The last hurrah for the Fed?

The last hurrah for the Fed?

Corporate Earnings News

Corporate earning calendar 13 - 20 April 2023

Thursday: Delta Air Lines, Fastenal Co.
Friday:
BlackRock Inc., JPMorgan & Chase Co., Wells Fargo & Co., PNC Financial Services Group, Citigroup, UnitedHealth Group
Tuesday: 
Bank of America, Goldman Sachs, Johnson & Johnson, Intuitive Surgical, Netflix, Lockheed Martin, Prologis
Wednesday:
Morgan Stanley, International Business Machines, Tesla, Abbott Laboratories, Lam Research Corporation, Citizens Financial Group
Thursday:
American Express Company, AT&T, Blackstone, Philip Morris International, Snap Inc., Union Pacific Corporation, Marsh & McLennan, Fifth Third Bancorp

Key data to move markets this week

EUROPE

Thursday: German Harmonised Index of Consumer Prices, Eurozone Industrial Production, and a speech by German Bundesbank President Joachim Nagel.
Tuesday:
Eurozone ZEW Economic Sentiment survey, German Current Situation and Economic Sentiment surveys.
Wednesday:
Core Harmonised Index of Consumer Prices and Harmonised Index of Consumer Prices.
Thursday:
German PPI, ECB Monetary Policy Meeting Accounts, and Eurozone Consumer Confidence.

UK

Thursday: GDP, Industrial Production, Manufacturing Production, and a speech by BoE Chief Economist Huw Pill.
Friday:
A speech by BoE MPC member Silvana Tenreyro.
Monday:
A speech by BoE Deputy Governor for Financial Stability Sir Jon Cunliffe.
Tuesday:
Average earnings, Claimant Count Rate, Claimant Count Change, and ILO Unemployment rate.
Wednesday:
CPI, Core CPI, PPI, and RPI. 
Thursday:
GfK Consumer Confidence.

US

Thursday: IMF and World Bank spring meeting, Initial jobless claims, Continuing jobless claims, and Producer Price Index. 
Friday:
IMF and World Bank spring meeting, Retail Sales, Michigan Consumer Sentiment Index, UoM 5-year Consumer Inflation Expectations, and a speech by Fed Board of Governors member Christopher J. Waller.
Tuesday:
Building Permits and Housing Starts.
Wednesday:
Fed’s Beige Book.
Thursday:
Initial jobless claims, Continuing jobless claims, and Philadelphia Fed Manufacturing survey. 

US Stock Indices 

Nasdaq 100 -2.53% MTD and +17.44% YTD 
Dow Jones Industrial Average +1.23% MTD and +1.62% YTD 
NYSE +0.82% MTD and +2.09% YTD 
S&P 500 -0.42% MTD and +6.58% YTD 

Mega caps: Alphabet, Amazon, Apple, Microsoft, Meta Platforms and Tesla were all down this week.

Apple is in talks with suppliers to make MacBooks in Thailand as part of the company's ongoing efforts to expand its manufacturing presence beyond China, Nikkei reported on Thursday. According to Bloomberg news, Apple assembled more than $7 billion of iPhones in India last fiscal year, tripling production in the world’s fastest-growing smartphone arena after accelerating a move beyond China. It now makes almost 7% of its iPhones in India through expanding partners from Foxconn Technology Group to Pegatron Corporation.

As noted by Refinitiv, Google will likely argue Thursday that the US Justice Department's allegations that it broke antitrust law to build and maintain its dominance of search are flawed and that its lawsuit should be thrown out, according to court filings. The government will likely defend its complaint, which said that Alphabet's Google acts illegally in paying billions of dollars each year to smartphone makers like Apple, LG, Motorola and Samsung, carriers like Verizon and browsers like Mozilla to be the default search for their customers. Google has argued in court filings that the payments are legal revenue-sharing deals and not illegal efforts to exclude rivals.

Energy stocks were up this week as oil prices recovered following OPEC+ announcement last week and on a falling USD. Energy Fuels, Apa Corp (US), Shell, Chevron, Marathon Petroleum, Phillips66, and Exxon Mobil Corporation were all up.

Materials and Mining stocks were mixed this week with Sibanye Stillwater, Yara International, CF Industries Holdings, Mosaic, Dow Chemical, Freeport-McMoran, CF Industries Holdings, and Albemarle Corporation all up, while Newmont Mining was down.

European Stock Indices

Stoxx 600 +0.99% MTD and +8.82% YTD 
DAX +0.48% MTD and +12.78% YTD 
CAC 40 +1.02% MTD and +14.26% YTD 
IBEX 35 +0.50% MTD and +12.75% YTD 
FTSE MIB +1.90% MTD and +16.55% YTD
FTSE 100 +2.53% MTD and +5.01% YTD 

Other Global Stock Indices 

MSCI World Index +0.25% MTD and +7.10% YTD
Hang Seng -0.44% MTD and +2.67% YTD

Fixed Income

US 10-year Treasuries at 3.40%.
German 10-year Bunds at 2.37%.
UK 10-year Gilts at 3.57%.

US yields dropped this week on signs of cooling inflation with the CME FedWatch tool showing markets are pricing in a 66.2% chance of a 25 basis point hike in May, with rate cuts seen in the second half of the year.

Commodities

Gold futures to $2,024.90 an ounce.
Silver futures to $26.67 per ounce.
West Texas Intermediate crude to $83.26 a barrel.
Brent crude to $87.33 a barrel.

