Market Observations - Nov 8
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ECON BRIEF Re-cap 11/7: Yesterday, the Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices report was released. According to the report, 60% of banks cited moderately or substantially weaker demand for home mortgages in Q3, up from 43% in Q2. Additionally, 34% of large and medium banks reported tighter standards for C&I loans, and 30% of small banks reported tighter standards, lower than 51% and 49%, respectively, the quarter prior. While it’s clear financial institutions are tightening credit standards, a notion that will assist the Fed in draining liquidity and credit from the market, the reaction is far from a crisis-level response.
The U.S. trade balance widened from $-58.7b to -$61.5b in September, the widest in two months. According to the median forecast, the deficit was expected to increase to -$59.8B. The value of imports rose 2.7% to $322.7b, the highest since February, while exports rose 2.2% to $261.1b, a more than one-year high.
Later today, consumer credit is expected to increase by $9.500b in September.
Tomorrow, wholesale inventories are expected to be flat (0.0%) in the final September report, following a 0.1% decline in August.
Later in the week, on Thursday, initial jobless claims are expected to rise from 217k to 219k in the week ending November 4.
Finally, on Friday, the preliminary November print from the University of Michigan on consumer confidence will be released. Consumer confidence has been on the decline as of late, off 8.6 points from the recent peak, weighed down by both current assessment and future expectations. Of course, as consumers often do, while indicating fatigue or pressure, they continue to spend, suggesting any elevated notion of concern from higher prices or higher financing costs has translated into a slower but still very positive pace of expenditures.
US Tuesday Market Wrap: Energy Slips as Optimism Dips!
The Nasdaq and S&P finished higher Tuesday, building on November's rally. The S&P rose for a 7th consecutive day for its longest winning streak since November 2021. The S&P gained 0.28%, the Nasdaq jumped 0.9%, and the Dow eked out a 56-point gain. Five of eleven S&P sectors closed green. Technology +1.12% led, and energy -2.21% lagged.
Technology stocks moved higher as yields slipped lower. The US 10y Treasury was down 9bps to yield 4.577%.
Each of the so-called “Magnificent Seven” mega-cap tech names gained on the day, with AMZN leading with a 2.1% gain.
While many major developed countries have paused their rate hiking cycles, they’ve also seen inflation risks start to flare back up over the last few months. As a result, the Reserve Bank of Australia raised rates by another 25 bps after keeping rates stagnant for several meetings.
Market participants remain mixed on China, with the International Monetary Fund upgrading the country’s 2023 and 2024 economic growth forecasts due to the government’s recent stimulus efforts. Meanwhile, investors are taking a cautious stance on the country, with foreign direct investment falling into negative territory for the first time on record.
Roughly 85% of Fannie Mae survey participants believe it’s a bad time to buy a home. With housing affordability at its lowest level in 39 years and rents at record levels in many places, the next generation of homebuyers remains locked out of the market. And Re/Max and other residential real estate brokerages continue to catch analyst downgrades on fears that last week’s National Association of Realtors (NAR) lawsuit could shake up the industry in a big way.
Energy commodities and stocks remain under pressure despite the consensus economic outlook improving and risks in the Middle East. Saudi Aramco is the latest oil giant to report a profit decline amid lower crude prices and weaker volumes.
Speaking of the global economy, demand for global freight remains challenged. FedEx reiterated its cautious outlook and is encouraging some of its pilots to seek work flying for American Airlines as it looks to trim costs further.
Robinhood is back in the news after another earnings miss that’s sending shares lower after hours.
A loss per share of $0.09 was lighter than the $0.10 expected, but its revenues of $467 million came in below the $480 million consensus estimate. Transaction-based revenues fell 11% YoY to $185 million. Within that, equities trading revenue fell 13% to $27 million, while crypto fell 55% to $23 million. A bright spot was options trading, which was unchanged at $124 million. Monthly active users also fell more than anticipated, coming in at 10.3 million vs. the 10.76 million expected. Its saving grace remains its net interest revenues, which nearly doubled YoY to $251 million thanks to a higher interest rate environment. The company has been working hard to increase its base of “sticky” assets, offering retirement accounts and high-yield offerings to compete for deposits. To help declining trading revenues and active users, it’s planning to launch U.K. brokerage services in the coming weeks. It also raised its 2023 operating expense estimate slightly to $2.399-$2.439 billion. Investors remain concerned about the company’s ability to drive revenue growth and deliver consistent profitability in the current environment. As a result, shares are down about 8% after hours and remain stuck in a roughly 18-month trading range.
