Traders Market Weekly: Big Three Central Banks Resolve to be Tested.

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  • #51984
    TradersCom
    Keymaster

    Macquarie downgrades banks to ‘underweight’

    Macquarie has downgraded Australian bank stocks to “underweight”, noting that the outlook for the sector appears more challenging.

    The broker acknowledged that the banks remained well-placed to deliver their strongest pre-provision profit growth in over a decade, courtesy of rapid interest rate rises in 2022.

    However, a strong earnings outlook appeared to be increasingly priced in expectations, and the risk of ongoing upgrades was diminishing, according to analysts.

    “We see downside risk to earnings beyond the first half of 2023,” Macquarie analysts said. “Higher and persistent inflation and higher rates will likely result in lower asset prices, higher costs, and the risk of impairments.”

    The broker expects the banks to underperform the market throughout 2023.

    Macquarie’s order of preference is ANZ, National Australia Bank, Westpac and then Commonwealth Bank.

    #51985
    TradersCom
    Keymaster

    JPMorgan Model Shows Recession Odds Fall Sharply Across Markets

    Investors return to riskier assets as soft-landing hopes build
    S&P 500 still assigns 73% recession bet, from 98% in October

    JPMorgan model shows 7/9 asset classes now less than 50% chance of recession via Bloomberg:

    <50%
    U.S. high-grade credit
    U.S. high-yield credit
    5-yr treasuries
    STOXX
    EU high-grade credit
    EU high-yield credit
    5-yr EU gov't bonds

    >50%
    SP500
    Base metals

    Global money managers are far from bullish on the economic trajectory with the S&P 500 still assigning a 73% probability that a recession will ensue. But that’s down from as high as 98% last year and it’s consistent with an uptick in wagers on a soft landing that sparked an earlier new year rally.

    “Most asset classes have been steadily pricing out recession risks helped by China reopening, the collapse in gas prices in Europe and larger than expected inflation downshifting in the US,” said JPMorgan strategist Nikolaos Panigirtzoglou. “The market expects a much lower chance of recession than it did back in October.”

    Panigirtzoglou’s own colleague, Marko Kolanovic, warns investors may be underpricing the potential pressure on stocks from a growth slowdown in the months ahead. At the same time bears can find fresh ammo in weaker factory output and retail sales as well as a bond rally, while Federal Reserve officials warned rates would remain in restrictive territory.

    But thanks to a slow-burn rally of late, US high-yield credit has seen some of the sharpest repricing, with recession odds dropping to 18% from 33%. European markets have also suddenly danced to a bullish beat. The EuroStoxx index reflects just a 26% probability — down from 93%. JPMorgan calculates the metrics by comparing the pre-recession peaks of various classes and their troughs during the economic contraction.

    Economists are not so upbeat. Their consensus forecast has jumped to 65% from 50% in October.

    Meanwhile the bond market’s favorite recession signal, the Treasury yield curve, continues to flash a warning. For example, three-month bills yield more than their 10-year equivalents, suggesting investors are betting on a slowing growth trajectory.

    https://www.bloomberg.com/news/articles/2023-01-21/jpmorgan-model-shows-recession-odds-fall-sharply-across-markets?leadSource=uverify%20wall

    #51987
    Truman
    Participant

    Equity indices in the Asia-Pacific region began the week on a higher note, though markets in China, Hong Kong, South Korea, and Singapore were closed for Lunar New Year celebrations.

    —Equity Markets—

    Japan’s Nikkei: +1.3%
    Hong Kong’s Hang Seng: CLOSED
    China’s Shanghai Composite: CLOSED
    India’s Sensex: +0.5%
    South Korea’s Kospi: CLOSED
    Australia’s ASX All Ordinaries: +0.1%

    #51988
    Truman
    Participant

    Japan’s Prime Minister Kishida said that it is too soon to say whether the government’s accord with the Bank of Japan will be changed, adding that the economic situation will be taken into consideration when choosing the next BoJ governor.
    In New Zealand, Chris Hipkins will replace outgoing Prime Minister Ardern.

    #51990
    Truman
    Participant

    Major European indices trade on a mostly higher note while Italy’s MIB (-0.5%) underperforms.

    —Equity Markets—

    STOXX Europe 600: +0.2%
    Germany’s DAX: +0.1%
    U.K.’s FTSE 100: +0.3%
    France’s CAC 40: +0.1%
    Italy’s FTSE MIB: -0.5%
    Spain’s IBEX 35: +0.2%

    #51991
    Truman
    Participant

    European Central Bank policymakers Rehn and Knot spoke in favor of 50 bps rate hikes at the next few policy meetings.
    The European Commission is looking to complete the tenth package of sanctions against Russia by February 24.
    General elections in Turkey will be moved up to May 14 from June 18.
    Fitch affirmed Ireland’s AA- rating with a Stable outlook.

