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Your Quiver | Friday, May 5, 2023

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

Totally Hot

The Jobs Report today showed increases in hiring and wages last month, adding to the probability that rates stay higher for longer. June would be the 11th consecutive hike. Nonfarm payrolls rose 253k versus an expected 185k. Unemployment fell to a multi-decade low of 3.4%. Thus, the 2H23 expectation for a rate cut seems unlikely unless the financial system breaks between now and then, and if that occurs—we’d expect investors may be more focused on why that’s happening. Treasuries are down with the hawkish jobs data.

Current IR Forecast

The BOE is expected to raise rates by 25 bps to 4.5 next week and then again by August. That compares to the US, where traders are betting that the Fed is done. In the EZ, traders expect the ECB will raise rates 2 more times then stop. In the US, traders are giving a 32% probability that the Fed will cut rates in June. Keep that in your pocket when you chase risk assets.

Bank Bounce

That’s what we’re getting today. A client asked us about this yesterday, and the $KRE Regional Bank ETF had closed with a 20:1 upside on @Mylongbow after flagging Oversold. PacWest was up over +35%, Western Alliance >30%, Zions >10%. $KRE was up >4.5%.

Commercial Real Estate

Chinese tourists are out with a vengeance, and mobility data is showing a roughly 2x increase from last year during the Labor Day holiday. Domestic trips topped 274mm, up 19% from pre-pandemic levels. Yet spend is dampened, and outbound tourism hasn’t been as rosy of a story. $21.4bn was spent during the 5-day holiday, up only 0.7% higher than pre-pandemic levels. They’re trading down on vacations, basically.

Cash is Still King

During the week through May 3, BofA quoted EPFR Global showing cash inflows at $59.5 bn, with stocks having the largest outflow in 9 weeks. Money-market funds attracted $588 bn in the past 10 weeks, versus $500 bn after Lehman’s collapse.

Apple a Day

Keeps the markets up, post a solid earnings report. The quarter came in better than the lowered expected result, but we flag that consumer demand in developed markets looks pressured. Supply improvement helped Apple deal with below target channel inventory q/q. But that has run through already. Unless the macro improves (unlikely, in our opinion) or promotional activity increases (completely possible), the 50% of sales made in the US and China may remain muted. They’ve got cost cuts going, though, and a buyback that drives a ~4% cut in shares (positive for the stock as price/share goes up), so they are managing various factors for shareholders.

Where Are We Now?

The US market’s forward multiple is over 18x still, even with this week’s declines. The Bloomberg dollar index buffered a decline but remained on course for its worst week in more than a month.