26 Apr. 2023 06:32
LIVE MARKETS-U.S. stocks tumble as earnings, banks stoke recession worries
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Main U.S. indexes end red: Nasdaq off ~2%
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All 11 S&P sectors close lower; materials weakest
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Dollar, gold, bitcoin rise; crude falls ~2%
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U.S. 10-Year Treasury yield slides to ~3.40%
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U.S. STOCKS TUMBLE AS EARNINGS, BANKS STOKE RECESSION
WORRIES (1605 EDT/2005 GMT)
Major U.S. stock indexes tumbled on Tuesday, as a
combination of soft earnings from economic bellwether United
Parcel and rekindled concerns about regional banks
fueled anxiety about an economic slowdown.
UPS plunged nearly 10%, its biggest daily percentage drop
since July 25, 2006, after the shipping company forecast annual
revenue at the lower end of its prior forecast and warned of
persistent pressure on parcel volumes. That sent the Dow
Transports down 3.6% for its biggest one-day percentage
drop since Sept. 16.
Adding to pressure was a drop of nearly 50% in First
Republic after the bank reported a drop of more than
$100 billion in deposits, and said ti was exploring options such
as restructuring its balance sheet, rekindling concerns about
the health of regional banks. The KBW Regional bank index
slid 3.9%.
In addition, economic data showed consumer confidence
dropped to a nine-month low as the effects of the Federal
Reserve's aggressive interest rate hikes may be starting to take
hold. The central bank is still largely expected to raise rates
by 25 basis points at its May 2-3 policy meeting, according to
CME's FedWatch Tool.
The Dow Industrials , S&P 500 and Russell 2000
each ended the session with their biggest one-day
percentage fall since March 22. For the Nasdaq , it was
the largest drop since March 9, when concerns about regional
banks began to erupt.
Below is your closing market snapshot:
(Chuck Mikolajczak)
*****
MEGACAP EARNINGS KEY TO S&P 500 SUCCESS (1330 EDT/1730 GMT)
Investors will get a look at a host of earnings from megacap
companies over the next two weeks, many of which reside in the
tech sector, and earnings will have to buck the recent
trend and deliver if they are to keep supporting the S&P 500
.
Nicholas Colas, co-founder of DataTrek Research, notes that
Apple , Microsoft , Alphabet , Amazon
, Nvidia , Meta and Tesla are
responsible for 86% of the year-to-date performance of the S&P
500 (SPX up 7.8% YTD through Monday's close). The four companies
due to report this week - Microsoft, Alphabet, Meta and Amazon,
account for 41% of the gains in the benchmark index this year.
Colas said there are several reasons for their
outperformance this year - the "January effect" bounce at the
start of 2023 after being oversold at the end of 2022 as tax
loss selling faded, aggressive cost cuts by the companies and
lastly, a decline in interest rates, which have supported the
valuations of these high-multiple stocks.
But the last four quarters have been a mixed bag of earnings
reports with regard to beating or missing analysts' estimates,
generally missing expectations on a consistent basis over the
past year.
Given their performance this year, the market seems to be
anticipating they will largely buck that trend for the first
quarter and as such "a lot is riding on that assumption," said
Colas, because "without them, the S&P 500 would only be up 1.1%
on the year."
(Chuck Mikolajczak)
*****
GOT DEBT-CEILING DEBATE ANGST? RELAX (1250 EDT/1650 GMT)
"The United States is not going to default on its debt,"
writes Joe Lavorgna, chief U.S. economist at the SMBC Group, in
a research note.
Additionally, Lavorgna doesn't expect there will be a
technical default on the debt whereby the Treasury misses an
interest payment.
Nervous Nelly bond investors not withstanding, Lavorgna says
a more realistic concern, although still remote, is whether
another one of the three main rating agencies downgrades
Treasury debt.
In August 2011, the S&P rating agency downgraded U.S. debt
one-notch from AAA to AA+. Fitch and Moody’s maintained the
Treasury’s AAA status at the time, but put the government on
negative watch.
