. But policy development is often disorderly and subject to the uncertainty of changing economic realities. In the United States, we have a long history of sweeping policy changes ranging from revisions to the tax code to things like changes in healthcare coverage and environmental policies. While these policy changes can certainly affect the composition of industries, the connection to broader financial stability is far less clear. And when policies are found to have large and damaging consequences, policymakers always have, and frequently make use of, the option to adjust course to limit those disruptions. There are also concerns that technology development associated with climate change will be disorderly. Much technology development is disorderly. That is why innovators are often referred to as "disruptors." So, what makes climate-related innovations more disruptive or less predictable than other innovations? Like the innovations of the automobile and the cell phone, I'd expect those stemming from the development of cleaner fuels and more efficient machines to be welfare-increasing on net. So where does that leave us? I don't see a need for special treatment for climate-related risks in our financial stability monitoring and policies. As policymakers, we must balance the broad set of risks we face, and we have a responsibility to prioritize using evidence and analysis. Based on what I've seen so far, I believe that placing an outsized focus on climate-related risks is not needed, and the Federal Reserve should focus on more near-term and material risks in keeping with our mandate. *  *  * And cue the outrage mob... Tyler Durden Fri, 05/12/2023 - 06:55.....»»

Category: smallbizSource: nytMay 12th, 2023

Banking "cancer" may be spreading as otherwise healthy firms seem vulnerable and credit gets pulled from the economy, Mohamed El-Erian says

"The cancer within them is starting to spread, and we've got to keep an eye on that," economist Mohamed El-Erian said this week. Photo by Rob Kim/Getty Images Banking sector "cancer" is starting to spread, Mohamed El-Erian said. Other regional lenders have shown signs of weakness after First Republic Bank failed this week. Widespread contagion would turn the banking situation into a true crisis, El-Erian warned. Weakness within the banking system is starting to spread, as otherwise healthy firms are now vulnerable to the fallout stemming from multiple failed banks, and as credit availability contracts throughout the economy, according to famed economist Mohamed El-Erian.In an interview with Bloomberg on Thursday, El-Erian pointed to the recent bout of banking volatility, with First Republic Bank reigniting fears after it collapsed and was bought by JPMorgan on Monday. That marks the third bank failure in two months – a consequence of the Fed's aggressive tightening cycle, poor financial supervision, and bad management, El-Erian said."Now we have stage 2, where banks that are not particularly badly managed  – they have issues but they're not particularly badly managed – are suddenly vulnerable," El-Erian warned, pointing to regional lenders that have been struggling since First Republic's failure this week. "The cancer within them is starting to spread, and we've got to keep an eye on that," he added.Credit conditions are also beginning to tighten, and the risks of further contraction go up as banking contagion spreads.If banking issues spur widespread financial contagion, the US would be in a true banking crisis, El-Erian said.That makes critical for regulators to contain the stress, he noted, adding that the US could also take steps to reform its federal deposit insurance. Read the original article on Business Insider.....»»

Category: dealsSource: nytMay 5th, 2023

Futures Rise Ahead Of Payrolls To End Week Of Bank Turmoil

Futures Rise Ahead Of Payrolls To End Week Of Bank Turmoil US futures entered the last day of a brutal week in the green ahead of key US jobs data, as regional banks clawed back some of their recent selloff, even as the S&P 500 benchmark was still poised for its worst weekly performance in almost two months. The S&P 500 contracts climbed 0.7% as of 7:30 a.m. ET while Nasdaq 100 futures gained 0.6%. European stocks were higher but on pace for their biggest weekly drop in 7 weeks. Treasury yields are ticking higher amid a more risk-on day, while the dollar is still weakening on recession risks and a potential pause in interest rate hikes. Oil is staging a rebound, though is still set for the worst week since mid-March, continuing its third weekly decline. Meanwhile, gold is headed for its biggest weekly advance since the middle of March, up around 2% this week, as traders look for havens. Iron ore slides, while copper is little changed.    In premarket trading, distressed bank PacWest added 13% in US premarket trading, after it slumped 69% in the previous four sessions amid concerns that the collapse of First Republic Bank may not be the last in the troubled industry. Western Alliance Bancorp also rose 12% in premarket trading, having wiped out 51% of its market value earlier this week. While some investors have warned of further pain to come, others have suggested the bank rout has gone too far. “The tension between poor market sentiment and strong liquidity at regional banks is difficult to reconcile,” said Bloomberg Intelligence analyst Herman Chan. Apple rose as much as 2.5% after it reported better-than-expected revenue on robust iPhone sales, raised its dividend and expanded its buyback program. Coinbase and dating app Bumble were also among the best performers on Friday. Here are some other notable premarket movers: Atlassian falls as much as 16% in premarket trading after the software company forecast revenue for the fourth quarter that missed the average estimate. Analysts noted that a steep deceleration at its cloud business and the weak current-quarter forecast offset better-than-expected 3Q results. Carvana shares surge as much as 37% in US premarket trading, and are set for their biggest one-day gain in three months after the online second- hand-car retailer’s earnings beat estimates and it predicted a return to profitability in the second quarter. Analysts raised their price targets, positive on the company’s cost-cutting efforts even as challenges remain. Lyft slumped as much as 17% in premarket trading after the company forecast revenue for the second quarter that trailed the average analyst estimate. New CEO David Risher faces several challenges as he attempts to turn around the struggling ride-hailing company. Trupanion tumbled 48% in premarket trading, on course for its biggest-ever drop, after the pet-health insurer reported a first-quarter loss per share that was more than twice the average analyst estimate. Analysts note that price increases at vets during the quarter deepened losses. DoorDash shares rose as much as 5.1% in premarket trading, after the food-delivery company beat estimates, driven by strong demand for deliveries despite higher prices and a cloudy economic outlook. Bill Holdings Inc. shares climbed 15% in extended trading, after the financial software company raised its full-year forecast. Analysts are positive on the report. While banking jitters will remain front and center, the focus on Friday shifts to the US jobs report (full preview here) and speculation that the Federal Reserve might start lowering interest rates in response to tighter credit conditions. Swap contracts are now showing around one-in-two odds of a cut as soon as July. Economists forecast that employers scaled back hiring in April, adding 185,000 jobs, and that the unemployment rate ticked up slightly from historically low levels last month; risks could be skewed to upside following blowout ADP report that estimated private payrolls rose 296k in April (vs. consensus 150k). Gordon Shannon, portfolio manager at TwentyFour Asset Management, predicts a jobs print below 150,000. “That’s going to cause a rally in risk assets as that further feeds into the idea that Powell is data-driven and therefore going to pivot soon,” he said in an interview with Bloomberg Television. Following two months of gains, the S&P 500 kicked off May with a drop as investors fret over rising recession risks and the regional banking crisis. At the same time, swap traders are betting that the Federal Reserve is likely to reverse this week’s quarter-point interest-rate increase by July in response to tightening credit conditions. The Fed tightening pause, combined with signs of a slowing inflation and cooling labor market suggest the US might avoid a recession after all, according to Aneka Beneby, a senior portfolio manager at Julius Baer. “I think equities are going to keep climbing the wall of worry because of the lack of a recession this year,” she said on Bloomberg TV. “The sectors that we like are tech, and those mega cap stocks show that they’ve been quite resilient. We also like healthcare, which is still quite cheap.” While the Fed may have signaled this week its willingness to pause rate hikes, BofA's Michael Hartnett said it’s not yet time to buy equities as outflows accelerate amid elevated inflation and recession fears. Redemptions from global stock funds reached $6.6 billion in the week through May 3 — the most in more than two months, according to a note from the bank citing EPFR Global data. A “new structural bull market requires big Fed easing,” which in turn needs a “big recession,” Hartnett said. To protect themselves against that threat of a downturn, investors are likely to favor gold and technology stocks as those bets are expected to provide a buffer, strategists at JPMorgan Chase & Co. said. “The US banking crisis has increased the demand for gold as a proxy for lower real rates as well as a hedge against a ‘catastrophic scenario,’” strategists including Nikolaos Panigirtzoglou and Mika Inkinen wrote in a note. In geopolitics, the Pentagon is seeking a meeting between US Defense Secretary Lloyd Austin and his Chinese counterpart Li Shangfu in Singapore next month, in a renewed effort by the Biden administration to restart lines of communication with China’s military leaders. If Beijing accepts, this would represent the most senior in-person meeting between the two sides since an alleged Chinese spy balloon transited the US in February and sent relations to a new low. China has rebuffed multiple requests for a phone call with Austin or the chairman of the joint chiefs of staff, General Mark Milley, since then. A long-anticipated call between US President Joe Biden and China’s President Xi Jinping has also yet to take place. European stocks are higher although still on course for their largest weekly fall in seven weeks. The Stoxx 600 is up 0.2% led by outperformance in the energy, mining and bank sectors. Adidas shares rise as much as 7.6%, the most intraday since February, after the German sportswear maker reported first quarter results that beat estimates and kept its outlook for the year. IAG shares gain as much as 5.8%, with analysts saying consensus estimates are likely to rise after a very strong first quarter, with the British Airways owner delivering an operating profit in the quarter. Here are some of the other most notable movers: Grifols gains as much as 6.7%  after Citi said it expects the blood plasma producer to report 1Q results at the top end of guidance, while fresh data from Argenx will be a “clearing event” for Grifols Scatec gains as much as 14%, the most since November, after the Norwegian renewables firm beat expectations on operating profit and Ebitda, marking a “good start to the year,” DNB writes Arkema shares climb as much as 3.1% after the France-based chemicals company reported 1Q Ebitda beat. Company confirms full-year 2023 Ebitda guidance, with Citi attributing the beat to core divisions Raiffeisen bounces as much as 4.3% after the Austrian lender’s earnings topped expectations and it raised its guidance, even as analysts flagged that it did not provide any update on its Russia operations Evotec shares fall as much as 10% after the German stock exchange operator said the biotech firm will be removed from the MDAX, HDAX and TecDAX indexes following the delaying of the release of its annual report InterContinental Hotels shares fall as much as 3.1% with analysts saying the net unit growth for the hotel operator in the first quarter was a touch light, as it also announced an unexpected CEO change Moncler falls as much as 2.7% after earnings, with analysts saying the solid print may not be enough to excite given high expectations into the print after a strong season for its luxury rivals Galp shares drop as much as 3.5% after the Portuguese oil company’s first quarter adjusted net income missed the average analyst estimate, with Jefferies highlighting weak operating cash flow Clariant falls as much as 2% after the Swiss chemical company’s 1Q adjusted Ebitda missed estimates, as analysts flag weaker demand and a difficult macroeconomic environment Earlier in the session, Asian stocks advanced for a second day as the dollar continued to weaken, with traders shrugging off concerns over further stress among regional US banks. The MSCI Asia Pacific Index rose as much as 0.4%, led by real estate shares. Some markets in the region, including Japan and South Korea, were shut for holidays. Hong Kong shares outperformed their regional peers. Asian lenders have been resilient amid deepening US banking woes, with a regional financials gauge poised for a 0.8% increase this week. Investors will watch for any potential moves by US authorities to limit further contagion risks. Also helping sentiment were signs that the Federal Reserve may be reversing its policy tightening campaign. The regional stock benchmark headed for a 1.2% increase this week, the first weekly gain in three. US payroll figures due later Friday will give further cues on the strength of the job market and where interest rates are headed.   Mainland Chinese stocks slipped on Friday after latest data showed the pace of expansion in services activity softened in April, adding to jitters about an uneven economic recovery. The surge in tourism spending during the Golden Week holidays did little to offset the surprise weakness in the manufacturing sector and lackluster earnings. Right now sentiment is “frustratingly weak” as the market is looking at economic data “with a glass-half-empty lens,” James Wang, head of China strategy at UBS Investment Bank, told Bloomberg TV. “Investors will be more ‘data-dependent’ going forward, and they are also wondering if they should invest directly through Chinese equities or other asset classes.” Australian stocks gained led by property: the S&P/ASX 200 index rose 0.4% to close at 7,220.00, boosted by real estate and mining shares. Still, the benchmark dropped 1.2% for the week, a third straight loss. The advance comes as investors weighed the prospect of the Federal Reserve reversing its policy-tightening campaign ahead of US jobs data due later Friday. Oil edged higher. In New Zealand, the S&P/NZX 50 index fell 0.7% to 11,889.01. Indian equities were the worst performers in Asia, dragged down by a sharp selloff in top lender HDFC Bank and its mortgage lender parent, which plunged on worries over potential outflows upon completion of their merger. The S&P BSE Sensex fell 1.1% to 61,054.29 in Mumbai, while the NSE Nifty 50 Index declined 1%. For the week, the gauges were little changed. Domestic stocks had largely rallied from their April lows through Thursday as the earnings season progressed, with banks reporting strong profit growth for the March quarter. The gains were also a result of inflows from foreign investors. “The market has rallied sharply in the last one month and such short term corrections would relieve the overbought set-ups and form a base for the next rally,” according to Ruchit Jain, analyst with 5paisa.com said. In FX, a gauge of the dollar fell as much as 0.2% as traders waited for US jobs data due later on Friday for more clues on the Federal Reserve’s interest-rate path. The Swiss franc is the weakest of the G-10 currencies, falling 0.6% versus the Greenback after data showed CPI slowed in April.  “Markets will watch closely the US non-farm payrolls tonight,” Michael Wan, senior currency analyst at MUFG Bank Ltd., wrote in a note. “Any whiff of meaningful labor market softening will be seen as validating the Fed’s recent decision to turn more data dependent and dovish” In rates, treasuries were slightly cheaper across the curve ahead of April jobs report, as stock futures advance and pare portion of Thursday losses. Regional banks are higher in pre-market, while Apple also rose after reporting that sales of iPhones rebounded last quarter. Wider losses seen across core European rates adds to downside pressure on Treasuries. Treasury yields cheaper by 2bp to 3bp across the curve with spreads broadly within one basis point of Thursday close; 10- year yields up to around 3.40%, toward top of Thursday range with bunds and gilts underperforming by 5.5bp and 8bp in the sector.  Bunds have given back some of Thursday’s post-ECB rally with German two-year yields rising 6bps to 2.54%. Treasuries are also lower ahead of the US jobs report due later today. In commodities, crude futures advance with WTI rising 1.4% to trade near $69.50. Spot gold falls 0.6% to $2,039. Bitcoin is firmer and holding steady above the USD 29k, holding towards the top-end of USD 28.7-29.5k. To the day ahead now, and the main data highlight will be the US jobs report for April. Otherwise, we’ll get German factory orders and French industrial production for March. From central banks, we’ll hear from the Fed’s Bullard and Book, along with the ECB’s Simkus and Elderson. Market Snapshot S&P 500 futures up 0.3% to 4,089.50 MXAP up 0.3% to 162.20 MXAPJ up 0.4% to 517.18 Nikkei up 0.1% to 29,157.95 Topix down 0.1% to 2,075.53 Hang Seng Index up 0.5% to 20,049.31 Shanghai Composite down 0.5% to 3,334.50 Sensex down 0.8% to 61,250.67 Australia S&P/ASX 200 up 0.4% to 7,220.01 Kospi little changed at 2,500.94 STOXX Europe 600 little changed at 460.59 German 10Y yield little changed at 2.24% Euro up 0.1% to $1.1026 Brent Futures up 1.1% to $73.32/bbl Gold spot down 0.5% to $2,039.77 U.S. Dollar Index down 0.11% to 101.29 Top Overnight News from Bloomberg China’s Caixin services PMI for April falls a bit short, but holds solidly above 50 (it came in at 56.4, down from 57.8 in Mar and below the Street’s 57 forecast). BBG Australia’s RBA cut its forecasts for inflation, wages, and GDP this year as monetary tightening weighs on the economy. BBG Eurozone retail sales dropped by a bigger than expected 1.2 per cent as inflation and rising borrowing costs took their toll on consumer spending in March. The decline meant retail sales had fallen 0.4 per cent in the first quarter, following a 1 per cent drop in the previous quarter, economists said, as they pointed to a weakness in underlying demand. FT German factory orders fell 10.7 per cent in March from the previous month, a much bigger drop than economists expected, raising concerns about a sharp slowdown in Europe’s biggest economy. The slide in new orders for manufacturers, the biggest since pandemic lockdowns hit in April 2020, reflected declines in all sectors except consumer goods, the federal statistical office said on Friday. FT Rishi Sunak’s Conservatives on Friday faced crushing losses in UK local elections as voters in many parts of England turned against the party after a tumultuous year. FT Adidas shares rally in Europe after the company’s Q1 results reassure investors (numbers came in ahead of plan and mgmt. reaffirmed guidance for the year). RTRS   U.S. federal and state officials are assessing whether "market manipulation" caused the recent volatility in banking shares, a source familiar with the matter said on Thursday, as the White House vowed to monitor "short-selling pressures on healthy banks." RTRS Fed balance sheet data – outstanding balances on the Big 3 categories being watched closely (Primary Credit/Discount Window, Bank Term Funding Program, and Other Credit) totaled $309.2B as of 5/3, down from $325.4B as of 4/26. Fed Activist investor Nelson Peltz told the Financial Times that the deposit insurance limit should be increased, with wealthy account holders paying a small insurance premium to the federal insurance fund to safeguard balances of more than $250,000. FT GIR estimates nonfarm payrolls rose 250k in April (mom sa), above consensus of +182k but a slowdown from the +345k average pace of the last three months. We believe high but falling labor demand more than offset continued layoffs in the information and financial sectors and a roughly 25k hiring drag from reduced credit availability. Big Data employment indicators were strong on net, arguing against a large credit drag. GIR A more detailed market look courtesy of Newsquawk APAC stocks traded mixed after the weak lead from the US where risk sentiment was subdued by banking-related headwinds and amid holiday-thinned conditions in Asia due to closures in Japan and South Korea. ASX 200 was choppy amid indecision in the top-weighted financial industry after ANZ Bank’s earnings which showed H1 cash profit rose to a record although the Co. warned of increased difficulties in H2, while the RBA’s quarterly Statement on Monetary Policy stuck to the hawkish script. Hang Seng and Shanghai Comp. diverged with the Hong Kong benchmark led higher by strength in tech and property stocks, while the mainland is pressured after Chinese Caixin Services and Composite PMI data which showed the pace of China’s services activity slowed by more than expected but remained at a firm expansion. Top Asian News A bipartisan group of US senators introduced legislation that would allow US President Biden to sign a tax agreement with Taiwan and which addresses an issue viewed as a barrier for further investment, according to Bloomberg. RBA Statement on Monetary Policy reiterated to do what is necessary to return inflation to the target and that some further tightening may be required to reach the target in a reasonable timeframe. RBA added that the longer inflation remains above target, the greater the risk of a price-wage spiral, as well as noted that goods disinflation is limited so far and energy price inflation is to stay high this year, while rent growth is to pick up and materially added to inflation out to mid-2025. Earthquake early warning issued for Japan's Ishikawa prefecture, intensity of 6 on Japan's 1-7 scale, prelim magnitude of 6.3 (rev. 6.5), according to JMA; Japan earthquake has shaking intensity of 6+ on scale of 7, according to NHK; No tsunami warning issued. China's State Planner to study a new round of pork purchases for reserves, amid weakening prices.. European bourses are firmer, Euro Stoxx 50 +0.3%, somewhat shrugging off the mixed APAC handover where regional banking concerns served as a headwind in holiday thinned conditions. The DAX 40 +0.7% is the marked outperformer, aided by German electricity adjustments and strong Adidas earnings, +7.8%; sectors are more of a mixed bag, with Energy outperforming while Travel/Healthcare lag. Stateside, futures are firmer and have been edging slightly higher in typically contained pre-NFP trade after yesterday's regional banking induced pressures, ES +0.5%. Alibaba's (BABA) Ant Group's transformation into a fully regulated company has reportedly been held up by a reshuffle of China's financial-regulatory system, according to WSJ sources. Cigna Group (CI) Q1 2023 (USD): Adj. Operating EPS 5.41 (exp. 5.22), Revenue 46.4bln (exp. 45.55bln); raises FY23 outlook. Top European News German Economy Ministry is proposing a industrial electricity price of EUR 0.06/KWh until 2030, would cost EUR 25-30bn. Funding to be taken from fund initial created for COVID. Reduced price would be valid for 80% of base power consumption. Sky News noted it is early days regarding the UK local council election results but suggested there are currently encouraging signs in the data for the opposition Labour Party, whilst Conservative MP Mercer said his party is having a "really terrible night". ECB's Villeroy says the alteration in rate increase rhythm is an important signal, favours smaller ECB hiked. Will likely be several more hikes; though, we have done the essential. Goal is to win the fight against inflation, without sparking a recession. Will bring inflation back to target by 2025 maybe even by end-2024. ECB's Simkus says May's hike was not the last, concerns that core inflation remains high. ECB's Muller says yesterday's rate hike will not be the last; no sign yet of core inflation easing. ECB Survey of Professional Forecasters: 2023 inflation cut to 5.6% from 5.9%, 2023 growth upgraded to 0.6% from 0.2%. FX Hawkish RBA SOMP helps Aussie outperform and probe 200 DMA vs Greenback at 0.6728. Franc deflated after softer than forecast Swiss CPI even though SNB Chief Jordan repeats that further hikes cannot be ruled out given still very high underlying inflation; USD/CHF and EUR/CHF above 0.8900 and 0.9800 respectively Dollar drifting into NFP with DXY keeping afloat to 101.000 within a tight 101.110-370 range. Sterling sets fresh 2023 best beyond 1.2600, Loonie pares losses on 1.3500 handle ahead of Canada's LFS and Euro retains 1.1000+ status amidst more big option expiries, disappointing EZ data and hawkish ECB rhetoric. PBoC set USD/CNY mid-point at 6.9114 vs exp. 6.9128 (prev. 6.9054) Russia's Lavrov says we accumulated billions of IMR in Indian banks and needs to convert them into other currencies. Fixed Income Debt retraces further from post-Fed/ECB peaks as risk appetite recovers ahead of NFP. Bunds also take heed of hawkish-leaning ECB commentary between 136.74-19 bounds. Gilts down in sympathy within a 101.71-23 range and T-note treading water above 116-00 inside tight 116-03/12 band. Commodities Crude benchmarks are firmer, in a continuation of the complex's upward momentum which commenced in Thursday's session; albeit, WTI and Brent are still markedly down on the week. Overall, the complex remains firmly focused on growth concerns and banking-sector woes with broader market action awaiting the upcoming NFP report for the next scheduled catalyst. Spot gold is incrementally lower, in a USD 2038-2053/oz range after a week of marked gains for the yellow metal. Conversely, base metals are predominantly softer as the DXY attempts to lift off worst levels and after the mixed APAC trade. Geopolitics Chinese Foreign Minister Qin, on meeting with Russian Foreign Lavrov, said China will persist in promoting peace talks and is willing to maintain communication and coordination with Russia to make tangible contributions to a political settlement of the Ukraine crisis, according to Reuters. White House said it is not clear right now that China can put forth a peace plan that Ukrainian President Zelenskiy will support, according to MSNBC. White House National Security Adviser Sullivan said we will take the necessary action to ensure Iran does not acquire a nuclear weapon and said the US still wants a diplomatic solution to Iran's nuclear program. Sullivan also commented that he will be in Saudi Arabia this weekend to meet with Saudi leaders and that the US is still working towards the goal of a deal normalising relations between Israel and Saudi Arabia. Reports suggest a drone attack causes fire at Ilsky refinery in Southern Russia, according to Tass. Russia's Foreign Minister Lavrov reiterates we will not say if the drone attack on the Kremlin is a case for war, but we will respond. Russia's Wagner group head Prigozhin says their forces will leave Bakhmut on May 10th, forces have to do this due to a lack of ammunition. US event calendar 08:30: April Change in Nonfarm Payrolls, est. 185,000, prior 236,000 Change in Private Payrolls, est. 160,000, prior 189,000 Change in Manufact. Payrolls, est. -5,000, prior -1,000 Unemployment Rate, est. 3.6%, prior 3.5% Underemployment Rate, prior 6.7% Labor Force Participation Rate, est. 62.6%, prior 62.6% Average Weekly Hours est. 34.4, prior 34.4 Average Hourly Earnings YoY, est. 4.2%, prior 4.2% Average Hourly Earnings MoM, est. 0.3%, prior 0.3% 15:00: March Consumer Credit, est. $17b, prior $15.3b DB's Jim Reid concludes the overnight wrap We have another bank holiday in the UK on Monday, and I'll be going to my first ever street party to help celebrate the Coronation. I've done well to escape one so far in life but my luck has now run out. If something significant breaks in the US regional bank world over the weekend we may still do an EMR on Monday but if not we'll see you on Tuesday. There's no doubt that this is a nervous time for markets as we wait for the next series of resolutions in the US regional banking crisis. Will there be broader deposit guarantees, agreed sales, stressed takeovers or will they manage to organically work their way through their issues? Whatever happens in the next few weeks, the problem is we are not yet in the likely recession where there will be economy-led asset write downs rather than just the mark to market ones, often on high quality bonds, that we have today. The other scary thing is that the attacks are increasingly looking speculative but risk becoming self fulfilling. So it's certainly not just about fundamentals. Regardless, it's going to be a long, bumpy and stressful ride over the next few quarters. Indeed it's a US regional bank headline crossfire at the moment and perhaps the most impressive thing over the last 24 hours was that the S&P 500 only closed -0.72% lower when the KRE regional bank index was down -5.45%. Having said that, the S&P 500 lost ground for a 4th consecutive day for the first time since February, just as the VIX index of volatility closed back above the 20-mark for the first time since March. The wider KBW Banks index (-3.82%) hit another two-and-a-half year low as every member of the index lost ground. In terms of the latest developments, investors have continued to focus on a few specific regional banks, including PacWest Bancorp (-50.62%), Western Alliance Bancorp (-38.45%) and First Horizon (-33.16%). News about them continued to swirl through the day, with the FT reporting that Western Alliance were exploring options, “including a potential sale of all or part of its business”. However, Western Alliance themselves pushed back on this, saying that the story was “absolutely false”. Other banks weren’t immune to the contagion either, with losses for Zions Bancorp (-12.05%), Comerica (-12.28%), Citizens Financial Group (-5.22%) and Truist Financial Corp (-6.83%). Toward the end of the US trading session there were reports that the FDIC was planning to unveil a proposal as soon as next week that would see larger banks bear the majority of cost of refilling the Deposit Insurance Fund, which has been depleted in recent weeks. The reports indicated that banks with fewer than $10bn in assets would be exempt, additionally the size of deposits will also be a qualifying criteria. There was a bit of a recovery in US regionals after the bell with for example Western Alliance up around +9% and this erasing a quarter of its regular session losses. S&P futures are back up +0.38%, with the Nasdaq equivalent +0.48%, helped by Apple beating on earnings overnight. Even in the regular session, the megacap tech stocks were impressively immune from the fallout, with the FANG+ index +0.95%. In terms of details on the Apple beat after the bell, they exceeded forecasts on revenue ($94.8bn vs $92.6bn estimates) even as sales fell 2.5% - which was not as bad as the company guided to. The technology company was trading up +2.5% in after-market trading even as revenues are expected to fall in the current quarter. Otherwise, the Dow Jones (-0.86%) was back in negative YTD territory (-0.06%) before this once again after its latest decline, with the Russell 2000 (-1.18%) index of small-cap stocks closing at a 6-month low. With the turmoil continuing to gather pace, investors moved to price in the growing chance of rate cuts from the Fed over the rest of the year. For instance, the rate priced in by the December meeting came down by -7.2bps on the day to 4.18%, which is its lowest in nearly a month. The July meeting now sees a 52% probability of a rate cut. This all helped drive a move lower in sovereign bond yields, particularly at the front end, where the 2yr Treasury yield fell -1.5bps to 3.790%, which was its lowest level in almost 8 months. In the meantime, the 10yr yield saw a +4.3bps increase to 3.379%, after being down -4.3bps midday. 2s10s is no more than a couple of basis points off it's steepest levels of the last 7 months. Back in Europe, the main news yesterday came from the ECB’s latest policy decision, where they announced a 25bps rate hike that leaves the deposit rate at a post-2008 high of 3.25%, in line with expectations. Although the hike was actually the smallest since their current hiking cycle began last July, there were plenty of hawkish details in the decision. First, they said that they expected to stop the reinvestments under their Asset Purchase Programme as of July. Second, ECB president Lagarde said there were still “significant” upside risks to the inflation outlook. And third, they made clear that there were more rate hikes to come, with Lagarde herself saying “we have more ground to cover and we are not pausing”. See our economists review of the meeting here. They continue to see a terminal of 3.75% with risks skewed towards 4% or even higher. With the ECB striking a hawkish note, markets reacted by fully pricing in a 25bp hike at their next meeting in June. However, sovereign bond yields still fell back across the continent since investors were more concerned about the US banking system, meaning that yields on 10yr bunds (-5.7bps) and OATs (-3.9bps) were down while BTPs (+0.4bps) were just higher than unchanged on the day. It was much the same story for equities too, with the STOXX 600 (-0.47%) losing further ground as STOXX 600 banks (-1.46%) led the declines. Whilst recession fears continued to gather pace in markets, one positive side effect for consumers has been the continued decline in commodity prices. Despite a marginal rise yesterday (+0.11%), the Bloomberg’s Commodity Spot Index hit its lowest level since December 2021 on Wednesday, which will be a positive tailwind on the inflation side over the coming months. In part that was driven by lower oil prices, with Brent crude down -8.80% on the week, despite a marginal rise yesterday (0.24%) to $72.50/bbl, which is a level we also haven’t seen since December 2021. At the same time, European natural gas prices (-2.72%) continued their relentless moves lower of late, with the latest move taking them to just €35.65/MWh, marking their lowest level since July 2021. Looking forward now, the main highlight on today’s calendar will come from the US jobs report for April, which will be an important one for the Fed as they consider whether to pause on rate hikes at their next meeting. Our US economists at DB are looking for nonfarm payrolls to have grown by +150k, which if realised would actually be the slowest monthly growth since December 2020. In turn, that would lift the unemployment rate by a tenth to 3.6%. When it comes to wages, their view is that average hourly earnings growth will remain steady at +0.3%, keeping the annual rate at +4.2%. The release will set us up for the CPI report . Asian equity markets are mixed this morning with the Hang Seng (+0.54%) leading gains alongside the S&P/ASX 200 (+0.30%). Meanwhile the CSI 300 (-0.58%) and the Shanghai Composite (-0.71%) are currently trading in the red. Elsewhere, markets in Japan and South Korea are closed for a holiday. Early morning data showed that China's service activity grew for a fourth straight month in April, continuing its post-Covid recovery, albeit with the Caixin services PMI falling to 56.4 in April from 57.8 in March. Meanwhile, in central bank news, the Reserve Bank of Australia (RBA) in its May statement on monetary policy indicated that it still sees ‘further tightening’ of monetary policy in order to return inflation to target. Here in the UK, we got some more positive data releases yesterday, which comes ahead of the Bank of England’s decision next Thursday. That included mortgage approvals for March, which came in at a 5-month high of 52.0k (vs. 46.0k expected). Furthermore, the final composite PMI for April was revised up a full point from the flash reading to 54.9, which takes it to its highest level in a year. Keep an eye out on the UK political situation as well today, since local election results will be coming through that’ll offer a better sense of how the political parties are performing ahead of the next general election. Early results don't look good for the ruling Conservative Party. To the day ahead now, and the main data highlight will be the US jobs report for April. Otherwise, we’ll get German factory orders and French industrial production for March. From central banks, we’ll hear from the Fed’s Bullard and Book, along with the ECB’s Simkus and Elderson. Tyler Durden Fri, 05/05/2023 - 07:55.....»»

