ReportWire

Tag: debt

  • What the Inverted Yield Curve Really Means. It May Not Be Recession.

    What the Inverted Yield Curve Really Means. It May Not Be Recession.

    [ad_1]

    This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.

    https://www.barrons.com/articles/inverted-yield-curve-recession-rates-fed-bonds-be519f7c

    • Order Reprints
    • Print Article

    The bond market inversion reached its steepest since 1981 this week. When investors charge the government more to borrow for two years than for 10 years, it’s often seen as a sign that a recession is coming. 

    [ad_2]

    Source link

  • Supreme Court Strikes Down Student Loan Forgiveness Plan

    Supreme Court Strikes Down Student Loan Forgiveness Plan

    [ad_1]

    In a 6-3 ruling, the U.S. Supreme Court struck down the Biden administration’s plan to forgive billions of dollars in federally backed student loan debt, a decision that means millions will have to start making student loan repayments later this year. What do you think?

    “I did exactly what society told me to do, so I deserve to be punished.”

    Graeme Ballinger, Census Alphabetizer

    Pope Francis Declares Nothing Wrong With Guy Giving Buddy Tug Job After Few Drinks

    “What message does it send young people if education doesn’t carry huge risks?”

    Rochelle Meeks, Loot Appraiser

    “Americans need to buckle down and inherit some money.”

    Mason Linder, Unemployed

    [ad_2]

    Source link

  • Recession canceled? U.S. stock market ‘pretty frothy’ after S&P 500’s strongest first half since 2019.

    Recession canceled? U.S. stock market ‘pretty frothy’ after S&P 500’s strongest first half since 2019.

    [ad_1]

    The S&P 500 index just wrapped up its strongest first half of a year since 2019, as a U.S. recession feared near by many investors seems perpetually further away than anticipated, leaving the stock market rally’s momentum for the rest of 2023 in question.

    It’s “difficult to gauge” when the “liquidity unleashed” by the U.S. government during the pandemic will run out, said José Torres, senior economist at Interactive Brokers, in a phone interview, referring to fiscal and monetary stimulus in 2020-2021. While the Federal Reserve has been raising interest rates since 2022 to battle high inflation, the Fed’s intervention after regional-bank failures in March provided more liquidity to the financial system, he said.

    That “created this environment for risk assets to run higher,” said Torres. And then, the artificial-intelligence craze has more recently driven “momentum” in U.S. stocks, he said. “I think the market goes lower from here.”

    The S&P 500
    SPX,
    +1.23%
    in mid-March was trading near its starting level in 2023, as regional-bank woes weighed on stocks before the Fed’s intervention that month. The central bank’s bank term funding program, announced March 12, helped shore up confidence in the banking system, taking off “a lot of pressure on financial conditions,” according to Torres. 

    The S&P 500 rose 15.9% in the first six months of 2023 for its strongest first-half of a year since 2019, according to Dow Jones Market Data. Each of the index’s 11 sectors climbed in June, marking the first time since November that all of them were up in the same month.

    The U.S. economy has been resilient despite the Fed’s rapid interest rate hikes in 2022 to cool demand and bring down still high inflation. Investors appear to be shrugging off recession worries after some surprisingly strong economic data in recent days.

    “Ladies and Gentleman, the recession has been cancelled!” wrote Bernard Baumohl, chief global economist at the Economic Outlook Group, in a note emailed June 29.  

    “Let’s not forget that despite the economy’s impressive performance the first three months, prices have continued to ease as well,” Baumohl said in the note. “Virtually every inflation metric has been falling,” he said, so “unless inflation shows signs of reversing course and accelerates, the Fed should maintain its current pause.”

    The Fed has slowed its interest-rate hikes this year, pausing them at its June policy meeting while signaling that further rate increases may still be coming. Federal-funds futures on Friday showed traders largely expecting the Fed to lift its benchmark rate by a quarter point in July to a targeted range of 5.25% to 5.5%, according to the CME FedWatch Tool, at last check. 

    Investors have cheered the Fed’s pause, with many expecting it’s near the end of its rate-hiking cycle, which had led to brutal losses for stocks and bonds last year. 

    Meanwhile, economic data released in the past week showed a revised estimate for U.S. growth in the first quarter was higher than anticipated; new orders for manufactured durable goods were stronger than expected in May; sales of newly built homes that same month beat economists’ forecasts; consumer confidence jumped in June to a 17-month high based on a Conference Board survey; and that initial jobless claims in the week ending June 24 fell.

    See also: U.S. economy on track to grow as fast as 2% in the second quarter

    Investors also welcomed more evidence of inflation easing. U.S. inflation measured by the personal-consumption-expenditures price index softened to 3.8% in May on a 12-month basis, the slowest increase since April 2021, based on a government report Friday. 