In any event, Lavorgna is not expecting any of these rating
agencies to make a move any time soon, and therefore, he is not
worried about a 2011 repeat downgrade.
According to Lavorgna, a more important factor to consider
is the current makeup of the GOP-led House.
Because the Republicans have a slim nine seat majority, it
means that Speaker McCarthy cannot lose more than four votes to
keep his coalition intact. Therefore, his negotiating power is
severely limited, which means the White House can continue to
advocate for a clean debt ceiling bill.
If it comes down to brinkmanship, LaVorgna believes five, if
not more, moderate Republicans could easily break ranks and join
the Democrat side. Thus, he says the current situation is
nothing like 2011 when the Republicans had a huge 49-seat
majority, and cadre of vocal Tea Party members.
Lavorgna's bottom line is that "unless the Administration
agrees to a temporary suspension, which is possible if they
believe it can be used to their advantage to highlight their
spending priorities, we should expect a debt ceiling deal
sometime in late July. Congress has an incentive to get it done
then, ahead of their standard summer recess beginning in August.
Stay tuned."
(Terence **riel)
*****
SWISS FRANC TAKES ON YEN AS TAIL RISK HEDGE (1215 EDT/1615
GMT)
The Swiss franc is increasingly being used as a tail hedge
when traded against the U.S. dollar as it benefits from a more
favorable carry than the Japanese yen, according to Citi analyst
Vasileios Gkionakis.
Gkionakis notes that the greenback has dropped 3.5% against
the Swiss currency since U.S. regional banks came under stress,
with the failure of Silicon Valley Bank in mid-March. By
comparison, EURCHF and USDJPY are down by only 0.1% and 0.5%,
respectively.
In addition, three-month risk reversal in USDCHF has fallen
the most when compared to EURCHF, USDJPY and EURJPY.
“In our view, this is suggestive of underlying demand for
tail risk hedging, but this time expressed mostly in USDCHF
shorts vs shorts in USDJPY, which is thought as a more
traditional safe haven,” Gkionakis said in a report sent on
Tuesday.
Gkionakis noted that the outperformance by the Swiss
currency against the yen is likely “down to carry
considerations,” adding that the one-year differential in USDJPY
based on forward implied yields is around 5.2%, compared to 3.2%
in USDCHF.
“200bps is a meaningful difference. And that is why the
yield differential broadly explains the CHFJPY appreciation
since the beginning of 2022, which has taken the pair to its
highest level since 1979,” Gkionakis said.
(Karen Brettell)
*****
TUESDAY DATA: RUNNIN' DOWN THAT HILL (1140 EDT/1540 GMT)
Data released on Tuesday added a few more bricks to the wall
of economic jitters. Near term consumer worries are mounting,
new home sales jumped on an inventory demand shift, and home
price growth cooled to its lowest annual pace since 2012.
The attitude of the American consumer, who carries about 70%
of the U.S. economy on his back, has soured more than expected
this month.
The Conference Board's (CB) consumer confidence index
dropped 2.9 in April to 101.3, touching the lowest
level in nine months.
"Consumers became more pessimistic about the outlook for
both business conditions and labor markets," writes Ataman
Ozyildirim, CB's Senior Director of Economics. "Compared to last
month, fewer households expect business conditions to improve
and more expect worsening of conditions in the next six months."
"They also expect fewer jobs to be available over the short
term," Ozyildirim adds.
Beneath the headline, while the survey participants'
assessment of "current conditions" brightened by 2.2 points,
their near-term "expectations" plunged 5.9 points to 68.1,
pulling further south of 80, a level CB associates with
recession.
Recession watchers will note the a widening gap between the
two components is more often than not a harbinger of economic
contraction:
Pivoting to the housing market, the sale of freshly
constructed U.S. homes surprised to the upside by
jumping 9.6% in March to 683,000 units at a seasonally adjusted
annualized rate (SAAR).
That's 8.4% to the north of the consensus 630,000 units
SAAR.
But is this indicative of surging demand?
Kieran Clancy, senior economist at Pantheon Macroeconomics
says it has more to do with slim pickings.
