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Your Quiver | Thursday, April 27, 2023

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

Two Sides of the Coin

1. Supporting equities: data on US economic growth slowed more than forecasted last quarter, giving bulls something to cheer as they hope the Fed has one more rate hike and then pauses and pivots. Although, in reality, the slowdown was because of inventories. 2. Countering equities: the inflation reading came in hotter than expected. Core PCE is not in the zip code (and, metaphorically speaking is driving in the opposite direction) of the Fed’s 2% target (going from 4.4% to 4.9%). So, that would drive the Fed to keep hiking into a slowdown, if they prioritize fighting inflation. That combo = stagflation, which doesn’t have a good policy response. They’re stuck in a box. So, the next key piece of data is Friday’s quarterly employment cost index to peak at labor comp.

Meta Move

Investors long tech are relieved after $META continued the Big Tech outperformance, with a big rebound in digital ad sales that helps it fund next gen projects like VR and AI. It seems that everyone gets the fact that AI is the more promising bet, for now, so Zuck talked a lot about AI but had to keep his chin up on VR, after having changed his company’s name to META. So, now all eyes are on $AMZN for their after-the-close print.

The Standoff

On one side, the US government who doesn’t want to bail out another bank—but doesn’t want it to fail either. On the other side, big banks don’t want to be pressured to keep supporting First Republic, especially if that means locking in losses. Remember that $30mm in deposits they made last month to keep it afloat? Several have noted that they may be better off letting the government deal with the bank so that they can come in for a sweet M&A deal after. Interestingly, 2-year Treasuries are trading at around 4.05%, a jump of around 10bps with the growth/inflation data out this morning. This is a huge premium to the Fed’s 5% policy rate heading to 5.25% next week, probably because of the uncertainty around $FRC.

Default Delay

Because of new tax inflows via paper checks, our politicians now probably have until July to get a deal done, per Goldman. So, the June estimated deadline just got extended.

Chinese Data

Industrial profits declined by -21% y/y in 1Q23 as a pickup in factory production outweighed additional price declines.

Semi Chems

Germany is considering limiting exports of chemicals to China used in the manufacturing of semiconductors. So, companies like Merck and BASF would be restricted. If you’re interested in the politics of this, BBG is out with a good story on $ASML today. (We have a position in the co, for disclosure). Our view on rising autarky and away from globalization is the undercurrent of the piece.

In Other Reports

Eli Lilly $LLY raised its guidance. Its diabetes drug Mounjaro was a plus. Honeywell $HON beat and raised guidance. Even Caterpillar $CAT had a huge bottom-line beat but backlog remains a concern. Industrial gas co Linde $LIN beat and raised. Pioneer Natural $PXD missed on FCF and announced a CEO retirement. Sumitomo Mitsui increased its stake in Jefferies, which drove its px action. Exchange operator Deutsche Boerse is buying SimCorp for over $4.3bn to enhance data and analytics.