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SignalPlus Morning Briefing 3 Apr 2023

发布日期: 2023年4月3日

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Softer US core inflation.?PCE inflation registered a softer 0.3% MoM in February (vs 0.4% consensus), and decelerated to 4.6% YoY vs 4.7% prior. Consumer spending fell 0.1% MoM in real terms but some give-back should have been expected given the outsized 1.5% MoM gains in January. Wages and salaries were up 0.3% vs 0.9% prior, and the deflator dropped to 5% YoY vs 5.3% prior, the lowest since September 2021.

US consumer sentiment was revised lower, but the market was more focused on the falling inflation components.?Overall sentiment fell to 62 in March vs 63.4 in the preliminary estimate, and down from 67 in February. However, markets were pleased with a fall in the 1-year inflation gauge to 3.6% vs 4.1% in February (slowest since April 2021), and the 5–10y gauge holding steady at 2.9% for the 4th straight month.
US regional bank stress continues to moderate.?Fed’s latest H.8 report, with data as of March 22, showed that small banks saw deposit?inflows?of $5.9B on a seasonally adjusted weekly basis while large banks saw outflows of ~$90B during the same period. There might have been some data-noise with regards to recategorizing some of SVB’s assets from a large bank to a smaller FDIC bank, but the peak of the deposit scare does appear to be over in the near term.
US bank credit growth continues to tighten. Week-over-Week growth in US commercial bank loans was the most negative over the past decade, and will require further monitoring to see if this turns into a longer-term credit drag for the next few months.

Worsening loan availability and high credit costs will continue to weigh on long duration assets like real estate for the foreseeable future. Commercial real estate and other duration sensitive assets (such as private equity) will like see much further capital drawdowns for many more quarters to come, and unlikely to be saved from lower discount rates alone.

Public equity investors couldn’t get enough into quarter-end.?S&P 500 had a 94% up-day as the index pretty much rallied +1.4% in a straight line on Friday with no real pullbacks ahead of quarter-end rebalancing. Retail favourite names continue to lead the current rally as professional money managers retrenched after a choppy start to the year.

Market breadth is worsening (again) as equities squeeze higher.Strength in the S&P is led by just a handful of mega-cap names (Apple, Microsoft, Amazon), where they are up 20% YTD while the rest of the stocks have merely treaded water. Equal weight SPX has also underperformed its market-weight brethren back to 1-year lows. Complacency has returned as people are hiding in the same names as a safe haven trade amidst the recent turmoil.

2023 earnings estimates are being adjusted lower as prices rally, richening equity multiples as investors turned more sanguine on falling inflation and the end of the hiking cycle.

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Equities are rich even compared with previous hiking episodes.?Even if we assume that the end of rate hikes are near us and the next cuts are due to come in 2H23, we are entering into a macro environment with the?highest core CPI %, lowest real economic growth, one of the highest S&P price-earnings multiples, and lowest EPS growth expectations?versus previous end-of-cycle comparisons. While no two cycles are exactly the same, and investment flow dynamics change over time, but it’s probably fair to say that equity valuations are at some of the richest levels both on a standalone basis and versus other macro variables.

Crypto markets saw a large month-end expiry on Friday, with nearly 25% of BTC options open interest having expired on the 31st. Crypto options open interest on CME reached a record high in March, even as futures OI have trended down over the same period. Realized vol momentum has picked up even as implied vol remains subdued, with ETH skews still biased to the downside vs BTC as we get closer to the former’s imminent unstaking event.