After making marginal new highs in early US trading yesterday, the dollar pulled back, arguably dragged lower by the softness of US rates, helped by the sharp drop in oil prices and healthy reception to the US 3-year note auction. However, the dollar has returned a better bid today as the market continues to search for direction post-FOMC and US jobs report. The euro and sterling are the weakest of the G10 currencies through the European morning, in a day of light macro data.
Equities are softer. Overnight, nearly all the large markets but Taiwan, Australia, and India moved lower in the Asia Pacific area, and Europe's SXXP is lower for the 3rd consecutive session after rising every day last week.
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US index futures are lower. The S&P 500 has a 7-day rally in tow that is at risk. The Nasdaq has advanced for the past eight sessions. These are the longest rallies in a couple of years.
European 10-year yields are narrowly mixed, while the 10-year US Treasury yield, ahead of today's $40b sale, is a few basis points firmer near 4.59%.
Gold is consolidating inside yesterday's (~$1956.80-$1978.40) range. A convincing break of $1950 could move toward $1935 and then $1900.
December WTI is extending yesterday's 4.25% drop. It has nicked the 200-day moving average (~$76.75) for the first time since July. Chart support is seen at around $75.
China will report October consumer prices and producer prices tomorrow. The median forecast is for a 0.1% decline after a flat September report. Food prices remain key. Still, when food and energy are stripped out, China's core inflation stood at 0.8% in September. Producer prices have been falling on a y/y basis without interruption since the beginning of Q4 22. The deflation slowed every month in Q3, with the pace slowing to -2.5% in September from -5.4% in June. The deflation in producer prices warns that profits remain subdued.
The US economic calendar is light today. Still, like yesterday's trade figures, today's wholesale inventories could impact expectations of Q3 GDP revisions. That said, the market is not focused on Q3 growth anymore, regardless of the precise pace. Instead, the key is Q4, and consumer demand in particular, which is why next week's retail sales are especially important. Five Fed officials speak today, and what is striking is that all five officials are governors. Most notably, a little before the stock market main session begins, Chair Powell delivers opening remarks for the Fed's Division of Research and Statistics conference. Tomorrow afternoon, the Chairman participates on a panel at the IMF on monetary policy challenges in a global economy.
In the face of new reports of the dollar's demise, we note that the start of the US quarterly funding is off swimmingly. Despite a lower yield and the increased size, the $48b 3-year note drew a higher bid-cover, and indirect bidders returned in size. Tomorrow, the US Treasury auctions $40b 10-year notes and $24b 30-year bonds on Thursday. Also, perhaps pushing on rates was the dramatic drop in oil prices. The price of December WTI crashed by more than 4% yesterday to almost $77.25 a barrel. It is the lowest since late August and has taken out the 200-day moving average today near $76.75. While demand is the main concern, new reports suggest Russian shipments seem to be continuing to run well above what one would expect if it were honoring the commitment to reduce exports by 300k barrels a day through the end of the year. OPEC+ meets on November 26 to set output targets for H1 24. Late yesterday, API estimated a nearly 12mm barrel build of US commercial inventories.
Crypto Market Rundown
The global crypto market cap is $1.34T, a 1.39% increase over the last day. The total crypto market volume over the last 24 hours is $44.34B, which makes a 4.79% increase. The total volume in DeFi is currently $4.64B, 10.47% of the total crypto market 24-hour volume. Bitcoin’s dominance is currently 51.71%, an increase of 0.22% over the day -- data from CoinMarketCap.?
At the time of writing, BTC is trading at $35,380 on Uphold Ascent (+1.72% 1D). ETH has yet to reclaim its $1,900 mark, currently trading at $1,888 (+0.84% 1D).
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