Weekly Market Report: April 21, 2023
Last week was relatively quiet as markets weighed a modest amount of economic data and digested the second week of the first quarter’s earnings reports. With big tech earnings and PCE inflation data on deck, markets may have been looking ahead. Equity markets have stalled out around the February highs with U.S. and developed non-U.S. markets pretty flat last week, now sitting up 8% and 12% respectively on the year. Bonds were weaker with interest rates moving slightly higher across the curve leaving the 10yr UST at 3.57% and both 3m/10yr and 2yr/10yr slopes still meaningfully inverted. Commodities traded lower with oil’s 5.6% decline taking WTI crude oil back below $80 and the USD appreciated 0.27% to bring its YTD loss down to -1.64%.
Market Anecdotes
- First quarter earnings season update has a 76% beat rate and 5.8% beat margin with blended earnings of -6.2%. Top line revenue is seeing a 63% beat rate and a 1.8% beat margin with blended revenue of 2.1%.
- Second quarter earnings are forecasted to decline 5% by Q3 and Q4 are projected at +1.6% and +8.5% respectively for a full calendar year 2023 growth of +0.8%.
- Markets have quickly reversed rate pause and cut forecasts for later this year, now pricing an 89% likelihood of a 25bps hike on May 3rd. The 3-month T-bill hit 5.20% last week, its highest since 2001, and the forward curve (terminal rates) is now much closer to formal Fed projections.
- Bloomberg noted the BoA Merrill fund manager survey registered its most bearish reading since the GFC with a high cash allocation, a net 10% overweight to bonds, and a healthy 63% of respondents expecting a weaker economy.
- 3.5% of ECB rate hikes, tightening bank lending standards, and elevated inflation have the ZEW Survey of German investor sentiment looking low and deteriorating, similar to the U.S.
- In forecasting lower fuel prices, RBC Capital Markets noted global refining capacity is set to increase by 1.5mbpd in 2023 and 2.4mbpd in 2024, the largest two-year increase in 45 years.
- The U.S. tax deadline hit us all last week, a time when bank deposits typically drop by approximately $250b to pay the invoice. Weaker than expected tax collections of $108b on tax day last week may have pulled the debt ceiling debate into June.
- Bank deposit flight has slowed to a trickle but the expectation is that deposits will continue to leave the banking system until the gap between deposit rates and money fund rates closes.
- Bloomberg reported weekly loan volume (+$61b) and deposits (+$10b) with the 2023 deposit buildup to tax deadline obviously looking very different from prior years.
- With the exception of Japan and Australia, consensus 2023 growth is higher now than at the beginning of the year in every major economy. China reported YOY Q1 GDP of 4.5%, up from Q4’s 2.9% pace.
Economic Release Highlights
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U.S. March PMI data (C, M, S) registered 53.5, 50.4, 53.7 showing improvements on both manufacturing and services fronts.
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E.U. and U.K. March PMI data (C, M, S) registered (54.4, 45.5, 56.6) and (53.9, 46.6, 54.9) respectively.
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The April NY Fed Services Activity report showed healthy levels of business activity and clearcut disinflation trends but the overall business climate deteriorating to 2012 levels.
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April’s Housing Market Index registered 45, in line with consensus and a 1 point improvement over the March reading.
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March Housing Starts (1.420mm) and Permits (1.413mm) came in within consensus range after both readings jumped sharply higher in February.
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Existing Home Sales of 4.444mm in March were slightly under consensus estimate of 4.5mm.
