Breakfast Bites - Tue Mar 21, 2023
Fed's rate hike; Slight reprieve in markets; Distress fears still continue; Chinese banks doing well
Rise and shine everyone
We’re getting conflicting reports of a rate pause, cut and hike by the Fed on Wednesday. This is juts tells you how unpredictable the market is right now. No one knows what’s going to happen. While we’re not making predictions, our view is that the Fed put in all these emergency measures so that they could continue with their hiking. We believe that a 25bps point hike is the most likely outcome.
It’s a quiet Tuesday before the Fed tomorrow. US Futures are up and the SPY is up about 0.80% in the pre-market. Gold has given up some of its gains along with the USD Index (DXY), while Oil is rallying, crossing $68/bbl this morning. Bitcoin remains above $28000. The market is showing slight reprieve from recession fears.
Major earnings is Nike after the close.
Asia and Australia
Asian markets higher overnight with China's Shenzhen Composite up over 1.5% and Hong Kong up nearly 1.5%. Australia another standout while Japan was closed for holiday.
China overnight funding rate spikes to 25-month high
Chinese banking shares outperform global peers amid financial sector turmoil.
China provides its chip companies easier access to subsidies in bid to promote industry recovery
Europe, Middle East, Africa
European markets rallying, up over 1%.
ECB's Lagarde says market turmoil may do ECB's work in dampening demand
Goldman Sachs sees risk of 'permanent destruction' in demand for AT1 bonds. Pimco and Invesco are among the largest holders who took a hit in the AT1 bond crisis for Credit Suisse. Pimco had $807m and Investco $370m; Pimco lost $340m. The news is still unfolding as to how much they each lost.
The Americas
JP Morgan’s strategist, Marko Kolanovic, seems to think that we are nearing a time when investors will be forced to sell assets to repay their loans leading to a market meltdown. I continue to warn about the Commercial Real Estate market that is heavily backed by bank lending and this is a potential time bomb given that collateral values continue to decline. Most of these loans come due this year and over 40% are on floating rates leading to challenging situation.
Systemic credit crunch flagged as biggest fear in latest BofA Global Fund Manager Survey. This is different from the current liquidity crunch that we are experiencing but, is a likely outcome of the situation as banks tighten lending standards.
Amazon announced another round of job cuts of 9000 employees affecting their AWS, Twitch, HR and Advertising departments.
Calendar
Indeed, commercial real estate looks like a "ticking time bomb" - already hit hard by Covid lockdowns and work-from-home trends, the drop in real estate prices (because of higher rates), and now (on floating rates) higher mortgage costs... Great update again, thanks! :)