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Your Quiver | Monday, April 17, 2023

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Macro Madness

Put your seatbelts on. In addition to earnings season heating up, you’ve got prints for (i) China GDP, retail sales, industrial production, loan prime rates (ii) US housing starts, initial jobless claims, existing home sales, various leading indicators and the Beige Book (iii) EZ CPI and consumer confidence (iv) Japan CPI (v) everyone and their brother from the Fed speaking at events throughout the week.

Where's That Cash?

While the S&P is up 0.7% so far in April, the E-Mini futures have tallied a loss during the overnight sessions. Thus, the US market’s positive return has been during coffee drinking hours of NYSE, versus historical periods when the overnight sessions drove the returns. What does this mean? Well, institutions are actively investing while others have to chase the positive momentum. Per UBS, this trend, along with other positioning metrics, appear to indicate that the cash on the sidelines is no longer there. Maybe it’s going to the 4.15% savings rate for the Apple Card savings account, which the co announced today.

UST Volatility

We’ve written about (i) the challenging positive correlation of stocks/bonds in 2022 which crushed traditional 60/40 portfolios as well as the (ii) high volatility seen through the MOVE index this year. Higher Treasury volatility can dampen corporate credit issuance, which typically is priced of USTs. Banks tend to tighten credit, make fewer loans, and increase their cost for small and medium businesses when banks get spooked (like they are now). This spurs heightened volatility, creating a negative cycle. For now, UST vol has come down a bit since the heart of the banking crisis, but with equity vol at lows, we caution that one side of this market must have it wrong.

On Fire

Merck is acquiring Prometheus for $10.8bn in cash to enhance its immunology drugs pipeline, given patent expirations. At 75% above Friday’s close, that’s a deal for the gods.

EV Tax Credits

News is out that Ford, GM and Tesla buyers will get the $7,500 tax credit.

Search Scuttlebutt

Samsung may replace Google with MSFT’s Bing as the default search service on its devices, per the NYT. Google is trying hard to stop that from happening, focusing on projects such as AI to keep its hold.

Banking Buzz

Per Financial News, CS suffered around $2.5bn in outflows from around 300 EZ- and US- funds at CS in the 3 weeks since UBS’ deal announcement. Also, Barclays supposedly is cutting 100 i-bankers. Schwab reported a weaker deposit trend in the quarter (which hits revenue) but strength in new assets for its investment products (which offer higher yields for customers); also interesting, Schwab borrowed $45.6bn from the FHLB system in 1Q23, roughly 3x more than in 4Q22 from the system, and it is halting share repurchases. Lastly, BBG is out with a story of how First Republic’s interest only loans to wealthy clients (which doubled its assets in 4 years) are killing the firm, because clients still have a number of years left to pay next to nothing, which drives down the value of the loans. This loan portfolio is one reason why we haven’t heard about a takeover yet.

Buyback Benefit

BBG is out with a story about Apple’s share buybacks, which the company consistently has executed in the past. Because earnings are set to slow this year, analysts are focused on the level the co will announce on its May 4 earnings call.