Category: dealsSource: nytMay 5th, 2023

US stocks fall after the Fed hikes rates and bank contagion spreads

More banking fears have surfaced, with shares of PacWest plunging on reports that it is weighing strategic options, including a sale. Traders works on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., March 5, 2020.Andrew Kelly/Reuters US stocks dropped Thursday, a day after the Fed delivered a 10th consecutive interest rate hike.  Fears of further bank stress also emerged on reports that PacWest is weighing strategic options.    Jerome Powell on Wednesday softened some language but did not point to rate cuts on the horizon.   US stocks dropped on Thursday a day after the Federal Reserve delivered its 10th consecutive interest rate hike and as fears of bank contagion continue to swirl. The Fed raised rates by 25 basis-points to move the key level above 5% for the first time in 16 years, and while Jerome Powell softened some of the language around further policy, he maintained that it could still be too early to reverse course."We on the committee have a view that inflation is going to come down not so quickly," he said Wednesday in a press conference. "It will take some time, and in that world, if that forecast is broadly right, it would not be appropriate to cut rates and we won't cut rates."The European Central Bank also raised interest rates by 25 basis-points, with EU policymakers pointing to still-high inflation as reason for tightening. The bank's benchmark rate will move to 3.25% as of May 10. Meanwhile, banking fears are top of mind for investors once again, just days after the sale of First Republic to JPMorgan. After hours on Wednesday, shares of PacWest plunged more than 40% and continued to slide on Thursday on reports the bank is weighing options, including a sale. Initial jobless claims rose in the last week and came in higher than expected, at 242,000 compared to estimates of 240,000. On Friday, markets will get a better read on the strength of the labor market with the April nonfarm payrolls report will release. Economists expect US employers to have added 180,000 jobs last month, down from the 236,000 added in March. Here's where US indexes stood shortly after the 9:30 a.m. opening bell on Thursday: S&P 500: 4,070.78, down 0.49% Dow Jones Industrial Average: 33,221.68, down 0.58% (192.56 points)Nasdaq Composite: 11,974.61, down 0.4%Here's what else is going on: Jeffrey Gundlach says the banking crisis will only end once the Fed starts slashing interest ratesBillionaire Bill Ackman warned that more banks are set to fail unless the FDIC insures all depositsMohamed El-Erian slammed Powell's suggestion that the bank turmoil is over, and said it could be added to a list of communications that eroded its credibilityThe Fed's nod to the end of its rate hiking cycle could mean "last call" for savers, according to BankrateIn commodities, bonds, and crypto: Oil prices climbed, with West Texas Intermediate up 0.15% to $68.70 a barrel. Brent crude, the international benchmark, inched higher 0.46% to $72.69 a barrelGold edged higher 0.45% to $2,046.00 per ounceThe 10-year yield stayed flat at 3.401%Bitcoin moved up 2.06% to $28,913.19Read the original article on Business Insider.....»»

Category: topSource: businessinsiderMay 4th, 2023

4 Top Recession-Proof Stocks That Are Worth a Buy Right Away

Invest in stocks such as Coty (COTY), Church & Dwight (CHD), Hershey (HSY) & Portland General Electric (POR) since demand for their products remains unaffected amid an economic downturn. Federal Reserve Chair Jerome Powell acknowledged in the recently concluded two-day policy meeting that the current banking turmoil in the United States has led to tighter credit conditions, and in all likelihood, may impact economic activities.One of the most prominent lenders for tech start-ups, the Silicon Valley Bank’s fate was doomed following run-on deposits, which in due course curtailed its ability to raise fresh capital. The bank collapsed this month, leading to a contagion effect and the consequent shutting down of other prominent banks, such as Signature Bank and First Republic Bank.While the banking crisis heightened worries about economic growth, the Fed’s tenth interest rate hike in a row in its latest meeting may further dent consumer outlays and undeniably increase the cost of borrowing. The Fed raised interest rates by another 25 basis points, taking the Fed’s funds rate to a range of 5-5.25%. This is, by the way, the highest target range since August 2007.In reality, economic growth in the United States has already started to slow down. In the first three months of this year, economic growth weakened due to the Fed’s aggressive monetary policy and stubbornly high inflation. A decline in inventory investment on an expectation of weaker demand this year, in particular, slowed down economic growth.According to the Commerce Department, gross domestic product (GDP) increased at an annualized pace of 1.1% in the first quarter, less than economists’ expectations of growth of 2%. Let us not forget, GDP had climbed 2.6% in the fourth quarter of last year.What’s more, the Conference Board’s Leading Economic Index (LEI), known as the index of future economic activity, dropped to 108.4 in March from February’s revised reading of 109.7, its 12th successive monthly drop and also the lowest reading since November 2020.Furthermore, a decline in orders of durable goods, a reduction in construction activities, and a freight recession of late all signify that the United States is worryingly close to a recession, something that doesn’t bode well for the stock market.However, some stocks tend to do well amid economic downturns. These stocks are known for being recession-proof and belong to the consumer staples and utilities sectors. This is because the demand for personal care products, food, electricity, gas, and water remains unaltered under any economic situation since they all are essentials.We have, thus, selected four stocks from the aforesaid areas that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum; the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.Coty COTY manufactures, markets and distributes beauty products worldwide. The company, currently, has a Zacks Rank #1 and a VGM Score of B.The Zacks Consensus Estimate for its next-quarter earnings has moved up 33.3% over the past 60 days. COTY’s expected earnings growth rate for the current year is 32.1%.Church & Dwight Co. CHD develops, manufactures, and markets a broad range of household, personal care, and specialty products. The company, currently, has a Zacks Rank #2 and a VGM Score of B.The Zacks Consensus Estimate for its current-year earnings has moved up 0.6% over the past 60 days. CHD’s expected earnings growth rate for the current year is 4.4%.Hershey HSY manufactures pantry items like baking ingredients, toppings, and beverages; gum and mint refreshment products; snack bites and mixes, as well as spreads. The company, currently, has a Zacks Rank #2 and a VGM Score of B.The Zacks Consensus Estimate for its current-year earnings has moved up 0.7% over the past 60 days. HSY’s expected earnings growth rate for the current year is 11%.Portland General Electric POR is a vertically integrated electric utility that serves residential, commercial, and industrial customers in Oregon. The company, currently, has a Zacks Rank #2 and a VGM Score of B.The Zacks Consensus Estimate for its current-year earnings has moved up 3.1% over the past 60 days. POR’s expected earnings growth rate for next year is 13.7%. Top 5 ChatGPT Stocks Revealed Zacks Senior Stock Strategist, Kevin Cook names 5 hand-picked stocks with sky-high growth potential in a brilliant sector of Artificial Intelligence. By 2030, the AI industry is predicted to have an internet and iPhone-scale economic impact of $15.7 Trillion. Today you can invest in the wave of the future, an automation that answers follow-up questions … admits mistakes … challenges incorrect premises … rejects inappropriate requests. As one of the selected companies puts it, “Automation frees people from the mundane so they can accomplish the miraculous.”Download Free ChatGPT Stock Report Right Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Hershey Company (The) (HSY): Free Stock Analysis Report Church & Dwight Co., Inc. (CHD): Free Stock Analysis Report Portland General Electric Company (POR): Free Stock Analysis Report Coty (COTY): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research.....»»

Category: topSource: zacksMay 4th, 2023

Eurizon The Globe: A Slowing Economic Growth And Declining Inflation

The latest issue of ‘The Globe‘, Eurizon monthly publication describing the Company’s investment view. In this issue, a focus is ... Read more The latest issue of ‘The Globe‘, Eurizon monthly publication describing the Company’s investment view. In this issue, a focus is dedicated to “slowly, but not overly so”. Scenario Macro data are signalling a slowdown in economic activity, that retains a positive growth rate nonetheless, both in the US and in the Eurozone. Inflation is falling, mostly due to the decline of raw material prices over the past few months, although core components are still dropping at a slow pace. The inflation easing process is under way, but cannot be considered complete, especially from the central banks’ perspective. Monetary policy expectations, as implied in future contracts on near term rates, point to a 25bps rate hike at the next FOMC in May , followed by a hiatus. The Fed should then start to cut rates in the closing months of the year. For what concerns the ECB, the market is pricing in three 25bps rate hikes at the May, June, and July meetings. Starting in the opening months of 2024, the ECB should also start to cut rates. Compared to mid March, when tensions broke out in the banking sector, market expectations have leaned back towards a soft landing scenario for the economic cycle, rather than a hard landing. However, investor focus remains on the scope of the economic slowdown. While the US and the Eurozone are experiencing an economic slowdown, a reacceleration is confirmed in China , where the scrapping of the “Zero Covid” policy is not replicating the excesses seen in the US and in the Eurozone, that created the conditions for flaring inflation. Macro Economy Economic growth slowing, but still positive, with inflation on the decline but still well above the central bank target rates Monetary market futures are pricing the end of the Fed and ECB monetary restriction cycles between May and July 2023, followed by a hiatus. Asset Allocation The slowdown of the economy, easing inflation, and the forthcoming conclusion of the monetary restriction make the core bond markets appealing. Risk assets offer appealing valuations, but could be confirmed volatile in waiting to assess the scope of the macro slowdown. Fixed Income Overweighting view confirmed on USA and German government bonds, that offer appealing yield to maturity and can provide protection in case of a macro slowdown. Preference confirmed among spread bonds for Investment Grade and Emerging Market bonds, as opposed to lingering uncertainties in the High Yield segment. Neutral position on Italian government bonds. Equity Stock market valuations are at historically appealing levels, but the risk of a sharper than expected macro slowdown could generate volatility. Currencies The lagged inflation cycle in the Eurozone compared to the US may result in the ECB’s monetary restriction proving longer than the Fed’s, supporting the euro against the dollar. Scenario uncertainties and the change at the helm of the Bank of Japan could be supportive factors for the yen. Investment View The baseline scenario points to slowing economic growth and declining inflation, albeit still higher than central bank target rates. In light of the present picture, we confirm our Overweight view on US and German government bonds, and our Neutral stance on stocks and spread bonds, that could continue to prove volatile in waiting to assess the scope of the macro slowdown. Asset Classes Compared Government yields rose back marginally in April, after dropping rapidly as banking sector turbulences broke out in mid March. However, yield to maturity levels are lower than the highs marked at the beginning of March, and US and German yield curves remain inverted. Spreads were little changed in the Eurozone, unaffected by the volatility triggered by banks. Investment Grade, HY, and Emerging Market bond spre ads narrowed back and stock indices recovered, after being impacted by uncertainty in mid March. The downswing of the dollar resumed, back to levels in line with its lows for the year in the 1.10 area. Theme Of The Month: Slowly, But Not Overly So Macro data have generally outlined a slowdown in the past weeks, although economic growth remains positive both in the United States and in the Eurozone. For the time being, therefore expectations have not materialised for negative growth in the opening months of 2023, that could be expected due to the combined effects of the inflation shock and of the rate hikes implemented last year. In fact, over the past few months business confidence indices in the manufacturing sector have weakened considerably, dropping into contraction territory in the US and in the Eurozone, as opposed to a stagnation in China. In addition to reflecting the monetary restriction, the moderation of economic activity is also a result of the post-reopening excesses recorded since 2021 being reabsorbed. On the other hand, business confidence indices for the services sector, that offer a presentation of the dynamic of domestic demand in the various regions, remain in sustained positive growth territory in the Eurozone and China. This resilience is benefiting from several supportive elements: the still positive impact of fiscal policy, the good state of health of the labour market, the reactivity of consumers to declining inflation and, in China, post-Covid reopenings. The scope of the economic slowdown will be the main focus theme in the coming months, also considering that inflation remains above the central banks’ target rates, and will prompt them to carry on with the monetary restriction. In the United States, the fall of inflation is evident in the headline index, down in year-onyear terms from 9.1% last June to 5% in March this year. Headline inflation has now dropped below core inflation, still at 5.6%, confirming its decline at a very slow pace, also due to still strong final demand. Compared to the United States, the inflation cycle is a few months behind in the Eurozone, although here as well the reversal of headline inflation is evident in annual terms: after peaking in October last year at 10.6%, it dropped to 6.9% in March. In the Eurozone, however, core inflation has not yet formally peaked, and rose by 5.7% y/y in March. Going forward, housing-related cost items will be monitored in the US, after the initial signals a moderation shown in the past month; if confirmed, these signals could help core inflation drop more at a faster pace. In the Eurozone, the core inflation peak should not be far off, considering that headline inflation has now been on the decline for almost six months. However, the Central Banks are unlikely to reverse the course of monetary policy until they see a consolidation of the downswing of inflation, especially considering how effective they have been in preventing a system-wide contagion of banking sector turbulences. Since banking sector broke out in mid-March, market expectations have been revised in a less pessimistic direction for the economic cycle, to include a higher terminal rate for the monetary restriction cycle, and postponing the start of the downswing of rates. The Fed is now expected to hike rates by a further 25bps basis points to 5%-5.25%, and then to stay on hold until the autumn. The ECB should hike rates by a further 75 basis points by the end of July, targeting a deposit rate of 3.75%. In effect, in light of the stabilisation of the banking sector, market expectations have leaned back towards a soft-landing scenario for the economic cycle, rather than a hard landing. Government bond rates have risen back, while staying below March highs, with a still negative curve slope. The short and intermediate segments offer attractive coupon rates (carry), whereas the longer maturities offer ample margin of protection in case of a hard landing of the economy. As concerns over the stability of the banking sector and the resilience of economic growth eased, risk assets recovered, although stocks and spreads failed to mark new highs and new lows for the year respectively. On the other hand, the volatility of stocks dropped to a new relative low, at levels in line with the end of 2021, before the Fed’s restrictive turn. This is an important indication that seems to reflect expectations for a soft landing of the global economy among investors in stocks. This inclination could prove to be slightly premature, considering that the slowdown of earnings does not seem to have ended, whereas signals of a weakening of the macro picture could intensify in the coming months as a result of the credit squeeze realised, in the US especially, that followed the banking crises in March......»»

