YOUR QUIVER | February 1, 2023
Today's Rundown
CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.
Powell's Power
We’ll see how he wields it today in the Q&A after, most likely, raising rates again another 25bps. If there is a surprise 50bps hike, then I should have titled this note When Doves Cry. The fun starts at 11am PT and 2 pm ET. As a reminder, though, March is the bigger meeting because the Fed releases an updated Summary of Economic Projections and accompanying Dot Plot only at quarterly meetings. Chart below per UBS and BBG.
Raise the Roof
Today, House Speaker McCarthy and Prez Biden are meeting to discuss raising the debt ceiling, cutting spending and avoiding a default.
Around the World
South Korea reported a record trade deficit in Jan, with exports down -17% y/y. Hong Kong’s GDP fell by -4.2% in 4Q22, worse than expected. China’s Caixin manufacturing PMI increased a bit to 49.2 (still under the 50-52 threshold for stronger levels). India is raising the cap of income tax exemption and cutting rates, trying to lower its deficit to 5.9% of GDP. Eurozone inflation slowed fasted than expected to 8.5% (only!). Core flattened at 5.2%. Tomorrow, we get the ECB hike, so we’ll see how much the recent inflation data moves the needle for them and their projections.
Making Sense of It
Lots of economic data. The Fed cares about the labor data which slowed, the ISM shows inflation peaking, and new order softness means earnings won’t be as good in the future. But as pointed out by RBC, the soft ADP data may be due to the weather because non-weather weeks were more consistent with recent months, so it may not be such a dovish sign. Also, another RBC gem. Layoff announcements don’t show up in the claims number because of severance packages. So, it’s a bit more complex of a read than just looking at the headlines.
Stockpiling
US stockpiles of crude increased by 6.3mm barrels last week, per the API. Also increases at Cushing and for gas and distillate inventories.
Current Multiples
The forward multiple for the S&P 500 is around 18x, so you’re probably hearing lots of folks on the news networks talking about the market being too hot. A level of 18x implies that the Fed will engineer a soft landing and fiscal or monetary stimulus is headed our way. Not too surprising that the market rallied into month end….helps a lot of portfolios…UBS noted that the NYSE’s market-on-close imbalance was historically massive. Cash coming into stocks suggests large institutions were doing some “window dressing” or deploying new capital after a bad year for equities.
BRRR-REIT
It was a cold Jan for Blackstone’s $69bn REIT, hitting its monthly redemption limit. They gave back 2% but investors, according to BBG, wanted 4x that amount.
More Adani News
Its stock fell by -28%, making investors nervous over the collateral they need to cover loans. CS stopped accepting bonds from Adani Group as collateral for margin loans to private banking clients. You can bet other institutions are trying to determine what to do right now, and the spiral has started. Chart per BBG below.
