YOUR QUIVER | January 17, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Marginal Difference
Consensus has margins rising at 66% of companies, with EBIT margins expected to increase by 100bps between 4Q22 and 2H23 for the S&P ex Fins/Energy. As we have warned, even though energy costs may have abated, labor and other costs are up—so it is unlikely companies will be able to push through price or cut expenses enough to make this happen so quickly. One of our PBs sees the most risk for Materials (margins and revisions), Industrials, Household Products, Retail Comm Services, and Pharma.
Retail Flows
One of our PBs notes that large retail clients are rotating out of ETFs and back into single stocks. Equity ETFs have seen $715mm of outflows MTD, which is nearing the all-time-record of $775mm set in Apr 2020. They are noting inflows into $AMZN and $TSLA, interestingly (can’t keep away from these favorites, I guess). Comparing inflows of the same months, Apr 2020 had $2.4bn, and this MTD is only $877mm. So, folks are switching.
BOJ Big Deal
The BOJ could change its yield curve control policy and create some vol (Bloomberg). Their JGB purchases are still near a record pace (Nikkei). Plus, Japan’s December core CPI is near a 41-year-high (Reuters). Traders are betting on a potential swing of 2%+ in currency bets for the dollar-yen pair (both ways), with the IVOL overnight jumping to the highest since Nov 2008/GFC. Potential yield-curve control is driving up borrowing costs, scuttering potential corporate bond deals.
EZ Trade Notes
One of our PBs notes that signs of consolidation across Europe ahead of BOJ meeting tomorrow. Volumes are up, and cyclicals are underperforming. Oil weakness relates to TTE’s negative update. Autos are down because of chatter that Chinese EV brands are outperforming European ones. Profit taking on banks that are overbought, and retail is soft too. China reopening names keep getting LO inflows. Mining and Industrials lead the outflows this MTD.
In the Same Boat
Similar to briefings in the US, the ECB’s chief economist Lane says it has to keep raising rates to fight off inflation (Reuters). Fitch is translating ECB guidance and core inflation to a higher terminal rate (Fitch). Plus, their labor is tight too. We’ve got data out of the UK (ONS) and stories about UK worker shortfalls due to Brexit curbs (FT) plus UK insolvencies up 32% y/y in Dec.
China Notes
Per BBG, the Chinese economy slowed, but the data broadly beat expectations with GDP +3% in 2022 and +2.9% in 4Q22 (Bloomberg). Interestingly, trade with the US is on track to break records, with the year roughly at $760bn.The gov extended its relaxed floor on mortgage rates indefinitely (Nikkei). Promising fun times ahead, PBOC vice governor Xuan reassured folks that its policies will provide support (Xinhua). Not surprisingly given Zero Covid and other challenges, China's population fell for first time in decades (National Bureau of Statistics).
In the Bank
Lots of Financials reporting today. $CFG (EPS est $1.31), $FBK (EPS est $0.79) as well as $GNTY, $MBWM, $SBNY, $SI, $FULT, $HWC, $IBKR and others. $GS missed on net rev, yet its traders had a great year that helped buffer its consumer divisions $2bn hit. Provision for credit losses >2x. $MS beat on revs, due to a strong wealth mgmt. unit.
Retail Headwinds
That’s what $MS talked about, given weak consumer spend, less overconsumption, negative unit growth, disinflation, less margin recapture, and everything else you could think of.