Gold prices have continued to firm on growing expectations of slowing, or even paused, interest rate rises, which makes non-yielding bouillon more attractive. Gold is also benefiting from its safe haven status following the release of FOMC minutes which suggested further economic slowdown in the US this year. 

Falling interest-rate expectations are helping to support USD denominated assets like oil. Oil prices have climbed since the announcement earlier this month by OPEC+ of voluntary production cuts of 1.66 million barrels per day (bpd) from May until the end of 2023. It appears that markets have ignored the small build up in US crude oil stocks, viewing it mostly as the congressionally mandated release of oil from emergency reserve. Oil has remained above $80 per barrel since the OPEC+ announcement and, according to Fatih Birol, Executive director of the International Energy Agency, the global oil market could see tightness in the second half of 2023, which would push oil prices higher.

The USD dropped to two month lows this week on the news that inflation seems to be cooling, increasing the probability that the Fed may pause in May or in June. The GBP is +3.16% YTD against the USD and the EUR is +2.70% YTD. 

Bitcoin +5.53% MTD and +80.75% YTD
Ethereum +5.25% MTD and +59.85% YTD

Bitcoin hit its highest level this week since June 2022 before falling back down to below the $30,000 mark. On Wednesday Warren Buffet, Chairman and CEO of Berkshire Hathaway, said in an interview with CNBC, that bitcoin "doesn't have any intrinsic value... but that doesn't stop people from wanting to play the roulette wheel."

Note: As of 5:30 pm EDT 12 April 2023 

Global Macro Updates

The Fed’s pause for thought. FOMC minutes from the Fed’s 21-22 March meeting, released on Wednesday, revealed that "Several participants... considered whether it would be appropriate to hold the target range steady at the meeting" to assess how financial sector developments might influence lending and the path of the economy.” Although the Fed did end up raising rates by 25 basis points in March, there are growing expectations that the Fed will be pausing its hiking cycle after its May meeting. The labour market is finally showing signs of cooling, with non-farm payrolls coming in at 236,000 in March, down from February’s upwardly revised 326,000 jobs and 504,000 in January. Inflation also seems to be cooling with the Consumer Price Index (CPI) climbing 0.1% last month after advancing 0.4% in February. In the 12 months through March, the CPI increased 5.0%, the smallest year-on-year gain since May 2021, and down from February’s 6.0% year-on-year basis. However, the core consumer price index, which excludes food and energy and is closely watched by the Fed, increased by 0.4% in March following February’s 0.5% gain. Core CPI was up 5.6% on a year on year basis. It’s the first time in over two years that the core came in above headline inflation. 

These factors increase the likelihood of the Fed raising again in May by 25 basis points. Although expectations are rising that the Fed will pause in June, stubbornly high core inflation may . San Francisco Fed President Mary Daly on Wednesday said that “while US economic strength, labour market tightness, and too-high inflation suggest the Fed has more work to do on rate hikes, other factors including tighter credit conditions could argue for a pause.” Richmond Fed President Thomas Barkin said that the Fed has more work to do in bringing inflation down because the latest data on price pressures is not sufficiently weak.

ECB’s still fighting inflation. The European Central Bank will likely continue to raise rates. "We may possibly still have a little way to go on rate hikes at our next meetings, though I think it premature to decide now what we will do in May," French central bank chief Francois Villeroy de Galhau said in a speech in Washington. But Central bank of Austria governor Robert Holzmann has an even more hawkish view. He is reported as telling the Boersen Zeitung newspaper, "The persistence of inflation currently argues for another 50 basis points (in May) and we must continue to act decisively and continue to raise key interest rates noticeably even beyond May." Markets have fully priced in a 25 basis point increase for the next ECB meeting on 4 May although the possibility of a larger hike cannot be discounted given that markets are expecting another 75 basis point rise in total this year. 

UK economic outlook remains weak. An updated 0.4% expansion in January left the growth rate unchanged in February, the Office for National Statistics said on Thursday. This follows IMF forecasts earlier this week showing the UK at the bottom of the G7 in terms of expected economic growth in 2023, with a 0.3% contraction pencilled in, equivalent to a 0.7% fall on a per capita basis. Market pricing currently indicates around a 75% chance of one more 25 basis point hike.

On Wednesday BoE Governor Andrew Bailey said that the BoE may need to consider raising the UK’s £85,000 insurance limit on deposits, which has been in place since 2017. The final decision would rest with the UK Treasury acting on a recommendation by the BoE. Bailey suggested deposit insurance was not working as intended as he noted the technology we have today – both in terms of communication and speed of access to bank accounts – can go further much more quickly. But he said that any increase in the £85,000 limit could have “cost implications for the banking sector as a whole.” He made clear that financial stability continues to mean that “monetary policy takes into account financial conditions but does not have to aim off for instability.” He also stated that central bank balance sheets will remain larger than pre-crisis for financial stability reasons. 

Ether’s upgrade. On Wednesday night Ethereum experienced its latest software upgrade. Its previous upgrade was the “Merge” last September, which created a new “proof-of-stake” method allowing Ether holders a chance to earn more by pledging, or staking, their tokens to wallets in exchange for yield, denominated in new Ether. Within the first hour of the hard fork, which is when there is a branching of a cryptocurrency's blockchain that splits a single cryptocurrency into two, there was a total of 12,859 Ether unlocked in 4,333 withdrawals, according to Ethereum block explorer beaconcha.in. The hard fork can theoretically unlock 18.1 million Ether on the Beacon Chain currently equating to over $34.8 billion, however, several mechanisms are in place to prevent a flood of ETH from hitting the market, according to the Ethereum Foundation.

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