"New home sales continue to outperform the level implied by
mortgage demand by a wide margin, largely thanks to the relative
lack of existing home supply," Clancy says. "Crucially, though,
this merely is a compositional shift in demand."
Separately, home price growth was cooler in February than
its been in nearly 11 years.
S&P Core Logic Case-Shiller's 20-city composite
showed a year-on-year increase of 0.4%, the coolest reading
since May 2012.
Even as the housing market gradually cools as it comes back
to earth, inventories remain tight, mortgage rates are still
elevated, and lending conditions - as a result of Fed rate hikes
and regional banking pressures after the collapse of SVB and
Signature banks - securing a mortgage and making monthly
payments remains beyond the grasp of many would-be buyers.
"The results released today pre-date the disruptions in the
commercial banking industry which began in early March," notes
Craig Lazzara managing director at S&P DJI. "The Federal Reserve
seems focused on its inflation reduction targets, which suggests
that interest rates may remain elevated, at least in the
near-term.
"Mortgage financing and the prospect of economic weakness
are therefore likely to remain a headwind for housing prices for
at least the next several months," Lazzara adds.
City-by-city, home prices in San Francisco and Seattle were
down most, while Miami remains hot, jumping 10.8% year-on-year.
The data, along with a spate of mixed earnings results, put
investors in a selling mood.
All three major indexes were red, with the tech-laden Nasdaq
suffering the worst of it ahead of Microsoft and
Alphabet earnings.
(Stephen Culp)
*****
U.S. STOCKS DIP AS COMMODITY-RELATED SECTORS REVERSE (1004
EDT/1404 GMT)
Wall Street is lower in the early stages of trading on
Tuesday, although losses on the Dow are somewhat curbed
by gains in UnitedHealth .
Commodity-related materials and energy
are the worst performing among the 11 S&P 500 sectors, as
the two reverse gains seen in the prior session as the dollar
strengthens.
The focus is on corporate earnings with a slew of
heavyweights scheduled to report this week, including Google
parent Alphabet and Microsoft after the
closing bell on Tuesday.
United Parcel shares are tumbling nearly 9% after
the delivery company forecast annual revenue at the lower end of
its prior forecast and warned of persistent pressure on parcel
volumes. That's pulling peer FedEx down more than 2% and sending
the Dow Jones Transports about 3% lower.
On the economic front, the S&P CoreLogic Case-Shiller
national home price index showed single-family home prices rose
in February, but the overall trend continues to point to a
slowdown in home price inflation. New home sales for March were
above expectations.
A gauge of consumer confidence for April came in well short
of expectations.
Below is your market snapshot:
(Chuck Mikolajczak)
*****
S&P 500 INDEX, AKA THE SLOTH (0900 EDT/1300 GMT)
April has been one quiet month for the S&P 500 index
so far.
Indeed, with just four trading days left in the month, the
SPX is last up just 0.68% in April. This has it on track for its
smallest monthly change since May of last year and the smallest
April change since 2018, when the index gained 0.27%.
That said, despite last May's miniscule gain of just 0.005%,
the fact is that was one wild month overall. The benchmark
index's high-to-low range as a percentage of the prior month's
close last May was 12.04%.
That certainly hasn't been the case this month. So far in
April, this measure stands at just 2.43%, or its lowest reading
since 2% in June 2017.
Meanwhile, the SPX gained just 0.09% on Monday, marking the
fourth session out of the past five where the absolute value of
its change was less than 0.1%.
With this, historical volatility has contracted. In fact,
one measure, Bollinger Band width, on a hourly basis, hit a
fresh one-year low late in Monday's session:
Compressed band width does not in itself predict direction,
but it can flag a market ripe for much more spirited action, or
indeed, its next trend.
Prior to last Thursday, the hourly band width low over the
past year occurred in the last hour of trading on Wednesday
August 24. By the Friday of that week, the SPX was in a tailspin
thanks to Fed-Chair Powell's August 26 Jackson Hole speech.
Whatever the next catalyst may be, traders remain on guard
for the benchmark index to suddenly awaken.
(Terence **r
(20min delay)