Category: blogSource: valuewalkMay 2nd, 2023

Mid Penn Bancorp, Inc. Reports First Quarter Earnings and Declares Dividend

HARRISBURG, Pa., April 28, 2023 (GLOBE NEWSWIRE) -- Mid Penn Bancorp, Inc. (NASDAQ:MPB) ("Mid Penn"), the parent company of Mid Penn Bank (the "Bank") and MPB Financial Services, LLC, today reported net income available to common shareholders ("earnings") for the quarter ended March 31, 2023 of $11.2 million, or $0.71 and $0.70 per common share basic and diluted, respectively. "As our shareholders analyze our first quarter performance, they will find that we grew our loans at an 11.2% (annualized) pace and our deposits at a 10.7% (annualized) pace. Those growth rates would be considered exceptional in any quarter. However, with the failures of Silicon Valley Bank of California, Signature Bank of New York, and the near collapse and continued uncertainty surrounding First Republic Bank of San Francisco—as well as inconsistent rhetoric out of Washington as to which depositors would be covered and who would pay the tab for that coverage—the banking industry was turned upside down almost overnight. The contagion of those three troubled institutions affected just about every other bank in the country in the quality of operating performance and the performance of each company's stock in the market. That was no different for Mid Penn," said President and CEO Rory G. Ritrievi. Mr. Ritrievi added, "Throughout March, our calling team devoted significant time and energy drawing clear distinctions between the risk profile and management of those failed and troubled banks and Mid Penn. Direct customer contact and a six-part video series helped us communicate a strong message to our customers. That message is simple: Mid Penn is safe, sound, strong and resilient and we are confident that our customers' deposits are secure with us. That message resonated very well and catapulted us to even better balance sheet growth metrics for the quarter. I am so very proud of our entire team for the work they put in and the results of that effort." "Our overall performance in the quarter was solid, but we know we can do even better. Our focus throughout the remainder of 2023 will be on continued quality growth in loans and deposits, a laser focus on expense control and a laser focus on asset quality. Nothing new there," Mr. Ritrievi concluded. With the success of the first quarter, the Board announced a quarterly cash dividend of $0.20 per share of common stock which was declared at its meeting on April 26, 2023, payable on May 22, 2023 to shareholders of record as of May 10, 2023. Key Highlights of the First Quarter of 2023 Current liquidity, including borrowing capacity, enhanced to nearly $1.36 billion or 187% of uninsured and uncollateralized deposits, or approximately 35% of total deposits. Deposits grew $99.8 million, or 10.7% (annualized), from the fourth quarter of 2022. Estimated uninsured deposits represented 26.1% of total deposits at March 31, 2023, and 18.7% of total deposits after adjusting for insured/collateralized public funds and contractual deposits. Loan growth was 11.2% (annualized) during the three months ended March 31, 2023 from the fourth quarter of 2022. Non-owner occupied office commercial real estate exposure represents less than 8% of total loan balances and is primarily limited to suburban offices. Total accumulated other comprehensive loss was 4.5% of tangible shareholders' equity(1) at March 31, 2023. Tax equivalent net interest margin changed to 3.49% from 3.80% in the prior quarter and 3.21% in the first quarter of 2022. Resilient profitability: Earnings of $11.2 million; Return on average assets was 1.01%; Return on average equity of 8.91% and return on average tangible common equity (1) of 11.97% for the quarter ended March 31, 2023. Book value per common share was $32.15 for the first quarter, compared to $32.24 for the fourth quarter of 2022, while tangible book value per share(1) was $24.52 at March 31, 2023, compared to $24.59, at December 31, 2022. Net Interest Income and Average Balance Sheet For the three months ended March 31, 2023, net interest income was $36.0 million compared to net interest income of $38.6 million for the three months ended December 31, 2022 and $34.4 million for the three months ended March 31, 2022. The tax-equivalent net interest margin for the three months ended March 31, 2023 was 3.49% compared to 3.80% for the fourth quarter of 2022 and 3.21% for the first quarter of 2022, a 31 basis point(s) ("bp(s)") decrease and a 28 bp increase, respectively, compared to the prior quarter and the same period in 2022. The linked quarter decrease was primarily the result of a 73 bp increase in the rate on interest-bearing liabilities, partially offset by a 26 bp increase in the yield on interest-earning assets. The increase in the rate on interest-bearing liabilities compared to the linked quarter was primarily the result of higher deposit pricing to attract and retain new and existing customers. The increase in the yield on interest-earning assets was primarily driven by the increase of the yield on loans by 26 bps, to 5.24% during the first quarter of 2023. The yield on interest-earning assets increased 135 bps in the first quarter of 2023 compared to the same period of 2022, driven by a 74 bp increase on the yield of investment securities and a 65 bp increase of loan yields. Total average assets were $4.5 billion for the first quarter of 2023, reflecting an increase of $139.7 million, or 3.2%, compared to total average assets of $4.4 billion for the fourth quarter of 2022 and a decrease of $176.0 million, or 3.7%, compared to $4.7 billion for the first quarter of 2022. Total average loans were $3.6 billion for the first quarter of 2023, reflecting an increase of $160.1 million, or 4.7%, compared to total average loans of $3.4 billion in the fourth quarter of 2022, and an increase of $451.9 million, or 14.6%, compared to total average loans of $3.1 billion for the first quarter of 2022. Total average deposits were $3.8 billion for the first quarter of 2023, reflecting an increase of $55.7 million compared to total average deposits in the fourth quarter of 2022, and a decrease of $216.1 million, or 5.4%, compared to total average deposits of $4.0 billion for the first quarter of 2022. The average cost of deposits was 1.29% for the first quarter of 2023, representing a 53 bp and 106 bp increase from the fourth quarter and the first quarter of 2022, respectively. The increases are a result of the rising rate environment and Mid Penn increasing deposit rates to retain existing and attract new deposit customers. Asset Quality On January 1, 2023, Mid Penn adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology, and is referred to as CECL. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loans and HTM debt securities. It also applies to off-balance-sheet ("OBS") credit exposures such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments. (1)   Non-GAAP financial measure. Refer to the calculation on the section titled "Reconciliation of Non-GAAP Measures" at the end of this document. Mid Penn adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, net of investments in leases and OBS credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology. Mid Penn recorded an overall increase of $15.0 million to the allowance for credit losses ("ACL") on January 1, 2023 as a result of the adoption of CECL. Included in the $15.0 million increase to the ACL was $3.1 million for certain OBS credit exposures that are recognized in other liabilities. Retained earnings decreased $11.5 million and deferred tax assets increased by $3.1 million. The provision for credit losses on loans was $490 thousand for the three months ended March 31, 2023, a decrease of $35 thousand and $10 thousand compared to both the provision for credit losses of $525 thousand and $500 thousand for the three months ended December 31, 2022 and for the three months ended March 31, 2022, respectively. Total nonperforming assets were $14.1 million at March 31, 2023, compared to nonperforming assets of $8.6 million and $8.1 million at December 31, 2022 and March 31, 2022. The increase was primarily related to two relationships. One of the relationships has subsequently been paid off in full in April 2023. The second relationship is collateralized in excess of the outstanding loan balances based on a current appraisal of the collateral. The ACL on loans as a percentage of total loans was 0.87% at March 31, 2023, compared to 0.54% at December 31, 2022 and 0.49% at March 31, 2022. The increase in the first quarter of 2023 was primarily due to the impact of the adoption of CECL on January 1, 2023. Capital Shareholders' equity decreased $1.3 million, or 0.26%, from $512.1 million as of December 31, 2022 to $510.8 million as of March 31, 2023. Mid Penn declared $3.2 million in dividends during the first quarter of 2023. Regulatory capital ratios for both Mid Penn and its banking subsidiary indicate regulatory capital levels in excess of the regulatory minimums and the levels necessary for the Bank to be considered "well capitalized" at both March 31, 2023 and December 31, 2022. Noninterest Income For the three months ended March 31, 2023, noninterest income totaled $4.3 million, a decrease of $2.4 million, or 35.6%, compared to noninterest income of $6.7 million for the fourth quarter of 2022, primarily a result of decreases in other income, which included a branch sale in the fourth quarter of 2022. For the three months ended March 31, 2023, noninterest income decreased $1.4 million, or 24.8%, compared to noninterest income of $5.8 million for the first quarter of 2022, primarily driven by lower mortgage hedging income and other income. Noninterest Expense Noninterest expense totaled $26.1 million, an increase of $601 thousand, or 2.4%, for the three months ended March 31, 2023, compared to noninterest expense of $25.5 million for the fourth quarter of 2022. The increase was primarily the result of higher salaries and employee benefits which typically run higher in the first quarter due to payroll taxes resetting and slightly higher medical expenses in the first quarter of 2023 compared to the fourth quarter of 2022. In addition, bank shares taxes were higher in the first quarter of 2023 compared to the fourth quarter of 2022 due to credits that were received during the fourth quarter of 2022, lowering the expense. Compared to the first quarter of 2022, noninterest expense in the first quarter of 2023 increased $325 thousand, or 1.3%, from $25.7 million to $26.1 million primarily as a result of an increase in salaries and employee benefits expense as open positions throughout Mid Penn were filled during 2022. The efficiency ratio(1) was 63.16% in the first quarter of 2023, compared to 54.59% in the fourth quarter of 2022, and 62.12% in the first quarter of 2022. The change in the efficiency ratio during the first quarter 2023 compared to the fourth quarter of 2022 was the result of lower net interest and noninterest income and higher noninterest expenses, while the change compared to the first quarter of 2022 was the result of lower noninterest income and higher noninterest expenses, partially offset by higher net interest income. (1)   Non-GAAP financial measure. Refer to the calculation on the section titled "Reconciliation of Non-GAAP Measures" at the end of this document. Merger & Acquisition Activity On December 20, 2022, Mid Penn announced its entry into an agreement and plan of merger with Brunswick Bancorp ("Brunswick"). The acquisition will result in a meaningful expansion for Mid Penn into the attractive central New Jersey market. Mid Penn will acquire Brunswick in a combination cash and stock transaction valued at approximately $53.9 million (based on Mid Penn's closing stock price of $30.95 for the trading day ending December 19, 2022). On April 25, 2023, Mid Penn and Brunswick issued a joint press release announcing the receipt of all bank regulatory and shareholder approvals required to consummate the merger of Brunswick into Mid Penn. The transaction is expected to close in May 2023. Management considers subsequent events occurring after the balance sheet date for matters which may require adjustment to, or disclosure in, the consolidated financial statements. The review period for subsequent events extends up to and including the filing date of a public company's consolidated financial statements when filed with the Securities and Exchange Commission ("SEC"). Accordingly, the financial information in this announcement is subject to change. The statements are valid only as of the date hereof and Mid Penn disclaims any obligation to update this information. SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This press release, and oral statements made regarding the subjects of this release, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's current views and expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by such forward-looking terminology as "continues," "expect," "look," "believe," "anticipate," "may," "will," "should," "projects," "strategy" or similar statements. Actual results may differ materially from such forward-looking statements, and no reliance should be placed on any forward-looking statement. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to, changes in interest rates, spreads on earning assets and interest-bearing liabilities, and interest rate sensitivity; prepayment speeds, loan originations, credit losses and market values on loans, collateral securing loans, and other assets; sources of liquidity; common shares outstanding; common stock price volatility; fair value of and number of stock-based compensation awards to be issued in future periods; the impact of changes in market values on securities held in Mid Penn's portfolio; legislation affecting the financial services industry as a whole, and Mid Penn and Mid Penn Bank individually or collectively, including tax legislation; results of the regulatory examination and supervision process and oversight, including changes in monetary policy and capital requirements; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies; increasing price and product/service competition by competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the mix of products/services; containing costs and expenses; governmental and public policy changes; protection and validity of intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in large, multi-year contracts; the outcome of future litigation and governmental proceedings, including tax-related examinations and other matters; continued availability of financing; the availability of financial resources in the amounts, at the times and on the terms required to support Mid Penn and Mid Penn Bank's future businesses; material differences in the actual financial results of merger, acquisition and investment activities compared with Mid Penn's initial expectations, including the full realization of anticipated cost savings and revenue enhancements; the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement between Mid Penn and Brunswick; the outcome of any legal proceedings that may be instituted against Mid Penn or Brunswick; delays in completing the transaction; the failure to satisfy any of the other conditions to the transaction on a timely basis or at all; the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where Mid Penn and Brunswick do business; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management's attention from ongoing business operations and opportunities; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction; the ability to complete the transaction and integration of Mid Penn and Brunswick successfully; the dilution caused by Mid Penn's issuance of additional shares of its capital stock in connection with the transaction; and other factors that may affect the future results of Mid Penn and Brunswick. For a more detailed description of these and other factors which would affect our results, please see Mid Penn's filings with the SEC, including those risk factors identified in the "Risk Factors" section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent filings with the SEC. The statements in this press release are made as of the date of this press release, even if subsequently made available by Mid Penn on its website or otherwise. Mid Penn assumes no obligation for updating any such forward-looking statements at any time, except as required by law. SUMMARY FINANCIAL HIGHLIGHTS (Unaudited): (Dollars in thousands, except per share data) Mar. 31,2023   Dec. 31,2022   Sep. 30,2022   Jun. 30,2022   Mar. 31,2022 Ending Balances:                   Investment securities $ 633,831     $ 637,802     $ 644,766     $ 618,184     $ 508,658   Loans, net of unearned interest   3,611,347       3,495,162       3,303,977       3,163,157       3,106,384   Total assets   4,583,465       4,497,954       4,333,903       4,310,163       4,667,174   Total deposits   3,878,081       3,778,331       3,729,596       3,702,587       3,989,037   Shareholders' equity   510,793       512,099       499,105       495,835       494,161   Average Balances:                   Investment securities   636,151       640,792       626,447       580,406       462,648   Loans, net of unearned interest   3,555,375       3,395,308       3,237,587       3,129,334       3,103,469   Total assets   4,520,869       4,381,213       4,339,783       4,465,906       4,696,894   Total deposits   3,782,990       3,727,287       3,726,658       3,837,135       3,999,074   Shareholders' equity   510,857       505,769       502,082       495,681       494,019                         Three Months Ended Income Statement: Mar. 31,2023   Dec. 31,2022   Sep. 30,2022   Jun. 30,2022   Mar. 31,2022 Net interest income $ 36,049     $ 38,577     $ 39,409     $ 35,433     $ 34,414   Provision for credit losses   490       525       1,550       1,725       500   Noninterest income   4,325       6,714       5,963       5,230       5,750   Noninterest expense   26,070       25,468       24,715       23,915       25,745   Income before provision for income taxes   13,814       19,298       19,107       15,023       13,919   Provision for income taxes   2,587       3,579       3,626       2,771       2,565   Net income available to shareholders   11,227       15,719       15,481       12,252       11,354   Net income excluding non-recurring expenses(1)   11,404       15,951       15,481       12,252       11,614                       Per Share:                   Basic earnings per common share $ 0.71     $ 0.99     $ 0.97     $ 0.77     $ 0.71   Diluted earnings per common share   0.70       0.99       0.97       0.77       0.71   Cash dividends declared   0.20       0.20       0.20       0.20       0.20   Book value per common share   32.15       32.24       31.42       31.23       30.96   Tangible book value per common share(1)   24.52       24.59       23.80       23.57       23.31                       Asset Quality:                   Net charge-offs (recoveries) to average loans (annualized)   0.013 %     0.006 %     (0.007 %)     (0.001 %)     (0.007 %) Non-performing loans to total loans   0.38       0.25       0.23       0.25       0.25   Non-performing asset to total loans and other real estate   0.39       0.25       0.23       0.25       0.26   Non-performing asset to total assets   0.31       0.21       0.18       0.19       0.18   ACL on loans to total loans   0.87       0.54       0.56       0.53       0.49   ACL on loans to nonperforming loans   225.71       220.82       242.23       211.66       190.84                       Profitability:                   Return on average assets   1.01 %     1.42 %     1.42 %     1.10 %     0.98 % Return on average equity   8.91       12.33       12.23       9.91       9.32   Return on average tangible common equity(1)   11.97       16.61       16.55       13.59       12.82   Net interest margin   3.49       3.80       3.92       3.45       3.21   Efficiency ratio(1)   63.16       54.59       53.46       57.57       62.12                       Capital Ratios:                   Tier 1 Capital (to Average Assets)(2)   9.2 %     10.7 %     9.6 %     9.0 %     8.4 % Common Tier 1 Capital (to Risk Weighted Assets)(2)   10.8       12.5       11.4       11.5       11.7   Tier 1 Capital (to Risk Weighted Assets)(2)   10.8       12.5       11.7       11.8       12.0   Total Capital (to Risk Weighted Assets)(2)   13.1       14.5       13.8       14.1       14.4   (1)   Non-GAAP financial measure. Refer to the calculation on the section titled "Reconciliation of Non-GAAP Measures" at the end of this document.(2)   Regulatory capital ratios as of March 31, 2023 are preliminary and prior periods are actual.CONSOLIDATED BALANCE SHEETS (Unaudited): (In thousands, except share data) Mar. 31, 2023   Dec. 31, 2022   Sep. 30, 2022   Jun. 30, 2022   Mar. 31, 2022 ASSETS                   Cash and due from banks $ 51,158     $ 53,368     $ 76,018     $ 64,440     $ 54,961   Interest-bearing balances with other financial institutions   4,996       4,405       4,520       4,909       3,187   Federal funds sold   6,017       3,108       14,140       167,437       700,283   Total cash and cash equivalents   62,171       60,881       94,678       236,786       758,431   Investment Securities:                   Held to maturity, at amortized cost   396,784       399,494       402,142       399,032       363,145   Available for sale, at fair value   236,609       237,878       242,195       218,698       145,039   Equity securities available for sale, at fair value   438       430       428       454       474   Loans held for sale   2,677       2,475       5,997       9,574       7,474   Loans, net of unearned interest   3,611,347       3,514,119       3,322,457       3,180,033       3,121,531   Less: Allowance for credit losses   (31,265 )     (18,957 )     (18,480 )     (16,876 )     (15,147 ) Net loans   3,580,082       3,495,162       3,303,977       3,163,157       3,106,384                       Premises and equipment, net   34,191       34,471       33,854       33,732       33,612   Operating lease right of use asset   8,414       8,798       8,352       8,326       8,751   Finance lease right of use asset   2,862       2,907       2,952       2,997       3,042   Cash surrender value of life insurance   50,928       50,674       50,419       50,169       49,907   Restricted investment in bank stocks   8,041       8,315       4,595       4,234       7,637   Accrued interest receivable   19,205       18,405       15,861       12,902       11,584   Deferred income taxes   15,548       13,674       16,093       13,780       11,974   Goodwill   114,231       114,231       113,871       113,835       113,835   Core deposit and other intangibles, net   6,916       7,260       7,215       7,729       8,250   Foreclosed assets held for sale   248       43       49       69       125   Other assets   44,120       42,856       31,225       34,689       37,510   Total Assets $ 4,583,465     $.....»»

