The print today reflected a slowdown in the growth rate of inflation (+0.1% in Mar or +5% y/y) and a consensus figure of core CPI growth (ex food/energy +0.4% in Mar or +5.6% y/y). While the 0.1% figure was better than the expected 0.2% figure for inflation, we look at this as inflation still being high, sticky, and going the wrong way for the Fed. With crypto, equity markets and Treasuries up today, investors are betting that the Fed can pause hikes after the next meeting, but we caution that this reasoning (and current positioning) could be unwound in 2H23.
Guidance for earnings season. So, keep your eyes and ears open during companies’ Q&A. Big banks start reporting later this week.
That’s what investors are going to be focused on, for large and regional banks, this earnings season. Analysts are estimating that even at healthy banks (JPM, WF, BofA), deposits probably declined by over $520bn y/y—which includes the deposits they gained as clients pulled out of smaller or supposedly less safe banks—because clients moved their cash to products with higher rates and potentially greater safety. So, imagine the surprises we’re going to see from the banks depositors fled. Or not see when banks like Western Alliance don’t talk about deposits… So one measure to look at is “deposit beta,” or the % change in rates that banks pass onto their customers (we expect to see this figure increase as clients demand to earn more interest in this higher rate environment). Even if banks have kept this figure down, we would expect that most clients have not been hiding under a rock, so guidance for the figure will be in focus.
BBG is out with a story about smaller Germany companies and their optimistic view of de-globalization, given their focus on niche products/services, trends for companies to re-jigger supply chains, and increased automation. Also, one of the points I thought was the most interesting was that the broad move away from China could be helpful for them, as they view the Chinese as unfair competitors, subsidizing their companies and stealing trade secrets, which would occur less often.
There’s a pattern emerging of p/e shops buying debt of their own portfolio companies from banks shedding assets. While on the surface the prices look attractive during this period of lower deal-making, it increases concentration of capital at the firm level and pegs the acquisition date right before potential major moves in growth and policy. If investors are baking in rate cuts this year which don’t materialize, and if growth slows meaningfully from current levels, then the perceived purchase price of today may not be all that cheap as the underlying companies struggle to service debt and grow.
JPM told its MDs that they must be in the office 5 days a week. So, go long suits and short yoga pants.
Twitter merged with a newly formed shell firm called X Corp that Musk is calling an “everything app” strategy, akin to a WeChat.