Markets Today – No Help Coming

By Rodrigo Catril

Todays podcast

• After the positive start the S&P 500 closes lower again
• Banking afflictions outweighing better than expected Tech earnings
• Core yields edge higher. 10y UST up 4bps to 3.445%
• USD down with EU fx outperforming. Euro trades at its highest level in over a year.
• AUD leads commodity linked FX decline and starts new day at 0.6605
• Weaker oil prices not helping with softer than expected AU CPI the additional headwind
• Coming up: NZ Business confidence, US Q1 GDP and Jobless claims. Caterpillar, Amazon and intel reports

Events Round-Up

NZ: Trade balance (ann $b), Mar: -16.4 vs. 15.7 prev.
AU: CPI (y/y%), Q1: 7.0 vs. 6.9 exp.
AU: CPI trimmed mean (q/q%), Q1: 1.2 vs. 1.4 exp.
AU: CPI trimmed mean (y/y%), Q1: 6.6 vs. 6.7 exp.
GE: GfK consumer confidence, May: -25.7 vs. -28.0 exp.
US: Goods trade balance ($b), Mar: -84.6 vs. -90.0 exp.
US: Durable goods orders, Mar: 3.2 vs. 0.7 exp.
US: Durables ex transportation, Mar: 0.3 vs. -0.2 exp.

After a positive start, the S&P 500 fell for a second day in a row with banking afflictions outweighing better than expected Tech company earnings. First Republic Bank fell another 30% following reports the government is currently unwilling to intervene for the bank. Core yields have edge higher with 10y UST yields up 4bps to 3.445% while the USD is softer, mostly reflecting EU fx outperformance.  The AUD has led a commodity linked FX decline and starts the new day at 0.6605

After jumping close to 0.4% at the open, largely reflecting the better-than-expected earnings results from both Alphabet and Microsoft after the bell yesterday, the S&P 500 recorded a second consecutive day of negative return. The benchmark closed the day down 0.38% with the tech heavy NASDAQ up 0.47%. Concerns over the US banking sector continues to weigh on sentiment with First Republic Bank the centre of the attention. The bank’s shares fell over 40% intraday, recovering before the close to end the day “just” 30% lower, after falling 50% in the previous day. The bank is currently fighting for survival and the overnight sell off came after CNBC reported the government is currently unwilling to intervene for the bank.

Bloomberg notes that regulators are angling towards a private rescue that doesn’t involve the US seizing the bank and taking a multibillion-dollar hit to the FDIC’s insurance fund. On the other side, large banks that could come to the rescue are waiting for more aid from the government. CNBC reported that the bank’s advisers have lined up potential buyers for new shares. The challenge is that this requires the large US banks which have already contributed $30bn of deposits to First Republic, to agree to buy bonds from the company for more than they’re worth. CNBC notes the banks would suffer an immediate loss, but if First Republic survives the large banks could benefit from a recovery in First Republic share price as well as avoid a bigger loss on the deposits they made plus any FDIC fees that would follow a failure.

The US share market is split between tech majors, doing well on the back of strong earnings with Meta, the latest on that front, surging after the bell today following better than expected earnings as well as a strong Q2 outlook while Financials (and the rest) are hit by banking uncertainty and recession fears. Of some relief and suggesting banking concerns are not yet a systemic risk, smaller regional bank PacWest Bancorp, which has also been on the watchlist, is up over 10%, after reporting stable deposits in late March and a rebound in April.

Core global yields edge up overnight with the UST curve showing a mild flattening bias.10y and 5y UST yields climbed around 4bs to 3.49% and 3.448% respectively with the 2y tenor up 6bps to 3.95%.

Looking at economic news, US durable goods orders for March revealed a surge in the headline (+3.2% m/m following vs the 0.7% consensus f/c) thanks to a jump in aircraft orders which reversed weakness seen in February and January. Ex-aircraft orders were +0.3% m/m, still above a 0.2% estimate. But the more important non-defence capital goods orders ex-aircraft were weak at -0.4% and with a revised -0.7% (originally -0.1%) for February. The consensus for core capex was -0.1%. These data will act as a (very)…