Category: earningsSource: benzingaApr 29th, 2023

Oil Soars, Futures Flat After Shock OPEC Output Cut

Oil Soars, Futures Flat After Shock OPEC Output Cut Last week's torried rally in US equities hit the brakes on Monday as investors digested the shocking move by OPEC+ to cut oil production by a total of 1.66  million barrels a day. S&P futures were lower by 0.1% following a 3.5% gain last week, while Nasdaq 100 contracts - which entered a bull market last week - lose 0.6% as Tesla shares fell in the premarket after 1Q deliveries fell short of expectations. Spot gold falls 0.2% to $1,964. Bitcoin rises 0.9%. Brent crude headed for the biggest gain since April 2022 while West Texas Intermediate was poised for the best day since May. The Organization of Petroleum Exporting Countries and allies including Russia pledged on Sunday to make the cuts from next month that will exceed 1 million barrels a day, with Saudi Arabia leading the way with 500,000 barrels. Brent crude futures are up 5.3% at around $84.15, the biggest one-day gain in almost a year, while WTI adds 5.5% to trade near $79.80 lifting energy stocks: Chevron and Exxon Mobil rallied in premarket trading. In other notable premarket moves, Tesla slipped after the electric-carmaker’s first-quarter deliveries fell short of the pace required to meet Elon Musk’s long-held goal of 50% annual growth. World Wrestling Entertainment shares fell after Bloomberg News reported that entertainment conglomerate Endeavor Group Holdings Inc. is near a deal to acquire the wrestling company for about $9 billion. Here are the other notable premarket movers: Apellis Pharmaceuticals (APLS) rose 17% after the biotech firm drew takeover interest from larger drugmakers. The company is speaking to advisers to consider its options amid the interest, according to a Bloomberg News report citing people familiar. Energy stocks rallied in premarket trading as the price of oil jumped following OPEC+’s announcement of a surprise production cut. Chevron (CVX US) +4.4%, Exxon (XOM US) +4.3%, ConocoPhillips (COP US) +5%, Marathon Oil (MRO US) +7%; oil-field services provider Schlumberger (SLB US) +4.6%, Halliburton (HAL US) +4.9%. Intel Corp. (INTC) is upgraded to market perform from underperform at Bernstein, which writes that things may be starting to turn around for the chipmaker. Shares little changed premarket. Micron (MU) shares were set to extend losses after Beijing launched a cybersecurity review of imports from the largest US memory-chip maker, escalating a semiconductor battle between the two countries. Morgan Stanley, however, said there shouldn’t be any near-term impact. Shares of US-listed casino operators that operate in Macau surge in premarket trading, after data showed that the city’s gaming revenue soared 247% in March, buoyed by a return of tourists from mainland China as Covid restrictions ease. Las Vegas Sands (LVS) rises 3.6%, Wynn Resorts (WYNN) +3.3%, MGM Resorts +1%, Melco Resorts gains (MLCO) gains 5%. Monday’s market moves presented a contrast to a consensus view that drove up asset prices at the end of the first quarter, when Treasuries and stocks rallied amid expectations the banking turmoil in rich nations will encourage the Fed to pause interest-rate hikes and opt for a cut later this year. Those bets were now being revised: Money markets raised the probability of a quarter-point interest-rate hike in May to 65% from 55% seen earlier. “The impact of this will feed into inflation data globally and means that inflation may take longer to return to target,” said Mark Dowding, the chief investment officer at BlueBay Asset Management. “This will mean that interest rates, once they peak, will need to stay at higher levels for longer.” Inflation “just doesn’t go away,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “We have a strong labor market, a consumer who can spend, and now oil prices are coming up. It’s increasingly challenging for central banks,” she said in an interview with Bloomberg Television. “Equities are really at risk because inflation fighting is not over. The Fed needs to get aggressive and keep policy tight, and that will crater earnings.” Meanwhile, Morgan Stanley’s Michael Wilson who has become a bearish broken record, warned the rally in tech stocks that has exceeded 20% isn’t sustainable and that the sector will return to new lows. Wilson said the rotation into tech is taking place partly because it’s being viewed as a traditional defensive sector, though he disagrees with that thesis and sees utilities, staples and health care as having the better risk-reward profile. Outside of the energy sector, however, the equity-market sentiment was muted. Europe’s Stoxx 600 index was little changed as 14 0f its 20 subgroups posted losses. Energy stocks outperformed and helped push the major European equity benchmarks higher with the Stoxx 50 rising 0.2% and the FTSE 100 up 0.7%. Here are the notable premarket movers: Siemens Energy rises as much as 6.6% after being rated overweight at Morgan Stanley, which sees significant upside for the gas turbines and wind energy group Burford Capital shares rise as much as 42% in London, after the litigation financing firm got a boost in its bet on a lawsuit involving Argentinian oil company YPF European energy stocks outperform Monday, after an unexpected crude output cut from OPEC+ sent crude futures soaring Hennes & Mauritz shares rise as much as 1.8%, after Credit Suisse upgrades the clothing retailer to neutral from underperform Industrials REIT shares jump as much as 39%, after Blackstone agrees the key financial terms of a final proposal for a possible cash offer at 168p/ share Anglo American fluctuates between gains of 2.1% and 0.6% decline after Barclays upgrades the miner to overweight from equal-weight, citing a pullback in shares Oil tanker company shares extend declines, after a shock OPEC+ output cut sent crude futures soaring as much as 8%, delivering a fresh jolt to the world economy. “We’re now probably about to enter a very short-term down leg again,” Paul Gambles, MBMG Group co-founder and managing partner, said on Bloomberg Television. “We’ve had a year of pretty irresponsible policy guides and all the damage that they’ve done is now starting to show up.” Earlier in the session, Asian stocks dropped as a surprise announcement by OPEC+ to cut crude outputs sparked concerns over further inflation risks.  The MSCI Asia Pacific Index fell as much as 0.4%, dragged by tech stocks. Energy shares were the biggest gainers on the regional gauge. Benchmarks in Japan, mainland China, Australia and Singapore rose while those in South Korea fell. The unexpected production cut by OPEC+ overshadowed Friday’s data that indicated US inflation was cooling, which may cloud outlook on the Fed’s rate hike path. Asian stocks are still relatively well-positioned to weather any shocks compared to other markets due to their high growth potential and as the Fed is seen to near the peak of its hiking cycle, according to strategists.  “Asia ex Japan, the one region where we see growth strong and accelerating this year, should be a relative outperformer,” Morgan Stanley strategist Andrew Sheets said in a report. The bank remains cautious on global equities as “a sharp slowing of a previously strong economy has repeatedly been poor for stocks relative to high grade bonds.”  Asian stocks gained in the past two weeks, rising about 4% from its mid-March low, as concerns over a banking crisis eased. The main Asian stock gauge is still about 5% below its late-January high.  Japanese stocks climbed, as investors looked to cooling US inflation data and as OPEC+ cut its oil production, weakening the yen.  The Topix Index rose 0.7% to 2,017.68 as of market close Tokyo time, while the Nikkei 225 advanced 0.5% to 28,188.15. Toyota Motor contributed the most to the Topix gain, increasing 0.9%. Out of 2,160 stocks in the index, 1,648 rose and 445 fell, while 67 were unchanged. “The PCE seems to have calmed down and is well received in the markets.” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. “Mining and petroleum are rising due to high crude oil prices, but caution is required as it may lead to high resource costs.”  The commodity-heavy Australian market rose with the S&P/ASX 200 index up 0.6% to close at 7,223.00, extending gains for a sixth day, boosted by a rally in energy stocks. Oil shares jumped after OPEC+ announced a surprise oil production cut of more than 1 million barrels a day.  On Tuesday, Australia’s central bank will deliver a rate decision. Economists are divided over whether the Reserve Bank of Australia will raise interest rates for an 11th consecutive meeting or pause its most aggressive tightening cycle since 1989 amid cooling economic momentum. In FX, commodity related currencies also received a boost with the Norwegian krone and Aussie dollar the best performers among the G-10’s while the Canadian dollar climbed to a five-week high versus the greenback. The Bloomberg Dollar Index was up earlier after rising oil prices worsened jitters around US inflation, but later turned negative. In rates, treasuries remained cheaper across the curve after yields gapped higher at the open as oil surged on OPEC+ group’s surprise plan to cut production. US two-year yields have added 8bps to 4.10% as traders bet higher oil prices will have implications for inflation and monetary policy. Monday’s losses unwind a portion of last week’s steep gains into quarter-end.  Yields are higher by 5bp to 3bp across the curve with front-end-led losses flattening 2s10s, 5s30s spreads by ~2bp and ~1bp on the day; 10-year around 3.50% underperforms bunds and gilts by 1.5bp and 2bp in the sector.  Money markets raised the odds on a quarter-point interest-rate hike from the Federal Reserve in May to 65% from 55%, while a half-point of subsequent easing remained priced by year-end. In commodities, oil prices are sharply higher following the surprise move by OPEC+ to cut production. Brent crude futures are up 5.3% at around $84.15 while WTI adds 5.5% to trade near $79.80. WTI crude futures pared an 8% earlier advance to around 6%, while Fed rate-hike premium has increased slightly for the May policy announcement. Looking at today's calendar, US economic data slate includes March S&P Global US manufacturing PMI (9:45am), February construction spending and March ISM manufacturing (10am); week also includes durable goods orders, JOLTS, ISM services and March. Market Snapshot S&P 500 futures down 0.2% to 4,128.00 MXAP little changed at 161.99 MXAPJ down 0.3% to 522.58 Nikkei up 0.5% to 28,188.15 Topix up 0.7% to 2,017.68 Hang Seng Index little changed at 20,409.18 Shanghai Composite up 0.7% to 3,296.40 Sensex down 0.1% to 58,924.87 Australia S&P/ASX 200 up 0.6% to 7,223.02 Kospi down 0.2% to 2,472.34 STOXX Europe 600 little changed at 458.01 German 10Y yield little changed at 2.36% Euro little changed at $1.0838 Brent Futures up 5.2% to $84.07/bbl Gold spot down 0.3% to $1,963.28 U.S. Dollar Index up 0.20% to 102.72 Top overnight News  The China reopening effect that’s been highly anticipated — and at times, perhaps dangerously so — around the world is starting to emerge. Some promising readings in the forward-looking purchasing managers’ indexes show that factory managers are seeing a healthy flow of orders ahead, and putting the quirks of the Lunar New Year season behind them. BBG Macau’s casinos had their best month since the earliest days of the pandemic, with gaming revenue surging 247% in March after Chinese tourists flocked to the gambling hub as the end of Covid Zero sparks a travel boom. BBG China’s biggest banks say they have escaped unscathed from the financial crisis in the US and Europe, following the collapse of Silicon Valley Bank and Credit Suisse. China’s top lenders — Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China — have all reported there was no direct damage to their books from last month’s emergency rescue of Credit Suisse by UBS and failures in the US banking sector. FT Chinese authorities warned the nation’s top banking executives that the crackdown on the $60 trillion industry is far from over in a private meeting late Friday, just as they were about to announce the probe of the most senior state banker in nearly two decades. BBG OPEC+ on Sunday announced a surprise cut to production of >1M BPD, with Saudi Arabia accounting for ~500K of the reduction (while Russia said the previously announced production cut it planned to implement from March to June would continue until the end of 2023). BBG Switzerland's Federal Prosecutor has opened an investigation into the state-backed takeover of Credit Suisse by UBS Group the office of the attorney general said on Sunday. The prosecutor, based in the Swiss capital Bern, is looking into potential breaches of the country's criminal law by government officials, regulators and executives at the two banks, which agreed on an emergency merger last month to avoid a meltdown in the country's financial system. RTRS Banks are still struggling to offload ~$25-30B of “hung” debt related to LBOs, including a large chunk related to Twitter that’s increasingly unattractive. WSJ Donald Trump will plead not guilty when he appears in a Manhattan court tomorrow to face charges related to alleged hush money payments to porn star Stormy Daniels during the 2016 campaign, his lawyer told CNN. His team may also ask to move the case to the more conservative NY borough of Staten Island out of concern he won't get a fair trial. He leaves Mar-a-Lago at noon today. BBG Auto discounts are creeping higher as OEMs work to move inventory amid tightened lending availability owing to Fed rate hikes and March’s regional banking turmoil. FT A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly positive amid strength in the energy sector after oil prices were boosted by a surprise voluntary output cut by OPEC+ members although gains in the broader market were capped heading into this week’s key events and as participants digested a slew of data releases including disappointing Chinese Caixin Manufacturing PMI. ASX 200 was underpinned by the energy-related gains and with money market pricing leaning heavily towards a pause at tomorrow’s RBA meeting, while analysts are near-evenly split between a hike and a pause. Nikkei 225 notched modest gains with upside capped following the mixed Tankan survey in which the large manufacturers’ sentiment index deteriorated for the 5th consecutive quarter and fell to its lowest since December 2020. Hang Seng and Shanghai Comp. were mixed with price action cautious after Chinese Caixin Manufacturing PMI showed activity was flat in March and following a substantial liquidity drain by the PBoC. Top Asian News PBoC called for stronger defences against a financial crisis and said that China should accelerate legislation of the Financial Stability Law, as well as improve other legal arrangements to prevent and dispose of financial risks, according to three central bank officials in PBoC-affiliated publication China Finance. Japanese Foreign Minister Hayashi met with Chinese Foreign Minister Qin and expressed concern regarding the situation in Hong Kong and Xinjiang, while Hayashi raised the issue with Premier Li regarding a detained Japanese national who was trying to promote Japanese investment in China and Hayashi was also reported to have met with Politburo member Wang Yi. Furthermore, Japan urged China to view the Ukraine war from a rule of law perspective and take responsible actions in the UN Security Council, while China pressed Japan to change course on chip export curbs, according to Reuters and FT. US called for joint G7 action against China’s economic bullying, according to Nikkei. US lawmakers are to meet with Taiwanese President Tsai, Apple (AAPL) CEO Cook and Disney (DIS) CEO Iger, according to Bloomberg. Equities are broadly mixed/tentative as markets digest elevated oil prices against the potential inflation/Central Bank implications, Euro Stoxx 50 +0.2%. FTSE 100 +0.7% is the current outperformer given its Energy exposure, with the sector leading the European upside while Travel & Leisure names lag given higher fuel costs. Stateside, futures are softer but similarly tentative with the NQ -0.6% lagging as yields increase ahead of Fed speak and ISM Manufacturing to kick off the shortened week. Switzerland’s Attorney General is to investigate whether the Credit Suisse (CSGN SW) takeover by UBS (UBSN SW) broke Swiss criminal law and is looking into potential breaches by government officials, regulators and bank executives, according to The Guardian. Credit Suisse (CSGN SW) expands its sustainability offering for corporate clients through a new partnership with Act Cleantech Agentur Schweiz, while it was separately reported that UBS (UBS SW) shortlisted four consultants for the Credit Suisse integration and UBS will cut its workforce by between 20%-30% after completing the takeover. Top European News Hundreds of UK travellers faced disruptions for the third day at the Port of Dover as ministers insisted that the cause for the Channel crossing delays was not linked to Brexit, according to FT. ECB’s de Guindos said headline inflation is likely to decline considerably this year but added that underlying inflation dynamics will remain strong, while he noted that feedback between higher profit margins, wages and prices could pose more lasting upside risks to inflation. De Guindos also stated that the ECB is monitoring broad risks across the financial sector and will act to preserve liquidity in the euro area, as well as noted the Euro area banking sector is resilient with strong capital and liquidity conditions although vulnerabilities in the financial system prevail in the non-bank financial sector which grew rapidly and increased its risk-taking during the low interest rate environment, according to Reuters. ECB’s Panetta said there is a lot of discussion on wage growth and that they are probably paying insufficient attention to the other component of income which is profit. BoE Chief Economist Pill says inflation is still much too high. UK banking system is strong, via Le Temps. Italian Economy Minister Giorgetti said forecasts for 2023 are improving and they expect GDP variation in H1 to push overall projections up slightly but warned that higher interest rates intended to curb inflation could pose a threat to growth and said a recession should not be the price paid for fighting inflation via monetary policy, according to Reuters. - Fitch affirmed Germany at AAA; Outlook Stable. French President Macron and European Commission President von der Leyen are to visit China between April 5th-7th, via Chinese Foreign Ministry Finland’s opposition right-wing National Coalition Party is on course to win Sunday’s parliamentary election in a tight race with 48 out of 200 seats and the nationalist Finns Party are set to win 46 seats, while PM Marin’s Social Democrats are on track to win 43 seats. Furthermore, the National Coalition leader Orpo said it was a big win and that they will negotiate to form a new coalition government, according to Reuters. FX The USD derived initial support from the surprise OPEC+ move, pre-JMMC, which sent the DXY to a 103.06 peak as yields climb; however, it has since waned and is now in proximity to 102.50. A pullback which has aided peers with petro-FX outperforming, USD/CAD below 1.35, while AUD outperforms and is back above 0.67 ahead of the RBA. JPY resides at the other end of the spectrum as yield differentials weigh and the Tankan survey provided no support; USD/JPY eclipsed 133.50 from a 132.83 base. GBP and EUR are near unchanged but well off initial lows as the USD's strength wanes, with no real/sustained movement on Central Bank speak or final PMIs. PBoC set USD/CNY mid-point at 6.8805 vs exp. 6.8820 (prev. 6.8717) Fixed Income Bonds are pressured by the OPEC+ action and associated inflation/monetary implications, though the complex has since pared much of the decline. Action which has seen a spike in yields that is more pronounced at the short-end; German and US 10yr yields above 2.35% and 3.53% respectively. Gilts and the EZ periphery have been moving in tandem with the above that has seen USTs pare to downside of less than 10 ticks ahead of Fed speak and ISM Manufacturing. Commodities Crude is bolstered though slightly off best levels after jumping at the resumption of trade following the surprise OPEC+ voluntary production cut. Specifically, WTI and Brent remain at the top-end of USD 81.69-79.00/bbl and USD 86.44-83.50/bbl today's parameters and well above Friday's USD75.72/bbl and USD 79.80/bbl respective bests. In metals, the complex is mostly lower with pressure stemming from the upside in yields and initial USD strength with the yellow metal moving below the USD 1968/oz 10-DMA. OPEC+ members announced voluntary oil output cuts with Saudi Arabia to reduce production by 500k bpd from May until year-end and Russia will also cut by 500k bpd until year-end as a precautionary measure against further market volatility. Furthermore, Iraq is to lower output by 211k bpd, UAE will cut output by 144k bpd, Kuwait will cut 128k bpd and Oman will reduce output by 40k bpd, according to Reuters. It was also separately reported that more OPEC+ member states are expected to announce voluntary cuts, according to Energy Intel’s Bakr. Iraq’s oil exports averaged 3.26mln bpd in March (prev. 3.30mln bpd in Feb.), while it was separately reported that Iraq’s government reached an initial deal with KRG to resume northern oil exports this week, according to Reuters. US National Security Council spokesperson said they do not think OPEC+ production cuts are advisable at this moment given market uncertainty which they have made clear and the Biden administration is focused on prices for US consumers and not barrels, while the Biden administration will continue to work with all producers and consumers to ensure energy markets support economic growth and lower prices for American consumers, according to Reuters. EU Energy Commissioner Simson said the provision proposed by EU countries allowing a halt of Russian and Belarusian LNG imports is not yet law but is broadly supported and a very concrete step, while she added that the agreement on higher EU renewable targets is an ambitious deal and should help member states to upgrade national energy and climate plans, according to Reuters. Russia has reportedly moved to Dubai benchmark in recent Indian oil deal for Urals, according to Reuters sources; Rosneft is to sell oil to India at a discount of USD 8-10/bbl to Dubai quotes, and on a delivered basis. India extended export restrictions on gasoline and diesel as it seeks to ensure the availability of refined fuels for the domestic market, according to Reuters. Geopolitics Ukrainian President Zelensky said the military situation is especially hot around the city of Bakhmut in eastern Ukraine, according to Reuters. Furthermore, Ukraine said its army still holds Bakhmut although the founder of Russia's Wagner Group said the Russian flag was raised over the administration of Bakhmut and that Ukrainian forces remained in western parts of the town. Ukrainian military spokesperson says Bakhmut area is Ukrainian and Russian forecast are very far from capturing it. A well-known Russian military blogger was killed and at least 25 people were injured from a bomb blast in a café in St Petersburg, Russia which was formally owned by Wagner Group head Prighozhin, according to BBC. Russia's ambassador to Belarus said Russian nuclear weapons in Belarus will be moved to the western borders of the country, according to RIA. US Secretary of State Blinken held a call with Russian Foreign Minister Lavrov and discussed the arrest of US reporter Gerskovich who was accused of spying. Blinken conveyed US grave concern over the detention and called for an immediate release, while Russia said the reporter was caught red-handed and his fate will be determined by a court. Lavrov also said it was unacceptable for Washington to politicise the case and whip up a stir, according to Reuters. North Korean leader Kim’s sister said Ukrainian President Zelensky is risking his country and being politically ambitious for wanting nuclear weapons, while she added that Zelensky is wrong to think the US nuclear umbrella could protect Ukraine from Russia, according to KCNA. US think tank said satellite images show an increasing level of activity at North Korea’s main nuclear site and that it may be close to completing a new reactor, according to NBC News. US Joint Chiefs of Staff Chair Milley said on Friday that his understanding and analysis of China is that at least their military, and perhaps others, have come to some sort of conclusion that war with the US is inevitable although he reiterated that he doesn’t believe war is inevitable. Iran claimed it chased off a US spy plane that entered Iranian air space near the Gulf of Oman, according to Tasnim. Large explosions were reported in Syria’s capital Damascus which state media said were caused by a car bomb around the Mezzah military airport area. US Event Calendar 09:45: March S&P Global US Manufacturing PM, est. 49.3, prior 49.3 10:00: Feb. Construction Spending MoM, est. 0%, prior -0.1% 10:00: March ISM Manufacturing, est. 47.5, prior 47.7 March Wards Total Vehicle Sales, est. 14.6m, prior 14.9m DB concludes the overnight wrap This week marks the start of the second quarter of 2023. Before we dive into this week, we want to highlight the release of our regular performance review for Q1. It’s been a tumultuous start to the year in markets, with substantial volatility in March after the collapse of Silicon Valley Bank led to fears about broader contagion across the banking system. However, despite the recent turmoil and the weakness among bank stocks, financial assets more broadly managed to record some strong gains over the quarter as a whole, with advances for equities, credit, sovereign bonds, EM assets and crypto. The only major exception to that pattern were commodities, with oil prices losing ground in every month of Q1 despite a strong rally last week. The full report can be seen here. With the calendar flipping over we also want to highlight our how credit has continued to largely fallow our 2023 playbook. Obviously, we did not expect a banking crisis, which has led to €IG underperforming more than we initially expected. However, our views that Europe's gas premium to the US would recede, that a US recession was not imminent as the monetary policy lag would take longer to play, and that less supply could keep HY & Loans tighter than expected has largely played out. Q1 ended with $IG spreads at 138bps, while $HY spreads were at 455bps. Both levels were within striking distance of our forecast from November; 140bps and 465bps respectively. €IG starts Q2 at 170bps (150bps forecasted), while €HY spreads are up to 481bps (450bps forecasted). Over the weekend, OPEC+ unexpectedly announced an output cut starting in May that will exceed 1 million barrels a day. Russia has agreed to keep production at their current reduced level, while Saudi Arabia will see the largest cuts, slowing production by 500k barrels a day. The White House came out strongly against the move, due to concerns with consumer prices and the inflationary effects of higher fuel costs. It will take some time to see exactly how much this impacts global prices as demand concerns linger, but this is another potential factor exerting upward pressure on inflation after largely being an ameliorating factors this year. As we note above, oil prices fell every month for the last quarter, leading to the worst Q1 performance since 2020 when global shutdowns throttled demand. Brent crude futures are starting this quarter up +5.60% to $84.24/bbl, with WTI futures up +5.58% to $79.89/bbl after both initially were more than 8% higher at the start of trading. Looking ahead to this week, the US jobs report on Friday should be the main focus. It will be the last jobs numbers before the next Fed meeting on May 3rd and markets will be looking for signs of cooling in the labour market after 475bps of tightening from the Fed over the last year. The report follows recent strong nonfarm payrolls beats, hotter-than-expected inflation data, and a 25bps Fed hike despite US regional bank concerns. Our US economists expect nonfarm payrolls to gain +250k (vs +311k in February) and both the unemployment rate and hourly earnings growth to remain unchanged (3.6% and +0.2%, respectively). Prior to the Friday's report, JOLTS (Tuesday) and ADP (Wednesday) data will also be in focus. Today we will get a sense of how global growth evolved over the course of the month with the release of US ISM manufacturing data later on, followed by services on Wednesday. Coupled with the jobs report, whether the ISM indices also show robust growth, especially in components like employment and prices, will be key to assess economy's resilience. Still, factors like the recent banking turmoil may not yet feed through to major economic indicators. Our US economists see both gauges declining from February levels (manufacturing 47.1 vs 47.7 and services 54.4 vs 55.1). In Europe, the key data releases include trade balance (Tuesday), factory orders (Wednesday) and industrial production (Thursday) for Germany, industrial production (Wednesday) and trade balance (Friday) in France as well as retail sales and PMIs for Italy. Our European economists overview what the latest prints on those indicators, among others, say about the European economy here, providing context for this week's readings. Going forward, they underscore the recent banking stress as a new headwind and see risks as being tilted to the downside. The major data points out of Asia include the China Caixin PMI data and Japan Tankan indices which we highlight below along with Japanese labour cash earnings and household spending on Friday. Friday's data are expected to show total cash earnings per worker at 0.9% YoY, up from January's 0.8%, and real household spending down -0.2% MoM vs 2.7% in January. Asian equity markets are trading slightly higher, catching up to the late US rally last week and shrugging off the surprise production cut from OPEC+. As I type, the Nikkei (+0.33%), the KOSPI (+0.28%), the CSI (+0.40%) and the Shanghai Composite (+0.15%) are holding on to their opening gains whilst the Hang Seng (-0.27%) is bucking the regional trend. Outside of Asia, US stock futures are trading in the red with those tied to the S&P 500 (-0.33%) and NASDAQ 100 (-0.73%) edging lower after a spree of positive sessions last week. Meanwhile, yields on the 10yr Treasuries (+4.34bps) have risen to 3.51% with the 2yr Treasury yields jumping +7.85bps to 4.10% as fears over inflation are stoked by rising oil prices. Overnight in Japan, the Tankan manufacturer sentiment index deteriorated to 1.0 in March (3.0 expected; 7.0 last quarter) for its fifth straight quarterly decline and reaching the worst level since December 2020. Meanwhile, the business mood among big non-manufacturers’ improved for a fourth quarter to +20.0 (20.0 expected) from +19.0 in December, as hopes of a recovery in tourism abound after the country reopened its borders. Elsewhere, China’s Caixin manufacturing PMI for March dropped to 50.0 (51.4 expected) from a eight-month high of 51.6 in February, indicating that growth in the nation’s manufacturing sector remains subdued after an initial post-COVID bounce. In FX, the euro is down -0.31% to $1.0805, hovering near a one-week low, while the Japanese yen weakened -0.18% to 133.10 per dollar as we go to press. Now, looking back on last week. On Friday, we had a wave of key economic data, including the key US February Core PCE price index which came in softer than consensus at 0.3% month-on-month (+0.4% expected), down from 0.6%. In year-on-year terms the print was also below expectations, at 5.0% (vs. 5.1% expected). Along the same lines, the University of Michigan’s measure of 1 year inflation expectations came down two tenths to 3.6% (vs 3.8% expected), although 5-to-10-year expectations rose to 2.9% (vs 2.8% expected). We had a similar downside surprise for the March Euro Area CPI release, coming in at 0.9% month-on-month (vs 1.1% expected), and 6.9% year-on-year (vs 7.1% expected), down from 8.5% the previous month.There was little response in the fed futures market following said data releases. The rate priced in for the Fed’s next meeting in May climbed a modest +0.6bps on Friday, and +9.8bps on the week, leaving the market-implied probability of a hike in May at 58%. With the inflation data clearly softer than anticipated, equity markets finished the week well in the green with the S&P 500 rising +3.48% (+1.44% on Friday), extending its rally for a third consecutive day. US banks have continued to recover from their turmoil in mid-March, with the S&P 500 banks climbing a strong +4.50% week-on-week (+0.93% on Friday) and the KBW index, which captures US regional banks, up +4.60% last week (+0.89% Friday). The NASDAQ closed the week up +3.37% (+1.74% on Friday) after a strong performance by the technology sector, locking in its best quarter since 2020. European equity outperformed, as the STOXX 600 climbed +4.03% week-on-week (+0.66% on Friday). Although equities were on the up over last week, there was a large sell-off in weekly terms in fixed income as banking sector jitters subsided and risk-on sentiment prevailed. US 10yr Treasury yields rose +9.2bps (-8.1bps on Friday), their largest up move since the last week of February. The sell-off was greater for 2yrs as yields rose +25.9bps week-on-week (-9.4bps on Friday), the greatest gain since September. This story was echoed in Europe, as 10yr bund yields climbed +16.3bps (-8.4bps on Friday) last week in its largest up move since before Christmas. German 2yr yields fell back -6.6bps on Friday, while jumping +29.0bps week-on-week. Finally in commodities, oil continued rallying on Friday as supply remains constrained as protests in Europe have shut down refineries and an Iraqi-Kurdish-Turkish dispute keeps a key pipeline turned off, with WTI crude (+1.75%) and brent crude (+0.63%) up on Friday to close the week at $75.67/bbl and $79.77/bbl respectively. In week-on-week terms, Brent crude closed up +6.37% and WTI contracts +9.25%. Gas also rallied, as European natural gas futures ended the week up +16.42%, with more than half of these gains occurring on Friday (+9.71%) on reports of cooler weather expected through April and supply risks of their own. Tyler Durden Mon, 04/03/2023 - 08:10.....»»

