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Your Quiver | Tuesday, May 9, 2023

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

Two Fingers on the Emergency Button

They’re still at an impasse on the debt ceiling discussions, and we don’t expect a resolution until the clock is striking midnight, and both sides realize that they’re pressing the red emergency button together. With 2024 being an election year, politicians are being politicians and not problem-solvers. Congress will probably have to step in with an extension until Sep 30, kicking the can down the road a few steps. Remember, though, that’s when the 2024 budget is discussed, so getting them to agree on more than one thing is exponentially harder.

Dumb Delay

Treasury investors will probably have to wait 4-5 days to get their money for June 6 maturities because of the debt ceiling nonsense.

Imports Impasse

A report came out showing a big drop in Chinese imports in April, fueling the narrative that China’s reopening isn’t “all that.” 42Macro called it months ago, with the view that fiscal stimulus is needed to keep the growth party going. The potential positive is that China could ease monetary policy, especially if Thursday’s API data is light, which could provide some fuel.

The Consumer

PayPal is down after disappointing guidance.

Under Armour is down after missing its estimates. If that weren’t enough, management provided guidance fell short of analysts’ low bar expectations for fiscal 2024. It looks like management pulled out all the promotional tools to drive the top line and to clear-out excess inventory. During the conference call, which sounded more like an impassioned halftime speech, the new CEO promised to “drive global brand heat and make better products.” To drive growth, she vowed to “go after women harder than this company has ever seen, full stop.” As the company is now entering a sixth year of restructuring since its founder and former CEO Kevin Plan resigned due to various scandals, we’ll bet the “under” and suggest the company hire a different consultant.

So, put 2 checks in the negative outlook column. But analysts are out talking about how Netflix benefits from a “poor” consumer who tends to stay home and stream, and it is harder for its competitors (looking at you Paramount and Disney) to fight the streaming war.

But What About AI?

Yes, we can talk about AI, even if Omaha doesn’t think it’s going anywhere. Palantir ripped 20% after stating that the demand for its AI tool is off the charts.

Late to the Party

Schwab stated that it started using derivatives to hedge interest rate-related risk in 1Q23, valued at $3.9bn at quarter-end. Kind of late to the “massive moves in interest rates” party.

Early Warning

One of Sweden’s biggest commercial landlords, SBB, postponed a dividend, threw out its plan to sell shares after getting a junk downgrade, and is looking to sell assets to fill a funding hole. Higher interest rates and investor concerns are limiting its ability to refinance $40.8bn in debt maturing over the next 5 years, 1/4th of which comes due this year. Short-term debt + floating rate = not good.

Super Tank

Benchmark rates for oil-porting supertankers fell by around 75% because OPEC+ is stating it will slash supply to keep prices high, so there are less volumes on those tankers.

Lack of Optimism

The April NFIB Small Biz Optimism Index points to slower growth.

CTA Positioning

CTAs cut exposure the last few weeks, selling about $5-10bn, which is expected to continue, per UBS. They say that EM equities should ride this out fine, given inflows. Where were the sales? Energy, ag commodities, materials. Where are they long? Credit. But that’s expected to decline too. For rates, they’re long APAC and short the UK/EZ.