Overall, expenses are up and results depend on the bank. BofA notched a beat on earnings with strong gains by its fixed-income and equity traders which buffered a slight miss in expected NII. Morgan Stanley experienced lower trading and i-b business, pressuring earnings. Although Schwab beat on adjusted EPS, its bank deposits fell -7% in 2Q23. But mgmt. says they expect growth by year-end in deposits, so the stock is up hard. PNC slashed guidance, which is “no bueno” for regional bank sentiment. They cited higher deposit costs, lower loan growth, and softer capital markets.
The NY Times is reporting that the path to a soft landing is getting more probable because unemployment may not need to rise as much as usual to reduce inflation. Cue the i-b adjustments; GS cut its US recession odds to 20%, per Reuters. But a NY Fed study shows that credit applicant rejection rates are the highest since Jun 2018. So, banks should be telling us what they’re seeing…not what research analysts are projecting.
With big tech driving returns YTD, it’s a problem for funds that have diversification rules, per the FT. But maybe they should consider themselves lucky and remember why those rules are in place.
UBS notes that CTAs and stat arbs look like they’ve been allocating outsized capital to stocks, given their historical potential to generate superior returns. Along with more discretionary-type players with FOMO chasing the rally (as exemplified by the jump in the open interest figures for the SPY E-Minis in the previous week and an unexplainable spike into yesterday’s top tick for the session), the quality of these purchases is low. But they note that the lack of volatility means than an imminent decline is unlikely. But the risk-reward looks highly unfavorable because these players will flip positions in a heartbeat.
US retail sales missed expectations, up +0.2% in June after +0.5% in May. But a control group’s spend was up +0.6%, so it wasn’t all bad news. The Washington Post notes that households are spending down their pandemic cash, but their levels are still about 2019 levels.
We’ve noted before that the US is looking to curb investments in China. Sounds like the focus will be narrow, on cutting-edge tech including chips, quantum computing and AI (they can have the Metaverse). The rules most likely will come into effect next year and will impact new projects, and not involve the biotech or energy sectors.
Per Business Insider, commercial real estate lending fell for the 1st time in 2 yrs. Starwood defaulted on $212.5mm on an Atlanta office mortgage. The Buckhead tower was 62% leased at 12/2022, down from 82% when the loan was originated in 2018.
Citi is calling “gold” for a 2H24 investment opportunity. Strategists led by Ed Morse raised their 2024 price forecast, saying bullion may hit as high as $2,200 an ounce.
UBS recommends waiting for a -5% to -8% correction in Japanese stocks before buying in because of higher valuations and a lack of buybacks this summer. In another note, MUFJ and Morgan Stanley are planning to merge some ops at their Japan-based JVs and collaborate on FX trading.
The CDC found the culprit of a bad virus affecting people’s eyes. Cheap OTC eye drops, so pay up for the brand names. Throw out anything from EzriCare and Delsam Pharma.
Bank of America noted that while card spending is slowing gently, their consumers continue to spend on Travel & Entertainment and Food. Services get an honorable mention, while retail is in the doghouse. Of course, if you are spending the big bucks to attend a Taylor Swift show, you have little left over for anything else…