Category: worldSource: nytApr 3rd, 2023

Futures Flat As Attention Turns To Fed Rate Hikes

Futures Flat As Attention Turns To Fed Rate Hikes US futures are flat with bond yields reversing an overnight drop, lifted by the belly of the curve; the USD weaker for 8 of the past 9 days, and commodities mostly higher as investors shift their focus back to concerns about inflation and potential further monetary tightening from the recent banking-industry chaos; after all, a bank hasn't failed in at least a few days.  WTI has soared 5.6% this week. S&P 500 contracts were little changed as of 7:45 a.m. ET, after earlier gaining as much as 0.4% and closing 0.2% higher on Monday. Nasdaq 100 futures slid 0.2% after the tech-heavy benchmark lost 0.7% on Monday following strong gains over the previous two weeks. European stocks advanced along with Asian equities and the dollar traded lower as fears of broader contagion from the banking turmoil eased. According to JPM, If bank contagion fears subside, we may see a resurgence in both bond yields and commodities as growth, before the banking crises, was stronger than expected led by the US and a reopened China. "However, banking crises typically have wide-ranging, and negative, impacts on growth and employment." Today’s macro data focus includes inventories, housing prices, regional mfg updates, and Consumer Confidence. Keep an eye on the confidence number as that can impact spending. In premarket trading, Alibaba shares soared 9% after the Chinese e-commerce company planned to split into six units that will individually explore IPOs. Shares in fellow Chinese ADRs also rallied. First Republic Bank gained 3.1% adding to a 12% jump on Monday after First Citizens BancShares’s agreement to buy Silicon Valley Bank reassured investors in regional lenders. PVH climbed 12% in premarket as the owner of Calvin Klein and Tommy Hilfiger issued stronger-than-expected earnings forecasts. Lyft rose as much as 5.2% after the ridesharing company appointed David Risher as CEO. Here are some other notable premarket movers: Array Technologies gains 3.7% after Truist Securities raises the solar equipment manufacturer to buy from hold, saying it has made significant progress addressing past challenges related to its product portfolio, execution and margin structure. Carnival Corp. is raised to equal-weight from underweight at Wells Fargo as the cruise operator has low near-term refinancing risk, its business in Europe is holding up well, and its annual Ebitda forecast is reasonable. Its shares gain 1.7% after dropping 4.8% on Monday following its earnings report. Ciena Corp. shares are up 3.2% in premarket trading after Raymond James upgraded the communications equipment company to strong buy from outperform. Occidental Petroleum advances as much as 2.2% after being upgraded to outperform from market perform at Cowen, with the broker saying the oil and gas company stands out for its “superior” exposure to oil pricing, share support, capital structure and differentiated catalyst rich profile. . PVH shares surge 12% after the parent company of Calvin Klein and Tommy Hilfiger issued stronger-than-expected forecasts for revenue growth and reported fourth-quarter earnings per share that beat estimates. Analysts found the company’s performance to be strong, flagging the beat to EPS as well as the strong outlook. . Viking Therapeutics said it plans to initiate a Phase 2 study of VK2735 in patients with obesity in mid-2023 based on Phase 1 trial results. Shares gain 50%. Virgin Orbit fell more than 9.5% after the launch provider placed workers on furlough as it seeks rescue financing or bankruptcy. "For now, it looks like the major stress around the banking crisis is calming down and markets can switch back to monitoring the inflation-recession dynamics," said Marija Veitmane, senior multi-asset strategist at State Street Global Markets in London. As jitters in the banking sector subside, investors are again turning their attention to economic fundamentals and the outlook for Federal Reserve policy. Swaps have meanwhile priced in a more than 50% probability of a rate hike at the next meeting; they continue to expect sharp easing later however, with pricing suggesting the policy rate will slide to around 4.3% in December, down from around 4.95% in May. Not all agree. “We see major central banks moving away from a ‘whatever it takes’ approach, stopping their hikes and entering a more nuanced phase that’s less about a relentless fight against inflation but still one where they can’t cut rates,” strategists at BlackRock Investment Institute, including Wei Li and Alex Brazier, wrote in a note. Hugh Gimber, global market strategist at JPMorgan Asset Management, also doesn’t foresee rate cuts anytime soon, even if hikes pause, and cautions against stock-market optimism on it. “I think the market is right to price a Fed pause,” he said in an interview on Bloomberg TV. “The question here is how big the feed through from a deterioration in lending standards is to really get inflation lower towards target, and I’m not that convinced we will see that very quickly. I think we would need a pretty significant economic shock to get there in 2H. Rate cuts are more of a 2024 story.” European stocks are in the green although they’ve pared gains since the open as investors remain cautious amid risks to the global financial system. The Stoxx 600 has trims gains to 0.2% while Deutsche Bank swings to a ~2% fall from from ~2% rise. Energy, miners and autos are the strongest-performing sectors. Here are the most notable European movers: GSK gains as much as 0.9% after it announced positive results from an endometrial cancer drug trial. Shore Capital describes the published data as “promising” Ocado shares rise as much as 5.7% after the online grocer’s retail joint venture with Marks & Spencer beat sales expectations in the first quarter Zalando shares rise as much as 3.2% as HSBC upgrades the online fashion retailer to buy from hold, saying its momentum is moving in the right direction Marks & Spencer shares gain as much as 3.1% as Credit Suisse hikes its price target, saying the UK retailer’s recovery momentum is building Eurocash jumps as much as 11% after the retailer posted record 4Q Ebitda of 308m zloty and cut debt ratios, seen by analysts as a soothing signal Telecom Italia shares rise as much as 3.4% after Bloomberg reported that Italian state-backed lender CDP plans to raise its offer for the carrier’s landline network Diageo shares slip as much as 0.9% after the British distiller said Ivan Menezes plans to retire as chief executive officer, which analysts say is a loss Embracer shares slump as much as 15%, after the video-game maker said licensing deals with several industry partners are unlikely to be completed before the month ends Norma shares fall as much as 15% as Baader highlights the tech hardware firm’s conservative FY23 margin outlook due to ongoing burdens from efforts to restructure CMC Markets falls as much as 6.3%, adding to a 21% drop Monday when the online trading company released a downbeat earnings update late in the session Schibsted shares drop as much as 9.6% as a weaker short-term guidance for the Norwegian media and classified advertising group offsets higher longer-term targets Synthomer shares drop as much as 19% with Morgan Stanley saying it sees further consensus downgrades ahead for the UK chemicals firm following its FY results Elsewhere in markets, Asian stocks gained as a lull in new developments in the banking sector gave investors a chance to adjust positions and assess whether the Federal Reserve will lower rates to buttress the US economy.  The MSCI Asia Pacific Index rose as much as 0.9%, halting a two-day losing streak. A sub-gauge of financial shares jumped more than 1% as they followed US peers higher. Australia, Japan and South Korea advanced. Hong Kong’s Hang Seng Index gained about 1%, while China’s mainland indexes fluctuated. “Asia still remains relatively well insulated from the latest round of US/European bank turmoil,” Citigroup analysts including Johanna Chua wrote in a note. “Direct exposure of Asia to the affected financial institutions is very limited.” Asia’s regional equity gauge has climbed more than 2% over the past week as US bank shares regained their footing after tumbling last week and fanning fears of a looming economic slowdown. Doubleline Capital’s Jeffrey Gundlach said on CNBC that he expects a US recession to start in a few months, and that the Federal Reserve will need to respond “very dramatically.” Japanese stocks rose for a second day as concerns around financial institutions cooled after First Citizens BancShares Inc. agreed to buy failed Silicon Valley Bank.  The Topix rose 0.2% to close at 1,966.67, while the Nikkei advanced 0.2% to 27,518.25. Sumitomo Mitsui Financial Group contributed the most to the Topix gain, increasing 2.7%. Out of 2,159 stocks in the index, 799 rose and 1,232 fell, while 128 were unchanged. “Overall risk tolerance has increased now that the Silicon Valley Bank situation appears to have calmed down,” said Ryuta Otsuka, strategist at Toyo Securities. “However, it is hard to expect large market moves in Japan as we are approaching the end of the fiscal year.” Australian stocks extended rose with the S&P/ASX 200 index rising 1% to close at 7,034.10, extending gains for a second session, boosted by mining shares and banks. Lithium miners, some of the benchmark’s most shorted names, rallied after Liontown rebuffed a takeover bid from Albemarle.  Equities across Asia climbed, US stock futures edged higher and the dollar declined as fears of broader contagion from the banking turmoil eased. Investors await Australia’s CPI print due Wednesday.  In New Zealand, the S&P/NZX 50 index rose 1.4% to 11,771.27 Stocks in India were mostly lower on Tuesday as key gauges headed for their fourth consecutive monthly decline amid tepid sentiment for global equities.  The S&P BSE Sensex fell 0.1% to 57,613.72 in Mumbai, while the NSE Nifty 50 Index declined 0.2%. The benchmark gauge has slipped about 2.1% this month and is on course for its longest losing monthly streak since Feb. 2016. Software major Infosys contributed the most to the Sensex’s decline, decreasing 0.8%. Out of 30 shares in the Sensex index, 11 rose, while 19 fell. All 10 companies related to the Adani Group fell, led by a 7% plunge in flagship firm Adani Enterprises after a newspaper report said the conglomerate will probably seek more time to repay a $4 billion loan it took out last year.  Foreign investors have been buyers of $1.3b of local shares this month through March 24, mainly on back of GQG Partners’ stake purchase in Adani companies. “Barring gains in select banking and metal stocks, other sectors witnessed profit-taking as caution prevailed ahead of the F&O expiry on Wednesday,” Kotak Securities analyst Shrikant Chouhan said. In FX, the Bloomberg Dollar Spot Index slipped 0.1%, marking its eighth day of declines in the past nine sessions, weighed by a jump in the yen on domestic demand ahead of the fiscal year-end in Japan.  Exporters in Japan and Australia added to the selling of the dollar as they increased hedging to cover prior long positions in the greenback, Asia- based FX traders said. The New Zealand dollar and Japanese yen are the best performers among the G-10s while the Swiss franc is the weakest. In rates, the five-year Treasury yield rises as much as 7 basis points to 3.67%, while the two-year yield climbs 4 basis points to 4.04% after sliding as low as 3.89% earlier in the session; a selloff in Treasuries since the start of the week has lifted most yields from six-month lows reached on Friday. 10-year yields around 3.55%, cheaper by 2bps on the day with bunds lagging by additional 5bp in the sector; 2-year yields cheaper by around 7bp on the day, remain above 4% level vs. Monday’s 3.954% auction stop. As BBG's Beth Stanton notes, Monday's poorly-bid 2Y auction is now under water vs its 3.954% stop with May rate hike back in favor. Auction cycle continues with $43b 5Y at 1pm. WI yield 3.65% is between last two 5Y stops. The US auction cycle resumes with $43b 5-year note sale at 1pm, follows Monday’s poor 2-year result; WI 5-year at 3.63% is ~48bp richer than February’s stop-out. German two-year borrowing costs are up 12bps. Traders are now betting on a roughly 50/50 chance that the Fed will deliver a final quarter-point hike in May, followed by a similar-sized cut in September; market pricing reflects a diminishing outlook for a series of cuts in the coming months, and a growing view that the Fed may keep rates on hold for longer. BlackRock sees the Fed continuing to raise interest rates despite traders betting otherwise as fears of a banking crisis convulse markets. “We don’t see rate cuts this year – that’s the old playbook when central banks would rush to rescue the economy as recession hit,” its strategists write in a note. “We see a new, more nuanced phase of curbing inflation ahead: less fighting but still no rate cuts.” In commodities, crude futures advance with WTI up 0.5% to trade near $73.15. Spot gold falls 0.3% to around $1,951. European and US gas benchmarks diverge slightly in European trade; Morgan Stanley writes that “prices likely still need to move lower to incentivize an adequate supply response, but we may be approaching the bottom”. Looking to the day ahead, we will have a number of data releases from the US including the Conference Board consumer confidence, the Richmond Fed manufacturing index and business conditions, the Dallas Fed services activity, the January FHFA house price index, and February’s wholesale and retail inventories and advance goods trade balance. We will also have Italy’s March manufacturing and consumer confidence as well as economic sentiment data, and from France the March manufacturing and consumer confidence data. The BoE’s Bailey will testify today on the Silicon Valley Bank crisis, and we will also hear from ECB’s Muller. Finally, we will have earnings releases from Micron, Walgreens Boots Alliance and Lululemon. Market Snapshot S&P 500 futures little changed at 4,009.00 STOXX Europe 600 up 0.3% to 446.06 MXAP up 0.6% to 159.53 MXAPJ up 0.6% to 512.94 Nikkei up 0.2% to 27,518.25 Topix up 0.2% to 1,966.67 Hang Seng Index up 1.1% to 19,784.65 Shanghai Composite down 0.2% to 3,245.38 Sensex little changed at 57,596.88 Australia S&P/ASX 200 up 1.0% to 7,034.09 Kospi up 1.1% to 2,434.94 German 10Y yield little changed at 2.30% Euro up 0.2% to $1.0818 Brent Futures up 0.5% to $78.49/bbl Gold spot down 0.2% to $1,952.30 US Dollar Index down 0.17% to 102.69 Top Overnight News Alibaba plans to split its $220 billion business into six main units encompassing e-commerce, media and the cloud, each of which will explore fundraising or IPOs when the time's right. Group CEO Daniel Zhang will head up the cloud intelligence division, a nod to the growing role AI will play in the e-commerce leader's portfolio in the long run. BBG Binance’s CEO Changpeng Zhao shot back at the CFTC, calling its lawsuit over alleged violations of derivatives regulations "unexpected and disappointing," given compliance efforts and cooperation with regulators. His firm doesn't trade for profit or manipulate the market, he said. The suit has "an incomplete recitation of facts." BBG China has significantly expanded its bailout lending as its Belt and Road Initiative blows up following a series of debt write-offs, scandal-ridden projects and allegations of corruption. A study published on Tuesday shows China granted $104bn worth of rescue loans to developing countries between 2019 and the end of 2021. The figure for these years is almost as large as the country’s bailout lending over the previous two decades. FT Semiconductor companies seeking federal grants under the Chips Act could face a tough decision: take Washington’s help to expand in the U.S., or preserve their ability to expand in China. The Biden administration last week proposed new rules detailing restrictions chip companies would face on operations in China and other countries of concern if the companies accept taxpayer funding. WSJ Balances at the Fed's RRP facility climbed, even as rates in the private market rose as much as 15 bps above the central bank's offering yield. Ninety-eight counterparties parked $2.22 trillion at the RRP, up $1.7 billion from Friday. BBG The Federal Reserve’s top official on banking supervision has blamed the collapse of Silicon Valley Bank on a “textbook case of mismanagement”, saying the board of the US central bank had been briefed on the troubles at the California lender in mid-February. FT The Treasury's top domestic policy official Nellie Liang will tell Congress regulators are ready to repeat steps taken after recent bank failures. She testifies today with the Fed's chief of banking supervision, Michael Barr, and FDIC head Martin Gruenberg. The ECB's top oversight official urged global scrutiny of the CDS market. And BOE boss Andrew Bailey said UK banks are strong. BBG Calm returned to Israeli cities Tuesday and protests against Israeli Prime Minister Benjamin Netanyahu’s judicial overhaul dispersed after the premier agreed to suspend the controversial plan and Israeli President Isaac Herzog offered to host compromise talks between the two sides. WSJ DIS has eliminated its next-generation storytelling and consumer experiences unit, the small division that was developing metaverse strategies, according to people familiar with the situation, as part of a broader restructuring that is expected to reduce head count by around 7,000 across the company over the next two months. WSJ In the battle for the biggest prize in China’s trillion-dollar pension market, BlackRock Inc. and other global firms have little chance of attracting clients like Judy Deng: BBG The Federal Deposit Insurance Corp. stuck to its guns and didn’t offer bailouts to keep two lenders from collapsing. Instead, it struck deals that included millions of dollars of sweeteners for the acquiring banks that sent their stocks soaring: BBG The US took its most forceful move yet on Monday to crack down on crypto exchange Binance Holdings Ltd. and its chief executive officer Changpeng Zhao: BBG A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mixed with a mild positive bias as global banking sector fears continued to dissipate and with early advances led by energy after the recent surge in oil prices although gains were capped in the region as North Korean nuclear rhetoric stoked geopolitical concerns. ASX 200 was boosted amid strength in the commodity-related sectors with outperformance in energy after oil prices notched the largest daily gain since October and financials were also lifted as Australia downplayed the risks to domestic banks from the recent global banking issues. Nikkei 225 was indecisive despite Japan reiterating plans for a JPY 2.2tln economic stimulus package with trade stuck in a narrow range near 27,500 after the nuclear rhetoric by North Korea which called for the scaling up of weapons-grade nuclear materials and included similar language used before its last nuclear test in 2017. Hang Seng and Shanghai Comp. were choppy ahead of key earnings results and after PBoC liquidity efforts. Top Asian News China's Foreign Ministry said Premier Li Qiang met with foreign representatives at the China Development Forum in Beijing on Monday and met with executives including Apple (AAPL) CEO Cook, while Li told executives China will unswervingly expand its opening up, according to Reuters. US and Japan reached a trade deal for critical EV battery minerals in which the deal prohibits enacting export restrictions on lithium, cobalt, nickel, manganese and graphite, according to US officials. Furthermore, the deal includes provisions to combat non-market practices, while access for Japanese automakers to the battery minerals portion of USD 7,500 in US EV tax credit depends on the tax guidance this week from the US Treasury. China is reportedly aiming to set up 30+ key auto chips standards by 2025, according to the Ministry of Industry and Information Technology. A magnitude 5.7-5.9 earthquake occurred offshore Eastern Aomori Prefecture, Japan; NHK says it has a prelim. magnitude of 6.1; no tsunami warning issued. European bourses were initially firmer across the board in a continuation of the APAC tone, though benchmarks have since eased from best and are flat/mixed. Sectors are mixed with Energy outperforming while Banking names were firmer but have eased off of best levels and incrementally into the red alongside the broader benchmarks throughout the morning. Stateside, futures are mixed/flat, though with the bias inching further into the red, as the region awaits todays Senate Banking Committee hearing on the recent banking turmoil with Fed' Barr in attendance. Meta Platforms Inc. (META) plans to lower some bonus payouts and will more frequently assess employee performance, according to an internal memo, part of a sweeping revamp of the social-media company that includes large head-count reductions, WSJ reports. Alibaba (BABA/9988 HK) business unit can reportedly pursue fundraising and IPOs when ready, according to Bloomberg; Alibaba to restructure into six main business divisions. Top European News Kantar UK Supermarket update (Mar): Grocery price inflation has climbed again to reach 17.5% over the four weeks to 19 March 2023, a new record based on our latest market data. ECB's Muller says inflation is slowing but it is too early to declare a victory. Banks ECB's Enria says current events confirm that strong, demanding supervision is needed more than ever. Adds, there have been some fast outflows of bank deposits in some cases. BoE's Bailey says does not think any of the features of recent banks issues are causing stress in the UK; Ramsden says will keep a close eye on bank funding costs. US Treasury official Liang said the US government will use tools to prevent banking contagion again if warranted and that the US financial system is significantly stronger now due to stronger capital and liquidity requirements, while she added the US must ensure that banking regulations and supervision are appropriate for today's risk and challenges, according to her prepared testimony, according to Reuters. French PNF Financial Prosecutors says searches are underway at five banking/financial firms located within Paris and the Paris La Defense district re. a tax probe, German prosecutors assisting. Societe General (GLE FP) confirms its offices are being searched. S&P says they are yet to see any meaningful contagion for APAC from the US regional banks/Credit Suisse (CSGN SW) turmoil. FX The USD has been incrementally softer throughout the morning within relatively narrow 102.52-102.76 parameters, most recently the DXY has attempted to pare initial downside. Action which comes to the mixed fortune of peers, with AUD, NZD and JPY outperforming given the risk tone and as the JPY attempts to recover from Monday's pressures; holding below 0.67, 0.625 and above 131.00 respectively. CHF resides as the laggard, with downside seemingly stemming from the risk tone rather than any fresh Swiss banking concern, EUR/CHF above 0.99 to a 0.99300 peak. In close proximity is the CAD which is unable to benefit from crude upside while GBP and EUR are contained around 1.08 and 1.23 respectively vs USD with Central Bank speak thus far not moving the dial. Citi month-end model: Prelim. estimate points to moderate USD selling vs all major currencies ex-EUR, via Reuters. Click here for more detail. PBoC set USD/CNY mid-point at 6.8749 vs exp. 6.8737 (prev. 6.8714) Fixed Income EGBs are under pressure in a continuation of the firmer risk tone from APAC trade; however, benchmarks are off worst levels as equities inch into the red. Specifically, Bunds are below 136.00 with the associated 10yr yield firmly above 2.30% though yet to breach 2.35%. Gilts and the EZ periphery are in-line with mentioned core counterparts and have been unaffected by numerous Central Bank officials where the focus has been on recent banking turmoil. Supply wise, the Italian and German sales passed without fanfare and were well-received overall though demand was slightly softer when compared to the prior outings. Commodities Crude benchmarks continue to climb aided by the softer dollar and the latest geopolitical tensions re. N. Korea; WTI and Brent holding above USD 73/bbl and USD 78/bbl respectively. European and US gas benchmarks diverge slightly in European trade; Morgan Stanley writes that “prices likely still need to move lower to incentivize an adequate supply response, but we may be approaching the bottom”. Spot gold is pressured by the risk tone and failing to benefit from the softer USD with the yellow metal below the USD 1959/oz 10-DMA and holding around USD 1950/oz currently, base metals conversely are modestly firmer. Russian Deputy PM Novak says the domestic fuel and energy complex is sustainable despite challenges, hopes to agree on key contract terms for the Power of Siberia 2 gas pipeline to China this year. Russia should look to produce at least 100mln/T of LNG per year by 2030. Geopoliitcs Russian Defence Ministry said it fired supersonic anti-ship missiles at a mock target in the Sea of Japan. North Korean leader Kim guided the nuclear weaponisation programme and inspected nuclear trigger technology during a recent simulation. Kim also called for constant efforts to improve nuclear capability and said the country should be fully ready to use nuclear weapons at any time, while he called for the scaling up of weapons-grade nuclear materials to exponentially increase nuclear weapons arsenal. North Korea also alleged that US and South Korea military drills involving an air carrier are aimed at pre-emptive nuclear strike and said that US anti-North Korean activities are intensifying to unacceptable levels, according to KCNA. North Korea is reportedly preparing to resume foreign diplomatic activity after three years of COVID isolation, according to FT; North Korean officials recently resumed travels to Russia and China. Belarus' Foreign Minister says they have been forced to take steps ensuring security in the face of NATO potentially increasing within neighbouring nations, via Tass. Crypto Binance CEO said the CFTC complaint appears to have an incomplete recitation of the facts and they do not agree with the issues alleged in the complaint. Binance CEO said they intend to respect and collaborate with US and other regulators around the world, while he added that Binance.com does not trade for profit or manipulate the market under any circumstances, according to Reuters. US Event Calendar 08:30: Feb. Advance Goods Trade Balance, est. -$90b, prior - $91.5b, revised -$91.1b 08:30: Feb. Retail Inventories MoM, est. 0.2%, prior 0.3% Wholesale Inventories MoM, est. -0.1%, prior -0.4%, revised -0.3% 09:00: Jan. FHFA House Price Index MoM, est. -0.2%, prior -0.1% 09:00: Jan. S&P Case Shiller Composite-20 YoY, est. 2.55%, prior 4.65% S&P/Case-Shiller US HPI YoY, prior 5.76% S&P/CS 20 City MoM SA, est. -0.50%, prior -0.51% 10:00: March Conf. Board Consumer Confidence, est. 101.0, prior 102.9 Expectations, prior 69.7 Present Situation, prior 152.8 10:00: March Richmond Fed Index, est. -10, prior -16 10:30: March Dallas Fed Services Activity, prior -9.3 Central Banks 10:00: Fed’s Barr Appears Before Senate Banking Panel DB's Jim Reid concludes the overnight wrap After a hectic 2 and a half weeks that has felt like a year, the week has started on a much calmer footing. I'm on holiday for a couple of weeks from Thursday so I'm hoping that I don't have to do zoom meetings from the ski slopes. My ski outfit and technique won't make that a pretty sight. As we highlighted in our CoTD yesterday (link here) we have to be careful not to fight the battle of the last war. Large banks in the US and Europe are completely different entities than they were going into the GFC. For large US banks for example, securities and loans/leases on their balance sheets as a % of deposits are lower than when our data starts in 1985 and at below 100% are massively down from their GFC peaks of over 150%. We don't have the same long term data for Europe but the declines since the GFC are of similar magnitudes. In contrast corporates are more levered now than during the GFC and this cycle could ultimately be more corporate default focused vs financials as per say 2001-2002 rather than 2008-09. See Steve Caprio's full note here for more on this and how corporate spreads are too tight to financials now. So no new news was good news yesterday and some risk premium was removed from the market. This was most evident in bonds with US 2yr and 10yr yields up +22.9 bps and +15.4bps respectively. The S&P 500 was up +0.80% in the first hour of trading but did retrace the entire move back to flat before rallying in the US afternoon to finish with a an overall modest gain of +0.17%, whilst the STOXX 600 climbed +1.05%. US banks led the US move higher, having traded off their lows from last week, with the S&P 500 banks index up +3.05%. European banks were earlier +1.69% higher. Narrowing in, First Citizens jumped 49% at the market open after its agreement to buy SVB Financial Group’s Silicon Valley Bank, ending the day up by +53.74%. First Republic Bank similarly jumped at the open by +27.45% after a Bloomberg report that US authorities were considering an expansion to their emergency lending facility, the Bank Term Funding Program, that had been created on March 12 with the collapse of SVB and Signature Bank. Against this backdrop, the gauge of regional US banks, the KBW index, closed up +2.54% yesterday, with the leaders including First Republic (+12.14%), Comerica (+5.40%) and KeyCorp (+5.31%). Improving risk sentiment saw investors pare back their expectations of Fed rate cuts, as the implied rate for the Fed’s May meeting gained +9.2bps, bringing it to 4.950%. In other words, fed futures are now pricing in a 53% chance of a +25bps hike in May. For December’s meeting, markets trimmed their expectations of rate cuts from over -94bps on Friday to nearly -74bps, as the implied rate rose +29.5bps to 4.206%. Back on this side of the pond, the German March Ifo business confidence index printed above expectations at 91.2 (vs 88.3 expected), and up from 88.5 for February. The other two individual components of the release also beat expectations, with business climate rising to 93.3 (vs 91 expected) and current assessment at 95.4 (vs 94.1 expected). Although the Ifo survey typically demonstrates less sensitivity to financial market uncertainty relative to other surveys coming from Germany such as the ZEW survey, the release is consistent with last Friday’s PMIs that suggested the Eurozone economy remains in, or at least was in decent shape, before the banking crisis hit. Consequently, the DAX outperformed relative to the broader STOXX 600 index, up +1.14%, whilst the STOXX 600 advanced by +1.05%. For the latter, all major sectors were in the green, with sector leaders including health care (+1.93%), utilities (+1.31%) and autos (+1.89%). The CAC also gained yesterday, up by +0.90%. Following from Friday’s jitters about European banking sector stability, ECB’s Simkus emphasised that ‘bank liquidity, capitalisation (are) high in euro area.’ ECB’s De Cos echoed this sentiment, stating ‘euro-zone banks (are) well-prepared for adverse scenarios’. We also heard from several other ECB’s speakers yesterday, as ECB’s Schnabel stated she had pushed for the ECB statement to say that more hikes were a possibility as opposed to the verbal assurance that had been made by President Lagarde. ECB’s Centeno’s comments were more dovish, as he stated that they “don’t see long-term inflation expectations de-anchoring”, with “no signs of second-round effects in wage-setting.” Markets moved to price in a modestly higher terminal rate as Eurozone overnight index swaps for July were up +7.5bps bringing the rate to 3.321%. The rate for year-end also increased, up +11.5bps to 3.226%, pricing in a 1 in 3 chance of a -25bps rate cut by December. Against this backdrop, yields across the German sovereign yield curve were up yesterday, with the 10yr bund yield climbing +9.8bps higher bringing the yield to 2.227%. The 2yr yield gained +12.8bps to 2.521% Asian equity markets are mostly higher overnight. As I type, the Hang Seng (+0.60%), the KOSPI (+0.44%) and the Nikkei (+0.07%) are higher but with stocks in mainland China mixed with the CSI (-0.16%) edging lower while the Shanghai Composite (+0.05%) is oscillating between gains and losses. US stock futures are a little higher with contracts tied to the S&P 500 (+0.16%) and NASDAQ 100 (+0.17%) printing mild gains. Meanwhile, yields on 10yr Treasuries (-1.89bps) are slightly lower, trading at 3.51% while 2Yr Treasuries (-3.5bps) are trading at 3.96% as we go to press. In early morning data, retail sales in Australia rose +0.2% m/m in February, in-line with market expectations, down from a revised +1.8% increase in January, signifying that households are reining in spending in response to higher interest rates. The subdued data adds to the case for a pause by the Reserve Bank of Australia (RBA) at its April 4th meeting. Meanwhile, the CPI data scheduled to be released tomorrow will be of note for the central bank. Turning to commodities, WTI crude futures performed strongly yesterday, rising +5.13% to over $72.81/bbl, whilst Brent crude gained +4.17% to $78.12/bbl. European natural gas futures also gained +3.49% yesterday. The rally in energy prices was due to both supply-side and demand-side pressures. On demand, the rally in bank stocks and purchase of SVB seemed to ease concerns of a wider financial crisis. Meanwhile, a legal dispute between the Iraqi semi-autonomous region of Kurdistan and Turkey has put about 400,000 bbl/day of exports in limbo. This come as French refineries are running at a fraction of normal capacity due to the ongoing protests in the country. A Bloomberg report had as much as 80% of the nation’s crude-processing capacity stalled. Finally, yesterday also saw the release of the Dallas Fed Manufacturing Activity for March which fell below expectations at -15.7 (vs -10 expected). This was a further decline from -13.5 last month as perceptions of broader business conditions deteriorated over the month. Now looking to the day ahead, we will have a number of data releases from the US including the Conference Board consumer confidence, the Richmond Fed manufacturing index and business conditions, the Dallas Fed services activity, the January FHFA house price index, and February’s wholesale and retail inventories and advance goods trade balance. We will also have Italy’s March manufacturing and consumer confidence as well as economic sentiment data, and from France the March manufacturing and consumer confidence data. The BoE’s Bailey will testify today on the Silicon Valley Bank crisis, and we will also hear from ECB’s Muller. Finally, we will have earnings releases from Micron, Walgreens Boots Alliance and Lululemon. Tyler Durden Tue, 03/28/2023 - 08:09.....»»