    There was no notable data

    #51992
    Truman
    Participant

    Salesforce (CRM 158.73, +7.48, +5.0%): Elliott Management aiming to take stake in Salesforce (CRM), according to WSJ
    Baker Hughes (BKR 31.59, +0.52, +1.7%): misses by $0.02, misses on revs
    Synchrony Financial (SYF 36.35, +0.94, +2.7%): beats by $0.13
    Wayfair (W 51.60, +4.81, +10.3%): upgraded to Overweight from Underweight at JPMorgan
    PayPal (PYPL 77.89, -1.20, -1.5%): Banks are planning new payment wallet program to compete with PYPL, according to WSJ
    Spotify (SPOT 102.75, +4.84, +4.9%): expects to cut about 6% of the employee base
    Shopify Inc. (SHOP 42.35, +1.87, +4.6%): upgraded to Buy from Hold at Deutsche Bank
    Abbott (ABT 109.41, -3.41, -3.0%): being investigated by federal authorities over baby formula issues, according to WSJ
    Pliant Therapeutics (PLRX 39.85, +17.34, +77.0%): reports positive data from the INTEGRIS-IPF Phase 2a trial demonstrating Bexotegrast 320 mg was well tolerated and achieved statistically significant FVC increase
    Evoqua Water (AQUA 47.89, +6.86, +16.7%): to be acquired by Xylem (XYL) in $7.5 bln all-stock transaction

    #51993
    Truman
    Participant

    An article from Nick Timiraos in The Wall Street Journal over the weekend indicated that the Fed is likely to raise rates by 25 basis points at the next FOMC meeting and could begin debating when to pause rate increases.

    According to Reuters, the latest survey of businesses by the National Association of Business Economics (NABE) indicated a 56% possibility that the economy was in, or will be in, a recession this year versus a nearly two-thirds possibility at the time of the last survey.

    #51994
    Truman
    Participant

    Wayfair (W 52.69, +5.90, +12.6%) and Salesforce (CRM 158.50, +7.25, +4.8%) are moving noticeably higher this morning. The former was upgraded to Overweight from Underweight at JPMorgan while the latter trades up on news that Elliott Management is aiming to take stake in Salesforce, according to The Wall Street Journal.

    #51995
    Truman
    Participant

    The S&P 500 futures are up 5 points and are trading 0.2% above fair value.
    The Nasdaq 100 futures are up 15 points and are trading 0.2% above fair value.
    The Dow Jones Industrial Average futures are up 85 points and are trading 0.3% above fair value.

    Treasury yields moved noticeably higher. The 2-yr note yield, at 4.18% a short time ago, sits at 4.22% now and the 10-yr note yield, at 3.49% a short time ago, sits at 3.54% now.

    WTI crude oil futures are up 0.5% to $82.08/bbl and natural gas futures are up 2.7% to $3.12/mmbtu.

    #51996
    Truman
    Participant

    U.S. Treasuries modestly lower start with longer tenors expected to pace the early selling.

    Overnight action was very limited, considering markets in China, Hong Kong, South Korea, and Singapore were closed for Lunar New Year celebrations and will remain closed tomorrow. Action in Europe has also been on the subdued side.

    Most notably, a couple ECB policymakers continued speaking about the need for more rate hikes. Economic data during the U.S. session will be limited to the 10:00 ET release of the Leading Index for December (consensus -0.7%; prior -1.0%).

    Crude oil has climbed past last week’s high to a level not seen since early December while the U.S. Dollar Index is down 0.1% at 101.93.

    Yields:
    2-yr: -2 bps to 4.18%
    3-yr: UNCH at 3.84%
    5-yr: +1 bp to 3.58%
    10-yr: +2 bps to 3.50%
    30-yr: +2 bps to 3.68%

    #51999
    Truman
    Participant

    Semiconductor stocks leading stocks higher:
    Advanced Micro Devices $AMD 75.51, +5.46, +7.8% Qualcomm $QCOM 128.91, +6.01, +4.9% after upgrade to Overweight from Equal Weight at Barclays.
    PHLX Semiconductor Index $SOX +3.1%
    VanEck ETF $SMH +2.97%

    Notably, semiconductor equipment companies Applied Materials (AMAT 111.51, +1.86, +1.7%) and KLA Corp. (KLAC 417.88, +4.03, +1.0%) trade up today despite receiving a downgrade to Equal Weight from Overweight at Barclays.

    Strength from semiconductor components helps to boost the S&P 500 information technology (+1.6%) to first place on the leaderboard for the 11 sectors.

    Salesforce (CRM 155.84, +4.59, +3.1%) is another winning standout from the info. tech. sector following reports that Elliott Management is aiming to take stake in CRM.

    #52009

    RALLY TIME – as equities rebound from recent major selloff
    And while further downturn in economy could be ahead – long term investors benefit
    by dollar cost averaging & PATIENCE … and a great tune to kick off the new week
    plus the entire FIRST CSN album from 1969 that went 4X platinum 🙂

    #52015

    Dow 33,629.56 254.07 0.76%
    S&P 500 4,019.81 47.20 1.19%
    Nasdaq 11,364.41 223.98 2.01%
    VIX 19.75 -0.10 -0.50%
    Gold 1,931.90 3.70 0.19%
    Oil 81.64 0.00 0.00%

    #52032
    Truman
    Participant

    Equity indices in the Asia-Pacific region ended Tuesday on a higher note while markets in China, Hong Kong, South Korea, and Singapore remained closed for Lunar New Year.

    —Equity Markets—

    Japan’s Nikkei: +1.5%
    Hong Kong’s Hang Seng: CLOSED
    China’s Shanghai Composite: CLOSED
    India’s Sensex: +0.1%
    South Korea’s Kospi: CLOSED
    Australia’s ASX All Ordinaries: +0.5%

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