Category: smallbizSource: nytMar 28th, 2023

The Great Credit Unwind & Powell"s Hidden Pivot

The Great Credit Unwind & Powell's Hidden Pivot Authored by Alasdair Macleod via GoldMoney.com, We are all now aware that the global banking system is extremely fragile. Driving bank failures is contracting credit, which in turn drives interest rates higher. Though it is not generally appreciated, central banks have failed to suppress them. Some regional banks have failed in the US and the run on Credit Suisse’s deposits has forced the Swiss authorities into forcing a reluctant rescue by UBS. Undoubtedly, as the great credit unwind plays out, there will be more rescues to come. In this, the earliest stages of a banking crisis, some questions are being answered. We can probably rule out bail-ins in favour of bail outs, and we can assume that nearly all banks will be rescued — they must be in order to prevent systemic contagion.  In this article I quantify the position of the global systemically important banks (the G-SIBs) and point out that the central banks which are meant to backstop them are themselves bankrupt — or rather they would be properly accounted for.  Because even a minor failure in the banking system could undermine the entire global banking system, the much heralded pivot is now here, but not in plain sight. Because central banks have lost control over interest rates, the focus on preserving the financial markets underpinning the banking system has shifted to supressing bond yields. This is why the Fed has introduced its Bank Term Funding Programme, likely to be copied in other jurisdictions.  It is Powell’s hidden pivot — his line in the sand. But it is the last desperate throw of the dice and depends entirely on inflation being transient and interest rates not rising much more.  The price of even a successful preservation of the banking system is the destruction of fiat currencies, because the bigger picture is still of the greatest credit bubble in history unwinding. And that process has only recently started... The great unwind accelerates  Now that everyone in finance knows that there is a banking crisis, cynicism prevails. When a central banker or treasury minister tries to reassure the public, it is disbelieved. The risk to an extremely fragile global banking system is that if disbelief in public statements spreads from financial sceptics to the wider public, the system is doomed. All credit is based on confidence and confidence alone. It is still too early to say that confidence has been irretrievably shaken. But last weekend, UBS was unwillingly forced by the Swiss authorities into taking over Credit Suisse on a share swap, which valued the latter’s shares at about 70 centimes. That put Credit Suisse’s shares on a discount to book value of 94%. Admittedly, this figure is unreliable when deposits are running out of the door and the full value of foreign exchange derivatives are not accounted for. But it does raise a question over the valuations of all the other global systemically important European banks. And why stop there — the G-SIBs have all taken in each other’s laundry, so if one fails so might all the rest. Perhaps they should all be similarly valued. Presumably, in their groupthink the central bankers represented by the three wise monkeys in the illustration above never thought it would come to this. After all, their regulators have frequently conducted stress tests and all major banks routinely pass them with flying colours. But as Kevin Dowd, Professor of Finance and Economics at Durham University put it in 2016 in one of his several critical reviews of bank regulation,  “The purpose of the stress testing programme should be to highlight the vulnerability of our banking system and the need to rebuild it. Instead, it has achieved the exact opposite, portraying a weak banking system as strong. This is like having a ship radar system that cannot detect an iceberg in plain view. “As the EU banking system goes into a renewed crisis, the UK banking system is in no fit state to withstand the storm. Once contagion spreads from Italy to Germany and then to the UK, we will have a new banking crisis but on a much grander scale than 2007-08. “The Bank of England is asleep at the wheel again, and we will be back to beleaguered banksters begging for bailouts – and the taxpayer will be ripped off yet again, but bigger this time." Unfortunately, it is Professor Dowd’s analysis and conclusion that have stood the test of time. And nothing, repeat nothing, has been done to alter this situation. Only last Monday, the President of the ECB proved this point by releasing the following official statement: “I welcome the swift action and the decisions taken by the Swiss authorities. They are instrumental for restoring orderly market conditions and ensuring financial stability. The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.” (italics are my emphasis)[ii]  The group-thinking on stress testing is based on commonly agreed parameters between central banks and regulators for constructing stress models, and their desire to be seen discharging their duties rather than the actuality. That being the case, what we have seen in Switzerland which led to Credit Suisse being valued at only 6% of its book value is an important message not just for European bank regulation, but elsewhere as well. Whatever their mollifying statements, the central bank groupthinkers must now be very worried. But they appear to lack coordination. The Swiss National Bank decided that as part of bailing out Credit Suisse, it would bail in higher ranking bond holders, writing off Sf17bn. That shareholders should get something while senior creditors get nothing is a travesty of company law. Following the market’s reaction, it has been swiftly denounced by regulators in Europe and London, only days after the ECB President issued the formal statement above, extoling the Swiss authorities for their actions. The consequences of the Swiss National Bank writing off senior creditors are likely not just to impose losses on other banks which are in a fragile state themselves and can ill afford their senior debt to be traduced in this way, but to make future bond financing of banks more difficult. Furthermore, banks, insurance companies, and pension funds will be reassessing their risk exposure to all Swiss franc denominated bonds, even to the extent of impacting UBS, Credit Suisse’s rescuer.  The legal wrangling and rating downgrades probably start here, and no one comes out of it without damage to their reputations. And as already noted above, credit depends entirely on confidence. One can only assume that this will get central banks and their regulators to drop the whole bail-in concept in their attempts to ensure the survival of their commercial banking systems. Perhaps the Swiss should backtrack on their decision to save a paltry Sf17bn. We can understand and accept that Swiss banks get into trouble. But the Swiss authorities’ clumsy handling of the Credit Suisse crisis is risking its national reputation for financial probity and stability. The broader problem is that confidence in banking is beginning to be publicly undermined. It is not just a matter of identifying the weakest links, but it is becoming a systemic problem of the widest proportions. The illusion of control by central banks is being shattered by the great credit unwind. Consequently, the policy priority is pivoting from the inflation mandate to pure survival. And as we have seen illustrated by the Swiss authorities, the scope for error is chasmic.  The G-SIB mess Bail-in legislation was not the only G-20 response to the Lehman crisis. The Basel Committee’s third iteration of its regulations, still not fully implemented, was the Bank for International Settlement’s contribution to post-Lehman banking reform. The designation of a new category of bank, the global systemically important bank, or G-SIB, was created. G-SIBs are required to have additional capital buffers to address the systemic risks they are exposed to from international counterparties, relative to domestic regional banks. Here are some relevant facts. At current exchange rates, total G-SIB balance sheet assets are recorded at $63,978 billion. But this is supported by only $4,444 billions of balance sheet equity, giving a ratio of assets to equity of 14.4 times. But this is not evenly spread, with the Eurozone’s seven G-SIBs averaging 19.7 times, and Japan’s three G-SIBs at 23 times. At the lower end of the scale, the US’s eight G-SIBs average 11.4 times and China’s four banks 12.0 times. All these ratios translate into unacceptable leverage when credit unwinds and interest rates increase, threatening to trigger rapidly rising levels of non-performing loans. This is at least partially recognised in stock markets, where G-SIB shares commonly stand at significant discounts to book value. Only four out of the twenty-nine listed G-SIBs have price to book ratios greater than one. Based on last Monday’s share prices, the average price to book for Eurozone G-SIBs is a discount of 56%, for Japan 47%, for China 54%, and for the US it is only 7% bolstered by JPMorgan Chase and Morgan Stanley being the only two US banks trading at a reasonable premium to book value. There is considerable variance within these figures, but the message from the markets is clear: whatever the regulators and central banks say and despite their extra capital buffers, G-SIBs are still a risky investment. These statistics do not tell the whole story. As we saw with the failure of Silicon Valley Bank, it was using widely adopted accounting methods to conceal losses on its bond investments. As of Dec. 31, 2022, SVB had about $120 billion in investments, primarily high quality bonds, such as US Treasuries and agency debt. According to its 10-K filed in February. the bank only had $74 billion of loans to borrowers. Therefore, its investments were significantly larger than its loans. Of the $120 billion in investments, $91 billion were classified as “held to maturity” investments and were not reported at fair value in each reporting period. Instead, they were reported at amortized cost, net of any reserves for credit losses in accordance with accounting convention. SVB originally bought its bonds when the yield curve was positive. That is to say, the cost of short-term funding was less than the yield on the longer maturities which SVB bought. But when the Fed increased its fund rate from the zero bound, the yield curve turned sharply negative with two consequences for SVB. First, its short-term funding costs began to rise, and secondly the capital value of the bonds began to fall. Its shareholders’ capital on the balance sheet was soon wiped out, and belated attempts to rectify the situation simply broadcast SVB’s problems, leading to its demise. It is a problem which is not confined to SVB. There will be other regional banks in the US and elsewhere which have fallen into the same trap. And it won’t be a problem restricted to regional banks. One can speculate that the incentive to buy longer maturity bonds than banks normally hold on their balance sheets was stronger in jurisdictions which imposed negative interest rates. A Eurozone or Japanese bank has had a zero or even slightly negative cost of short-term funding in their respective money markets, encouraging them to buy longer-dated government bonds. And like SVB, they will have been whipsawed by sharply rising short-term rates. This leads us to speculate about how much of similar losses may be hidden in the entire G-SIB system. Like SVB, have they been sufficient to wipe out the notional shareholders’ capital of all the G-SIBs, which we know to be $4.444 trillion? But this problem is not even the mother of all elephants in the room — that award goes to derivatives. The G-SIBs’ participation in regulated futures and over-the-counter derivatives is valued on their balance sheets at net mark-to-market values, which are very small fractions of their nominal values. Nevertheless, regulated futures are credit commitments for the full amounts, and should be valued as such. Options which have been sold are similarly commitments for their exercisable amounts, though bought options are not. The amounts of open interest involved at end-2022 are assessed by the Bank for International Settlements at $36,630bn for all regulated futures, and a further $43,182bn in options. These are just one side of open interest, the majority of which is bank exposure as market makers, traders, and banks acting as principals for their customers. In OTC derivatives, foreign exchange and commodity contracts are liabilities for their full amounts, while credit swaps are not.  At end-June 2022, foreign exchange contracts amounted to $109,587bn with a further $12,951bn in options. Commodity contracts add a further $2,341bn.[iii] We can exclude the large category of credit default swaps, because their gross values are purely notional. These exposures represent only one side of credit commitments, the other being distributed among non-bank financial institutions, hedgers, speculators, and other banks as well. From the G-SIBs’ collective balance sheet perspective, they should all be included at full value.  Last December, Claudio Borio, Head of the BIS’s Monetary and Economic Department even wrote a paper on this topic. Borio stated that “Foreign exchange swap positions point to over $80 trillion of hidden US dollar debt [part of the $109.587 trillion above], reported off-balance sheet”. And “The volume of daily foreign exchange turnover subject to settlement risk remains stubbornly high despite mechanisms to mitigate such risks”. In effect, Borio confirmed that for a true appreciation of global banking risk, gross OTC values for foreign exchange contracts should be recorded on both sides of bank balance sheets, and not just as net mark-to-market contract values. Between regulated and unregulated derivatives, we are therefore staring down the barrel of a further $210 trillion of balance sheet liabilities, to be added to the $64 trillion of officially recorded total G-SIB balance sheets, all supported by only $4.444 trillion of shareholder’s funds. And while the US G-SIBs appear to be less leveraged than their opposite numbers in the Eurozone and Japan, it should be noted that as Borio points out the large majority of OTC exposure is in dollar-denominated contracts, for which the US G-SIBs are the counterparties. If only one G-SIB fails, its counterparty risks could easily undermine all the others. As Borio pointed out, settlement risk remains stubbornly high. It explains why the Fed was ready to come up so swiftly with swap lines for the Swiss National Bank to aid it in its attempt to support Credit Suisse. And it allows us to draw a further conclusion: credit expansion at the central bank level to ensure the global financial system’s survival will place the greatest burden on the dollar, being the currency in which most of these derivative obligations are settled. Can central banks actually handle a credit crisis? Having invested in government and other bonds at the top of the market — a top created by them to be far higher than they would otherwise have been — central banks are now demonstrably bankrupt unless they recapitalise themselves. For all of them, excepting the ECB, it is theoretically easy to do but best done before commercial banks need their support.  The simplest way of recapitalising a central bank is by expanding its balance sheet assets in favour of equity instead of other liabilities. Delaying addressing the same problems faced by Silicon Valley Bank on the basis they need not doesn’t serve central banks well. The losses can be assumed to continue to accumulate as commercial bank credit continues to contract, because it is credit contraction which drives up the true level of interest rates. Already, the Bank of Japan has been accumulating financial assets at negative yields, so that even with a small rise on yields, its losses from last year are over four thousand times its balance sheet capital of only 100 million yen. Sooner or later, its credibility is bound to be questioned if it fails to address this issue. But of all the central banks, the ECB is probably the most difficult to recapitalise. The ECB’s shareholders are not a single state, but the national central banks of the twenty member nations (including Croatia which joined the euro system in January). Unfortunately, with few exceptions the NCBs in the euro system are also all in need of recapitalisation. Imagine the legislative hurdles. The Bundesbank, let’s say, presents a case to the Bundestag to pass enabling legislation to permit it to recapitalise itself and to subscribe to more capital in the ECB on the basis of its share of the ECB’s equity — the capital key — to restore it to solvency as well. One can imagine finance ministers being persuaded that there is no alternative to the proposal, but then it will be noticed by pedestrian politicians that the Bundesbank is owed over €1.1 trillion through the TARGET2 system. Surely, it will almost certainly be argued, if those liabilities were paid to the Bundesbank, there would be no need for it to recapitalise itself. If only it were so simple. But clearly, it is not in the Bundesbank’s interest to involve politicians in monetary affairs. The public debate would risk spiralling out of control, with possibly fatal consequences for the entire euro system. It would be a row at the worst possible time. And with twenty NCB shareholders facing similar hurdles, their contributions to refinancing the ECB requires unanimous consent for proportional subscriptions in accordance with their capital keys. Besides the confusion over bail-ins and bail outs which we can now hope has been settled, there still remains a huge question mark over whether the central banks have the wherewithal to discharge the potentially enormous burden of bail out commitments. In any event, it will need massive quantities of additional central bank credit in all relevant currencies to backstop the system. The destruction to balance sheets at both central and commercial bank levels reinforces the point, that central banks are likely to move their attention away from short-term interest rates over which they have lost control to bond yields which they can still influence. Different versions of the Fed’s Bank Term Funding Programme (more on which follows) are likely to be devised. It is becoming a hidden pivot. The hidden pivot In a classic banking crisis, bank balance sheets become overextended and bankers become cautious in their lending, restricting the expansion of credit. The credit shortage leads to higher interest rates for the few borrowers deemed creditworthy and able to pay them. Both producers and consumers are affected. The shortage of credit and higher borrowing costs result in businesses failing, and a slump in economic activity follows. This leads in turn to the problem identified by Irving Fisher, which he described as his debt-deflation theory.[iv] According to Fisher, when the cycle of bank lending turns down and higher interest rates and falling collateral values follow, it forces banks to call in loans, liquidating collateral and driving colateral values down further. The self-feeding nature of this phenomenon deepens the slump and leads to banking failures.  Fisher’s paper was published in the wake of record numbers of bank failures in America between 1930—1933. And it should also be noted that it has informed every state economist ever since. The fear of a slump exacerbated by collateral liquidation is in the back of every mainstream economist’s mind. But so far, there has been not much evidence of credit shortages undermining the non-financial economy. Presumably, the downturns in credit expansion reflected in broad money supply statistics have reflected banks withdrawing from financial activities, so the hit to non-financial activity is yet to come. But the issue of falling collateral values identified by Fisher has resurfaced in problems created by policy makers themselves, because the sudden rise in interest rates has had the same effect. This is why we are now witnessing central banks pivoting from control of inflation to the preservation of the global commercial banking system. The danger of systemic failure is more hardwired into central bankers’ DNA than that of inflation. And frankly, they have proved pretty clueless on interest rate management anyway. They are set to do “whatever it takes” to preserve both financial market values and the status quo. But things have moved on from Mario Draghi’s famous aphorism. No longer just a finger-wagging threat, whatever it takes is likely to end up undermining the purchasing power of currencies. Whatever it takes is now an open-ended commitment to whatever it costs. There can be no question that pivoting from fear of inflation to fear of a banking crisis undermines currencies. But central bankers appear to find it difficult to concede it publicly. The Fed’s solution is to offer to take in all US Treasuries, agency debt, mortgage-backed securities, and “other qualifying assets as collateral” at par with no haircut against cash liquidity for one year. Furthermore, with foreigners no longer net buyers of Treasuries, there is a funding problem to address. The Fed stated that its new bank term funding programme (BTFP)  “…will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy. The Federal Reserve is prepared to address any liquidity pressures that may arise.” It is a policy that might have been scripted by Irving Fisher’s ghost. The one-year term of the facility shows that the Fed regards this as a temporary problem to be reversed when the situation improves, and inflation returns towards its two per cent target. Yes, all the forecasts are still for inflation to be transient — only it is taking just a little longer than originally thought. The BTFP is QE by another name, injecting credit into the banks —admitted in the Fed’s statement above. But we have seen that the Fed’s few attempts to reverse QE have always threatened the credit bubble. As soon as bankers realise that because of the history of quantitative tightening, which is what the ending of the facility will amount to, the loan terms can be regarded by them as perpetual. Any bond standing at a discount can be collateralised with the Fed at final redemption value, notwithstanding its current market value at a discount. Already, this has driven the 10-year US Treasury yield below its major moving averages, indicating further falls in yield are to come. Clearly, this is a facility which is likely to lead to a massive and additional expansion of the Fed’s balance sheet. But by putting a one-year loan term on this facility, the Fed will feel justified in disregarding the automatic loss the BTFP facility creates on the basis that the bonds bought will simply returned to the sellers who will repay the money borrowed. It will be treated like a long-term repurchase agreement. While we know that realistically this repo will turn out to be perpetual, purchases in the market by banks to benefit from the BTFP facility allows the Fed to reduce its losses on its existing bond holdings as their yields fall further. And importantly, the government’s deficit will continue to be funded. The banking crisis similarly exists in other jurisdictions, so it is likely that the other major central banks will introduce their own versions of the Fed’s BTFP. All that’s required is an unhealthy dose of group-thinking that the inflation monster will retreat into its cave, and that therefore the outlook for bond yields is for them to fall. Driving this hope is the benefit to central bank balance sheets, which if their assets were properly valued currently puts them all deeply into negative equity.[vi] If it works, the pressure will diminish on banks with bonds shown as held to maturity and the situation might become manageable. But there is still the ongoing problem of credit contraction, which is not going to go away. Can the Fed suppress bond yields by much when the real cost of borrowing, which is driven by credit contraction, continues to rise? The Fed’s BTFP looks like its final gamble. The refuge from this credit crisis is only real money — gold. This article attempts to explain the true state of global credit. Everything appeared to be fine, until the Fed realised it was losing control over interest rates and had to raise them from the zero bound. This was followed by other central banks, with the lone exception of the Bank of Japan. Consequently, the global credit bubble which had been inflating financial asset values over the last forty years, has now burst. Anyone who dispassionately analyses credit conditions must come to this conclusion. Furthermore, far from being an unexpected shock, we are seeing just the start of a great unwind — a great unwind which will continue to impose mounting strains on the global banking system. Even at the first hurdle, it has become clear that the world’s leading central banks in their dollar-based credit system will do whatever they can to preserve it. This is as expected, but the consequences are that the dollar’s credibility as credit will continue to be undermined as rescue after rescue proceeds.  First it was a banking crisis, and that is just the beginning of it. Now the Fed is acting to save financial asset values, likely to be followed by the other members of the central banking cabal. Then it will be the non-financial economy, as malinvestments and over-extended consumers are exposed, leading to further banking write-offs. And finally, it will be governments themselves, faced with soaring welfare costs and collapsing tax revenues, exacerbated by foreigners no longer buying Treasuries. There is only one probable outcome: being only credit, national currencies will eventually lose their credibility. The root of credit valuation woes is that one form of credit, being that in the hands of commercial bank creditors, depends for its value on another form of credit, being manifest in bank notes. But unbeknown to most people, a bank note is not money: it is a credit liability of a central bank. An incorporeal form of wealth is wholly dependent upon another. But as we have seen, the rottenness of the credit system is not confined to a few bad apples in the banking system. The entire contents of the credit basket are rotten, from the top down. For individuals, there is only one escape from the inevitable destruction of the value of credit. And that is to get out of the collapsing credit system altogether. The collapse may appear slow today, but at some indefinable stage in the future, it will become sudden.  It won’t be just the sceptics and cynics finding fault in the system, but the general public will lose faith in their currencies. And when they do, the point of no return has been passed. The corporeal, as opposed to incorporeal form of credit is gold. It is credit without any counterparty. It is credit only in the sense that it is the unspent product of labour and profit. This distinction allows us to define gold as the only stable medium of exchange, or true money. Gold has been money since the end of barter. In today’s monetary system, it has been legal money since Roman coin came into existence, which according to the Roman juror Gaius was at the time of the Duodecim Tabularum, the Twelve Tables ratified by the Centuriate Assembly in 449 BC. Credit comes and goes, but gold is there for ever. Tyler Durden Sat, 03/25/2023 - 08:10.....»»

Category: worldSource: nytMar 25th, 2023

Futures Tumble, Treasuries And Rate Cut Odds Soar Amid Panic That Deutsche Bank Is The Next To Go

Futures Tumble, Treasuries And Rate Cut Odds Soar Amid Panic That Deutsche Bank Is The Next To Go Yesterday, while attention was still focused on the US banking system and the ongoing botched response by the Fed and especially the Treasury's senile Secretary, who more than two weeks after SIVB collapsed, have still not been able to stabilize confidence in banks - thereby assuring the US is about to slam head first into a brutal recession, just as Biden ordered to contain inflation, as US consumer spending is now in freefall - we pointed out that something bad was taking place in Europe: the credit default swaps of perpetually semi-solvent banking giant Deutsche Bank were quietly blowing out to multi-year highs. oh... pic.twitter.com/vNXc8ZE3Nm — zerohedge (@zerohedge) March 23, 2023 Well, we didn't have long to wait before everyone else also noticed and this morning it's official: the crisis has shifted to Germany's and Europe's largest TBTF bank, with even Bloomberg now writing that Deutsche Bank "has become the latest focus of the banking turmoil in Europe as ongoing concern about the industry sent its shares slumping the most in three years and the cost of insuring against default rising." The bank - which has staged a recovery in recent years after a series of crises that nearly brought it down - said Friday it will redeem a tier 2 subordinated bond early. And while such moves are usually intended to give investors confidence in the strength of the balance sheet, though the share price reaction suggests the message isn’t getting through, and the stock plunged 13% in German trading... ... while DB's CDS has exploded to level surpassing the bank's near-collapse in 2016, and is about to take out the covid wides. “It is a clear case of the market selling first and asking questions later,” said Paul de la Baume, senior market strategist at FlowBank SA. “Traders do not have the risk appetite to hold positions through the weekend, given the banking risk and what happened last week with Credit Suisse and regulators.” It wasn't just Deutsche Bank: UBS Group AG shares also dropped as Bloomberg reported that it’s one of the banks under scrutiny in a US Justice Department probe into whether finncial professionals helped Russian oligarchs evade sanctions, according to people familiar with the matter. In any case, the sudden, violent spike in DB default risk which quickly carried over to all big European banks, and which will not reverse until first the ECB then the Fed both cut rates... ... sent broader risk sentiment reeling with S&P 500 futures at session lows, sliding 1% to 3940. While there was no one big story setting off these moves. It could be a rush to havens heading into the weekend as traders wait for another shoe to drop — which has been a theme during recent weekends. In any case, the latest global equity rout and bank crisis which is now spreading to TBTF banks has sent bond yields crashing with the 2-year US yield plumbing new session lows, breaking down as low as 3.55%, and the resulting shockwave has collapsed odds of another rate hike in May to just 28% while the odds of a rate cut in June have exploded to 83% as the Fed's pivot finally arrives just on time: with the Fed having again broken the global financial system. In premarket trading, First Republic Bank swung between gains and losses as investors digested Treasury Secretary Janet Yellen’s comments about regulators being prepared to take additional steps to guard bank deposits if warranted. Fellow regional banks and bigger lenders decline, and after a volatile session on Thursday took the stock’s March slump to 90%. Block fell another 5%, extending Thursday’s 15% plunge as it announced potential legal action against short seller Hindenburg Research for its report on the payment processor.  Here are some other notable premarket movers: US cryptocurrency-exposed stocks decline, taking a pause from recent gains as the price of Bitcoin falls amid broader risk-off sentiment. Marathon Digital (MARA US) slid 0.9%, Hut 8 Mining Corp (HUT US) -1%, Coinbase (COIN US) -1.9%, Riot Platforms (RIOT US) -1.4%. ReNew Energy Global gains 12% after Bloomberg reported, citing people familiar with the matter, that the Canada Pension Plan Investment Board is exploring buying the shares of the power producer that it doesn’t already own and taking the Nasdaq- listed firm private. Joann slumped 6.2% in extended trading on Thursday after the fabric and crafts retailer reported adjusted earnings per share and Ebitda that missed the average analyst estimates, even as sales topped expectations. Oxford Industries fell 5.5% in postmarket trading after the owner of Tommy Bahama and Lilly Pulitzer issued a forecast for net sales in the current quarter that trailed the average analyst estimate at the midpoint of the guidance range. “Confidence is fragile, market volatility is likely to stay high, and policymakers may have to go further to make sure faith in the global financial system stays solid,” said Mark Haefele, chief investment officer at UBS Wealth Management. “Financial conditions are also likely to tighten, which increases the risk of a hard landing for the economy, even if central banks ease off on interest-rate hikes.” “Credit and stock markets too greedy for rate cuts, not fearful enough of recession,” a team led by Michael Hartnett wrote in a note. The strategist, who was correctly bearish through last year, said investment-grade spreads and stocks will be taking a hit over the next three to six months. Global cash funds had inflows of nearly $143 billion, the largest since March 2020 in the week through Wednesday — adding up to more than $300 billion over the past four weeks, according to the note citing EPFR Global data. European stocks are also plumbing lower, with European bank stocks sliding for a third day, and erasing weekly and yearly gains, as sentiment remains fragile on the sector. Deutsche Bank slumped nearly 15% as credit-default swaps surged amid wider concerns about the stability of the banking sector. The Stoxx 600 Banks Index is 5.3% lower as of 11:20am in London, erasing earlier weekly gains; the index is now -2.8% YTD. Meanwhile, UBS, which is not in the banking sector index, slumped as much as 8.4% as Jefferies cut its rating to hold from buy and it was among the banks under scrutiny in a US Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions. European oil stocks are also underperforming on Friday, dragging down the regional benchmark, as crude prices slump under pressure from a stronger dollar and concerns about the impact on growth of a fresh bout of stress facing the banking sector. The Energy sub-index slid as much as 4.3%, the most since March 15, while the Stoxx Europe 600 benchmark fell about 2%. Here are some other notable European movers: Casino Guichard-Perrachon SA fell as much as 6% to a fresh record low after Moody’s cut its long-term debt rating on the company further into junk territory Dino Polska drops as much as 5%, after its 4Q report showed that the Polish food supermarket chain is unable to maintain profitability amid inflation pressures Smiths Group gains as much as 2.1%, after the industrial firm beat expectations on Ebita, while also surpassing projections on its full-year sales outlook JD Wetherspoon jumps as much as 9.3% after the British pub operator posted a revenue beat for 1H, with Jefferies analysts noting resilience in like-for-like sales Earlier in the session, Asia equities were set to snap a three-day rally as lingering concerns over the health of the banking sector pushed a gauge of the region’s financial shares lower. The MSCI Asia Pacific Index fell as much as 0.5% before trimming losses, with its 11 sectoral sub-gauges showing mixed moves. Most markets declined, led by Hong Kong’s Hang Seng Index, while Chinese tech shares extended their rally on the back of positive earnings.  An index of Asian financial stocks dropped as much as 0.9%, tracking overnight declines in a measure of US financial heavyweights to the lowest since November 2020. Treasury Secretary Janet Yellen’s comments that authorities can take further steps to protect the banking system if needed failed to fully assuage concerns.  “The unease in the financial space will continue to weigh on the Asian financial sectors,” said Hebe Chen, an analyst at IG Markets Ltd. “The flip-flop in the market this week is seeing overwhelmed investors scratching their heads in the face of the mixed bag from Fed.”  Even with Friday’s lackluster moves, the MSCI Asia benchmark was set to notch its best weekly performance in about two months. The shares rose earlier in the week thanks to assurances from regulators in the US and Europe over protecting the banking sector and the Federal Reserve’s dovish tilt.   Meanwhile, a gauge of tech stocks in Hong Kong advanced for the fourth day close at its highest in a month. Lenovo led the gain, with JPMorgan lifting its recommendation on a bottoming of PC demand. “We like the internet sector, especially within China right now,” Marcella Chow, JPMorgan Asset Management’s global market strategist, said in an interview with Bloomberg TV. “China tech sector is attractive given improving regulatory outlook, leaner and more cost effective cost structure, improving margin.”  Japanese stocks Inched lower as worries linger over the financial sector while investors assess statements made by US Treasury Secretary Janet Yellen. The Topix Index fell 0.1% to 1,955.32 as of market close Tokyo time, while the Nikkei declined 0.1% to 27,385.25. Mitsubishi UFJ Financial Group Inc. contributed the most to the Topix Index decline, decreasing 1.1%. Out of 2,159 stocks in the index, 976 rose and 1,039 fell, while 144 were unchanged. “Assuming that the fallout from the US financial sector woes doesn’t spread significantly, Japanese stocks will likely stop its decline and pick up as the earnings period starts next month,” said Takeru Ogihara, a chief strategist at Asset Management One Australian stocks slumped to post a seventh week of losses; the S&P/ASX 200 index fell 0.2% to close at 6,955.20, with financials the biggest drag, as the malaise hanging over the global banking sector continued to damp sentiment. The benchmark erased 0.6% for the week, the seventh straight decline, maintaining the longest losing streak since 2008.  In New Zealand, the S&P/NZX 50 index fell 0.1% to 11,580.82. Indian stocks declined for a third straight week in the longest losing streak since December spurred by a late selloff in key gauges amid risk-off sentiment in global equities. The Nifty 50 index ended just shy of entering a so-called technical correction given the index’s near 10% drop from its December peak. For the week, the Nifty 50 fell 0.9% while the Sensex declined 0.8%. The S&P BSE Sensex fell 0.7% to 57,527.10 as of 3:30 p.m. in Mumbai, while the NSE Nifty 50 Index declined 0.8% to 16,945.05.  The selloff in small and mid cap counters contributed to the broader losses, with the Nifty Mid cap 100 and Nifty Small Cap 100 indexes ending nearly 2% lower each. Stocks of asset management companies were hammered after the government dropped the benefit of long-term capital gains tax for debt mutual funds in order to ensure parity in tax treatment with other such products. Shares of HDFC AMC dropped 4.1%, Aditya Birla AMC -2%, UTI AMC -4.8% and Nippon Life India AMC -1.2%. Reliance Industries contributed the most to the index decline, decreasing 2%. Out of 30 shares in the Sensex index, six rose and 24 fell In FX, the dollar’s recent weakness, which had supported the outlook for the region’s currencies and other assets, also took a breather on Friday. The Bloomberg dollar index rose 0.3% after a six-day run of declines. The yen rallies to the highest in six weeks amid demand for haven assets due to concerns over the health of the global banking sector. The yen was the biggest gainer versus the greenback among the Group-of-10 currencies. Treasury yields continued to decline reflecting expectations for Federal Reserve rate cuts this year “JPY’s strong performance we believe is driven by the return of its safe haven appeal, especially given that we see that Japanese banks are in a relatively better standing,” said Alan Lau, a strategist at Malayan Banking Bhd in Singapore. “Falling UST yields have also given the JPY support recently. Overall, we are positive on the yen and see the spot being on a downward trend this year with our year-end forecast at 122” In rates, Treasuries front-end adds to Thursday’s gains, with 2-year yields richer by over 20bp on the day, as the yield continues to plumb new session lows, breaking as low as 3.55%, dropping below th 2023 lows, and steepening the curve as traders continue to price out rate-hike premium for the May meeting and start pricing for cuts as early as June. Yields were near lows of the day while rest of the curve is richer by 17bp across belly to 9bp out to long-end; front-end led gains steepens 2s10s, 5s30s by 10bp and 8bp on the day. SOFR white-pack futures surge higher, with gains led by Dec23 contract which rallied 27bp vs. Thursday close; Fed-dated OIS shows just 4bp of rate hike premium for the May policy meeting with almost a full cut then priced into the June policy meeting — around 120bp of rate hikes are then priced into year-end In commodities, oil slipped the most in over a week, with Brent below $75, tracking a slide in equity markets and feeling the effects of a stronger dollar. Aluminum and copper headed toward their biggest weekly gains in more than two months on increasing demand in China and bets on looser Federal Reserve policy. Uranium Energy is among the most active resources stocks in premarket trading, falling about 9%. Gold traded just shy of $2000 and is about to break solidly higher. To the day ahead now, and data releases include the March flash PMIs from Europe and the US, along with UK retail sales for February, and the preliminary US durable goods orders for February. Otherwise from central banks, we’ll hear from the ECB’s De Cos, Nagel and Centeno, the Fed’s Bullard and the BoE’s Mann.   Market Snapshot S&P 500 futures down 1% to 3,940 MXAP down 0.2% to 160.13 MXAPJ down 0.5% to 515.46 Nikkei down 0.1% to 27,385.25 Topix down 0.1% to 1,955.32 Hang Seng Index down 0.7% to 19,915.68 Shanghai Composite down 0.6% to 3,265.65 Sensex down 0.2% to 57,801.12 Australia S&P/ASX 200 down 0.2% to 6,955.24 Kospi down 0.4% to 2,414.96 STOXX Europe 600 down 0.7% to 443.10 German 10Y yield little changed at 2.11% Euro down 0.4% to $1.0791 Brent Futures down 0.6% to $75.46/bbl Gold spot down 0.3% to $1,987.17 U.S. Dollar Index up 0.30% to 102.84 Top Overnight News A Federal Reserve facility that gives foreign central banks access to dollar funding was tapped for a record $60 billion in the week through March 22: BBG Deutsche Bank AG was at the center of another selloff in financial shares heading into the weekend: BBG Credit Suisse Group AG and UBS Group AG are among banks under scrutiny in a US Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions, according to people familiar with the matter: BBG Japan’s headline national CPI for Feb cools to +3.3% (down from +4.3% in Jan and inline w/the St) while core ticks higher to +3.5% (up from +3.2% in Jan and ahead of the St’s +3.4% forecast). RTRS Copper prices will surge to a record high this year as a rebound in Chinese demand risks depleting already low stockpiles, the world’s largest private metals trader has forecast. Global inventories of the metal used in everything from power cables and electric cars to buildings have dropped rapidly in recent weeks to their lowest seasonal level since 2008, leaving little buffer if demand in China continues to pace ahead. FT Authorities this week raided the Beijing offices of Mintz Group, detaining all five of the New York-based due diligence firm’s staff members in mainland China, the company said—an incident likely to unnerve global businesses operating in the country. WSJ China’s top diplomat Wang Yi urged Europe to play a role in supporting peace talks for Russia’s war in Ukraine, though the US has warned Beijing’s proposals would effectively freeze the Kremlin’s territorial gains. BBG Ukrainian troops, on the defensive for months, will soon counterattack as Russia's offensive looks to be faltering, a commander said, but President Volodymyr Zelenskiy warned that without a faster supply of arms the war could last years. RTRS Europe’s flash PMIs for March were mixed, with upside on services (55.6, up from 52.7 in Feb and ahead of the St’s 52.5 forecast) but downside on manufacturing (47.1, down from 48.5 in Feb and below the St’s 49 forecast). “Inflationary pressures have continued to moderate, with input prices falling sharply in manufacturing… overall input costs rose at the slowest rate since March 2021…the record easing of supply constraints marks a major reversal from the record delays seen during the pandemic” S&P Deutsche Bank was at the center of another selloff in financials. The bank tumbled 11% in Frankfurt and default-swaps on its euro, senior debt surged to the highest since they were introduced in 2019, when Germany revamped its debt framework to introduce senior preferred notes. Other banks with high exposure to corporate lending also declined. Commerzbank slid 9% and Soc Gen 7%.  BBG The Swiss authorities and UBS Group AG are racing to close the takeover of Credit Suisse Group AG within as little as a month, according to two sources with knowledge of the plans, to try to retain the lender's clients and employees. RTRS Citizens Financial is set to submit a bid for SVB's private banking arm, Reuters reported. Customers Bancorp is also said to be exploring a deal for all or part of SVB. Carson Block said depositors at SVB and Signature Bank should have taken haircuts after regulators seized the firms. BBG A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly subdued after the recent bout of central bank rate hikes and choppy performance stateside where Wall Street just about closed higher amid a dovish market repricing of Fed rate expectations.     ASX 200 was lower with risk appetite sapped by weak PMI data which returned to contraction territory. Nikkei 225 lacked conviction after the latest inflation data printed mostly in line with estimates. Hang Seng and Shanghai Comp. retreated after the central bank drained liquidity and as participants digest earnings releases, while it was also reported that the US added 14 Chinese entities to the red flag list. Top Asian News HKMA said Hong Kong has very little exposure to the European and US banking situation, while it needs to monitor the situation carefully for any further volatility but is not concerned about risks to the Hong Kong banking sector. China is to extend some tax relief measures, according to local media. Equities are back under marked pressure as banking sector concern re-intensifies within Europe, Euro Stoxx 50 -2.3% & ES -0.8%. Specifically, the European banking index SX7P -5.0% is the standout laggard amid broad-based pressure in banking names as CDS' for the stocks continue to rise alongside focus on the redemption of notes by Deutsche Bank and Lloyds; currently, Deutsche Bank -12% is the Stoxx 600 laggard. Stateside, futures are pressured in tandem with the above price action though with the magnitude less pronounced ahead of the arrival of US players and as we await potential updates to the regions own banking names. Apple (AAPL) supplier Pegatron (4982 TW) is reportedly looking to open a second factory within India, to construct the latest iPhone models, via Reuters citing sources. Top European News ECB is likely to reassure EU leaders regarding bank stability on Friday and is to call for EU deposit insurance, according to Reuters. ECB's Nagel says it is necessary to increase policy rates to sufficiently restrictive levels, whilst the APP wind down should accelerate from Q3. Domestic price pressures are likely to last for longer, whilst underlying inflation is increasingly concerning. There are signs of second-round effects from inflation-induced higher wage increases. ECB's Nagel says there is often a bumpy road after similar instances in the banking sector, not surprising there have been market moves. On Deutsche Bank's share slide, ECB's Nagel will not comment. BoE's Bailey says rates will rise again if firms hike prices, via BBC; "If all prices try to beat inflation we will get higher inflation," Bank headlines Deutsche Bank (DBK GY) announces a decision to redeem its USD 1.5bln fixed to fixed reset rate subordinated Tier 2 notes, due 2028. Lloyds (LLOY LN) has issued a notice of redemption for the entire outstanding principal amount of the USD 1bln 0.695% senior callable fixed-to-fixed rate notes due 2024. In terms of the accompanying risk-off price action, the desk notes the early redemption(s) can perhaps be taken as a negative if we assume the justification is that the bank(s) expect to see more dovishness/risk-off before the next fixed-to-fixed rate adjustment. UBS Wealth Management head Khan offered a retention package to Credit Suisse's Asia staff in Hong Kong town hall which focuses on stabilising the Credit Suisse Asia team and boosting banker confidence, according to sources. Credit Suisse (CSGN SW) and UBS (UBSG SW) are among the banks facing a US Russia-sanctions probe. Fed Balance Sheet: 8.784tln (prev. 8.689tln); Total factors supplying reserve funds 8.784tln (prev. 8.689tln); Loans 354.191bln (prev. 318.148bln); Bank Term Funding Program 53.669bln (prev. 11.943bln); Other credit extensions 179.8bln (prev. 142.8bln). FX The USD is benefitting from the marked risk-off move with the index surpassing 103.00 from a 102.50 base in short-order and extending further to a 132.25+ peak since. Action which comes to the detriment of peers ex-JPY, as USD/JPY has been lower by roughly a full point at worse (best) given its haven allure and with JPY repatriation factoring. Notably, CHF is outperforming its peers, ex-JPY, but is still softer overall as its proximity/exposure to the European banking situation continues to overshadow traditional haven status vs USD though it is markedly outperforming the EUR as the focus is on EZ banks this morning. As such, EUR is the standout laggard with EUR/USD down to a 1.0722 trough vs initial 1.0830 best, antipodeans are similarly hampered given their high-beta status and after Thursdays firmer action. Cable failed to see a lasting benefit from the morning's retail data while the subsequent PMIs were slightly softer than expected; but, again, the action is very much USD-driven. PBoC set USD/CNY mid-point at 6.8374 vs exp. 6.8367 (prev. 6.8709) Fixed Income Core benchmarks are experiencing a marked bid given the risk-off price action that we are seeing with an accompanying dovish re-pricing being seen for Central Banks. Specifically, Bunds have surpassed 139.50 and USTs above 1.17 with the respective 10yr yields down to 2.02% and 3.29% with market pricing in favour of an unchanged outcome at the next ECB and Fed meetings as such. Gilts are moving in tandem with EGB/UST peers and have eclipsed 107.00; BoE pricing is now heavily in favour of an unchanged outcome at the May meeting. Commodities Commodities diverge given the marked risk-off action with crude and base metals pressured while precious metals glean incremental support as the USD offsets the benefit of haven demand. Specifically, WTI and Brent are under USD 68.00/bbl and USD 74.00/bbl respectively which places them at the mid/lower-end of the current WTD USD 64.12-71.67/bbl and USD 70.12-77.44/bbl parameters. Spot gold is incrementally firmer though is yet to convincingly surpass USD 2k/oz while base metals are dented by the aforementioned tone with 3-month LME Copper slipping further below 9k to a USD 8940 low. Russia could recommend a temporary halt to wheat and sunflower exports, via Vedomosti; due to the sharp decline in prices. US base at North-east Syria's Al-Omar oil field has been targeted in an attack, according to security sources cited by Reuters. UBS maintains a positive outlook on Gold and targets USD 2050/oz by the end of the year. Geopolitics Ukraine's top ground forces commander said Ukrainian troops are to launch a counterassault soon as Russia's large winter offensive weakens without capturing the eastern city of Bakhmut, according to Reuters. Russian Security Council Deputy Chairman Medvedev says cannot rule out that Russian forces will need to reach Kyiv or Lviv to 'destroy the infection', according to RIA. US Pentagon said the US conducted air strikes in Syria which targeted an Iranian-backed group in response to a deadly UAV attack, according to Reuters and Wall Street Journal. US Treasury Secretary Yellen said sanctions on Iran have created a real economic crisis in that country and the US is constantly looking at ways to strengthen Iran sanctions but added that sanctions may not be sufficient to change a country's behaviour, according to Reuters. China's Defence Ministry said it monitored and drove away a US destroyer which entered the South China Sea Paracel Islands on Friday again and sternly demands the US to immediately stop such provocations, according to Reuters. North Korea said it conducted an important weapon test and firing drill from March 21st-23rd, while it added that it conducted a new underwater attack system in which it tested a new nuclear underwater attack drone and launched strategic cruise missiles. Furthermore, North Korea said its leader Kim guided the military activities and that Kim seriously warned enemies to stop reckless anti-North Korea war drills, according to KCNA. South Korean President Yoon said they will step up security cooperation with the US and Japan against North Korea's nuclear and missile provocations, while he said they will make sure North Korea pays the price for its reckless provocations, according to Reuters. US Event Calendar 08:30: Feb. Durable Goods Orders, est. 0.2%, prior -4.5% 08:30: Feb. -Less Transportation, est. 0.2%, prior 0.8% 08:30: Feb. Cap Goods Orders Nondef Ex Air, est. -0.2%, prior 0.8% 08:30: Feb. Cap Goods Ship Nondef Ex Air, est. 0.2%, prior 1.1% 09:45: March S&P Global US Manufacturing PM, est. 47.0, prior 47.3 09:45: March S&P Global US Services PMI, est. 50.2, prior 50.6 09:45: March S&P Global US Composite PMI, est. 49.5, prior 50.1 10:00: Revisions: Wholesale Inventories 11:00: March Kansas City Fed Services Activ, prior 1 DB's Jim Reid concludes the overnight wrap There's a bad bout of conjunctivitis going round the school at the moment and every member of the family has now had it with the last hold out being me until yesterday. So my eyes are a bit blurry this morning looking at screens. One of the twins believes he has conjunctiv"eye-test" as he thinks it's called. If he hadn't given it to me I'd think he was quite sweet. As I was looking at screens last night through weepy eyes, markets looked like they were trying to normalise. However late weakness in financials again was a big drag on the last couple of hours of US trading. Just after the European close, the S&P 500 was up over +1.2% and looked set to reverse a good portion of the previous day’s losses. However by the end of the session, further weakness in banks and cyclicals more broadly left the index only +0.30%, but having been down nearly half a percent with 30 minutes left in trading. The VIX, which intraday was near its lowest level (20.18) since the SVB issues became prominent, ended the day 0.35pts higher at 22.6. Today we'll see if the flash PMIs around the world are impacted by the early part of the mini banking crisis we've seen in the last two weeks. So watch the European and US numbers carefully. The renewed weakness in banks yesterday actually started in Europe with the STOXX Banks index down -2.27%. The STOXX 600 recovered from an intraday low of almost -1.0% to finish -0.21% lower overall. CDS markets highlighted the stress in European financials as the Subordinated Financial CDS index widened (+20bps) for the first time since last Friday – before the CS-UBS merger news – while the Senior CDS index was +9bps wider. In the US, the Regional bank ETF, KRE, was down -2.78% yesterday whilst the broader KBW Bank index was -1.73% lower as liquidity concerns of the smaller banks continue to permeate. Staying with bank liquidity, after the US close last night, the Fed’s weekly balance sheet data showed that the use of the Fed’s discount window was down from $153bn to $110bn, while the credit deployed to SVB and Signature was up from 143bn to 180bn, and lastly the new emergency bank lending facility (BTFP) was up from $12bn to $54bn. So net of the two failed banks there was little change, indicating that banks were not finding it necessary to access cheap capital. The market should look favourably on that from a contagion standpoint. Overnight S&P and Nasdaq futures are both up around +0.2% and 2 and 10yr UST yields are both around -4.5bps lower as we go to press. Far before that balance sheet data came out the S&P 500 opened much stronger, up +1.8% and stayed buoyant through the first three hours of trading, before the weakness in regional banks weighed on overall sentiment throughout the US afternoon. This was most pronounced with a bout of selling just before Treasury Secretary Yellen spoke in front of a House of Representatives subcommittee an hour or so before the US close. The selling might have been nervousness ahead of her remarks, given the negative market reaction to her comments before the Senate on Wednesday. Regardless, the S&P actually saw a +1.0% whipsaw move when Yellen said that the US government was “prepared for additional deposit action if warranted.” This was quickly faded, with the index continuing to trade between smaller gains and losses until it ended the day +0.30% higher. Despite the weakness in banks and Energy (-1.4%) on the back of lower oil prices, the S&P finished in the green thanks to Tech stocks outperforming on the lower rate outlook. The FANG+ index surged by +2.53%, whilst the NASDAQ 100’s gains (+1.19%) mean it’s now up nearly 20% from its lows at the end of December, almost meeting the traditional definition of a bull market. On the rates side, 10yr Treasury yields held up for the most part, with the 10yr yield -0.08bps to 3.427%. Short-dated rates were another story, with 2yr yields -10.4bps lower to 3.833% fully on the back of lower inflation expectations (-13.3bps), while 5yr rates were -7.2bps lower. This saw the 2s10s yield curve normalise a further +9.4bps yesterday to -41.3bps, which is the least inverted the curve has been in over 5 months. This drop in yields led by inflation expectations was also borne out in fed future pricing, where the market now only sees a 40% chance of a 25bp hike during the May meeting. In Europe there was a sharp decline in longer dated yields that accelerated later in the session, with yields on 10yr bunds (-13.3bps), OATs (-12.3bps) and BTPs (-10.4bps) all moving lower. Furthermore, those moves came in spite of some of the ECB’s hawks calling for further tightening. For example, Austria’s Holzmann said that the ECB would “probably have to add” to its rate hikes at the next meeting in May. And the Netherlands’ Knot said that “I still think that we need to make another step in May, but I don’t know the size of that”. Speaking of central banks, we had the Bank of England’s latest decision yesterday, who hiked rates by 25bps as expected. That takes the Bank Rate up to a post-2008 high of 4.25%, and 7 of the 9 MPC members were in support, with the other 2 preferring to remain on hold. Looking forward, the BoE said that they still expected inflation “to fall significantly” in Q2, aided by falling energy prices and the government’s move to extend the Energy Price Guarantee in last week’s budget. And when it comes to inflationary pressures, they said that if “there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.” In his review (link here), our UK economist writes that while he sees some upside to growth and pay, there are downsides to services CPI and credit conditions, making the next meeting in May a difficult decision to call. On balance, he sees more downside risks than upside, and holds onto his call for the Bank Rate to remain where it is at 4.25%, with the risks tilted to one further hike. Whilst we’re on central banks, yesterday also saw the Swiss National Bank hike rates by 50bps, taking the policy rate up to 1.5%. There were a number of hawkish-leaning details, including an upgrade in their inflation forecast relative to December, and their statement said that inflation was “still clearly above the range the SNB equates with price stability.” In the meantime, SNB President Jordan said that a “Credit Suisse bankruptcy would have had serious consequences for national and international financial stability and for the Swiss economy” and that “taking this risk would have been irresponsible.” This morning in Asia equity markets are lower with the KOSPI (-0.72%) the biggest underperformer with the Nikkei (-0.41%), the Shanghai Composite (-0.54%), the CSI (-0.27%) and the Hang Seng (-0.21%) trading in negative territory. Data from Japan has shown that consumer price inflation (+3.3% y/y) slowed in line with forecasts but for the first time in 13 months in February, compared to a +4.3% increase in January, mainly due to the effect of government’s energy subsidy program. At the same time, core-core CPI (excluding both fresh food and fuel costs) advanced further to +3.5% y/y in February (v/s +3.4% expected), notching the fastest y-o-y gain since January 1982. It followed a +3.2% increase in January highlighting the underlying inflationary pressures. Staying with Japan, the preliminary estimate for manufacturing PMI showed that sector activity remained in contraction for the fifth consecutive month in March after the reading came in at 48.6, albeit up from the previous month’s final reading of 47.7 as output and new orders remained under pressure. On the contrary, activity in the services sector expanded for the seventh straight month in March as the PMI edged up to 54.2, recording the fastest pace since October 2013, against prior month's reading of 54.0. Elsewhere, manufacturing as well as services in Australia slipped into contractionary territory as the manufacturing PMI fell to 48.7 in March from 50.5 in February with the services PMI deteriorating to 48.2 from the prior print of 50.7. When it came to yesterday’s data, the US weekly initial jobless claims came in at a 3-week low of 191k over the week ending March 18 (vs. 197k expected), pointing to continued strength in the labour market. Continuing claims saw a small increase to 1694k (1690k expected) and remains in a slight up-trend but not at a concerning level yet. Meanwhile, the new home sales data for February showed a modest rise to an annualised rate of 640k (vs. 650k expected), taking them up to a 6-month high. Over in the Euro Area, the European Commission’s preliminary consumer confidence data for March showed a decline to -19.2 (vs. -18.2 expected), marking a reduction after 5 consecutive monthly improvements. To the day ahead now, and data releases include the March flash PMIs from Europe and the US, along with UK retail sales for February, and the preliminary US durable goods orders for February. Otherwise from central banks, we’ll hear from the ECB’s De Cos, Nagel and Centeno, the Fed’s Bullard and the BoE’s Mann. Tyler Durden Fri, 03/24/2023 - 08:09.....»»

Category: blogSource: zerohedgeMar 24th, 2023

"Like A Scooby-Doo Ghost Town": Banks Yank Junk Loan Deals As Demand Craters

"Like A Scooby-Doo Ghost Town": Banks Yank Junk Loan Deals As Demand Craters The equity market may be enjoying an deeply oversold bounce (at least until the next bank crisis crushes sentiment again), but the same can not be said for the primary debt market - especially for junk-rated paper - where deals are getting yanked left and right as demand hits a brick wall. As Bloomberg notes, as the global bank crisis spreads, bank underwriters (those that are still standing that is) across the US and Europe are pulling sales and pausing future ones amid tepid demand. A quick look at the carnage shows that Barclays recently shelved a pair of loans for Ineos Enterprises and Russell Investments, while JPMorgan yanked a deal for Agiliti Health. Many other deals are about to be quietly pulled. “The primary loan market feels like a Scooby Doo ghost town — recently deserted and a bit haunted,” said Scott Macklin, director of leveraged loans at AllianceBernstein. It's easy to understand why the primary market is entering a deep freeze: traditionally fickle and swinging along market sentiment, the sudden takeover of Credit Suisse and the failure of a trio of US regional lenders have chilled all interest in semi-distressed paper and sparked renewed fears among investors who were already forecasting a recession. The timing, Bloomberg notes, could hardly be worse for Wall Street’s lucrative leveraged lending desks, which are still seeking to offload billions of dollars of risky corporate debt stuck on their books to institutional investors following a flurry of mistimed financings last year. In a painful twist for underwriting teams, bankers had found some "solace" in recent weeks with credit markets showing signs of recovery, with a bevy of leveraged buyouts announced in recent weeks, including Qualtrics, Univar Solutions and Cvent Holding. Yet hopes are quickly evaporating as volatility rips across markets, undermining efforts by banks to ramp up lending and grab back market share from private credit firms. European leveraged loan prices slid after investors got spooked about possible contagion risks from the forced marriage of UBS and Credit Suisse brokered by the Swiss government. That contributed to Barclays withdrawing a €820 million ($883 million) loan for Ineos Enterprises that arranger banks had been shopping to investors. The loan, which was intended to be denominated in both dollars and euros, was one of the rare deals that was to fund an acquisition rather than a refinancing this year. And there’s uncertainty about upcoming deals. Fears over the fallout from the SVB failure were also behind a duo of pulled loans: the $1.08 billion deal that medical equipment company Agiliti Health pulled and the proposed $1.16 billion amend-and-extend that Russell Investments withdrew. “Issuance will remain light until concerns over financial sector deposit flows and liquidity ease,” said UBS credit strategist Matthew Mish. “This should happen by mid-April at the latest as banks start reporting first-quarter earnings.” The latest loan market freeze comes at a time when leveraged loan issuance is already at its lowest volume since 2015 in the US and since 2016 in Europe, courtesy of the recent surge in interest rates which has hit investor appetite. Junk bond issuance has also been low, as it was last year. And with inflation stubbornly high and central banks committed to fighting surging prices, there’s likely to be more volatility ahead, Bloomberg notes. That adds to the challenge of underwriting new buyout debt, putting balance sheets at risk when investors are nervous about rising rates. “I expect volatility this year,” said Lauren Basmadjian, co-head of liquid credit and head of US loans and structured credit at Carlyle Group. “The Fed has been moving rates at unprecedented speeds. They still have their inflation target. They finally broke something, right? There’s going to be other consequences.” Meanwhile, even as trading prices on leveraged loans erased a good half of the gains they notched this year, they still remain elevated, largely thanks to the Fed's rate hikes. An index that tracks the average price of European leveraged loans fell almost half a cent on the euro on Monday, its biggest one-day drop since September. Such moves raise borrowing costs and make new buyout financings a near non-starter at the moment. “The concessions you might need to raise debt are probably fairly high now,” according to Young Choi, partner and global head of trading at King Street Capital Management. Tyler Durden Tue, 03/21/2023 - 13:20.....»»

Category: blogSource: zerohedgeMar 21st, 2023