    But Torres said he worries the U.S. economy may be growing too fast for the Fed’s fight with inflation, potentially leading the central bank to become more hawkish by further tightening monetary policy. 

    ‘Shocked’

    “There’s a huge discrepancy” between two-year Treasury yields
    TMUBMUSD02Y,
    4.908%
    and where the Fed has indicated its benchmark rate may wind up at the end of its hiking cycle, he said. That’s after the recent rise in two-year yields from the wake of their fall during the regional-banking stress.

    The Fed’s summary of economic projections, released in June, showed its policy rate could wind up as high as 5.6% by the end of this year, compared to a current targeted range of 5% to 5.25%. 

    Meanwhile, the yield on the two-year Treasury note rose 81.7 basis points in the second quarter to 4.877% on Friday, the highest level since March 9 based on 3 p.m. Eastern Time levels, according to Dow Jones Market Data.

    “I’ve been shocked the market has already been able to digest this yield move to the upside,” said Torres. “There’s still more room to the upside on yields,” he said, adding that two-year Treasury rates often are viewed as a gauge of how hawkish the Fed may be with its policy rate.

    The U.S. stock market rose on Friday, closing out June with weekly, monthly and quarterly gains.

    The S&P 500 and Nasdaq Composite
    COMP,
    +1.45%
    each finished the month at its highest closing level since April 2022, with both indexes notching their longest monthly win streaks since 2021, according to Dow Jones Market Data. The technology-heavy Nasdaq soared 31.7% during the first six months of 2023, clinching its best first half since 1983.

    Sentiment in the stock market has gotten “pretty frothy,” making equities vulnerable to a decline, said Liz Ann Sonders, chief investment strategist at Charles Schwab, in a phone interview. “On the surface the market has been incredibly resilient, but of course the concentration has been extreme.” 

    She pointed to a “small handful” of megacap stocks, including names like Apple Inc.
    AAPL,
    +2.31%
    Microsoft Corp.
    MSFT,
    +1.64%
    and Nvidia Corp.
    NVDA,
    +3.63%    ,
    powering the performance of the S&P 500 and Nasdaq.

    Read: Apple clinches $3 trillion valuation, becoming first U.S. company to close at that mark

    Such stocks “really kicked into high gear” at the start of the banking trouble in March, as investors, in a defensive move, sought companies that are “highly liquid” and generate cash, she said.

    Stocks in that megacap group, sometimes referred to as Big Tech although they span sectors including communication services and consumer discretionary as well as information technology, have also benefited from AI exposure, said Sonders.

    Weakness, strength on the roll

    Sonders said she sees the U.S. as having experienced “rolling” recessions in different segments – such as housing or manufacturing – as opposed to the entire economy being swept up in a full-blown downturn. “The recession versus no recession debate” is missing the current nuances of this cycle, in her view.

    “We’ve seen weakness and strength rolling through the economy as opposed to everything either booming at the same time, or falling apart at the same time,” she said. So while cracks may turn up in the services sector, the U.S. could still benefit from other areas, such as the recent lift seen in the housing market, which already has gone through a recession, according to Sonders.

    Read: Homebuilder ETF outperforms S&P 500, industry’s stocks still ‘cheap’ in 2023 market rally

    In the stock market, megacap names have gotten a lot of attention for their surge this year, yet other pockets, such as homebuilders and the S&P 500’s industrials sector, have recently done well, she said. Industrial stocks
    SP500EW.20,
    +0.92%
    recently stood out to Sonders for their “decent breadth.”

    But to her thinking, “this is not the kind of environment to make a monolithic sector call or two,” rather Sonders favors screening stocks for characteristics such as “high quality” when looking for investment opportunities.

    Fluctuating financial conditions have made it harder to discern when the U.S. could fall into a recession, according to Torres. But rates rising further poses the risk of returning to the kind of environment that created stress for regional banks, he said. And with “commercial real estate lurking in the background” as a concern, he said it’s tough to see the stock market climbing from the S&P 500’s already “rich” levels.

    “The higher the Fed pushes rates, the more pressure that’s gonna put on bank balance sheets,” said Charlie Ripley, senior investment strategist for Allianz Investment Management, in a phone interview. “It just becomes a question of whether or not you’re going to see a run on a particular bank.”

    This coming week, the Fed will release minutes from its June policy meeting. Investors will see them on Wednesday, the day after the July 4 holiday in the U.S. 

    While the S&P 500 has rallied in 2023, shares of the SPDR S&P Regional Banking ETF
    KRE,
    -1.14%
    sank 30.5% in the first half of the year while the Invesco KBW Bank ETF
    KBWB,
    +0.24%
    is down 20.5% over the same period, according to FactSet data.

    “There is a lot of dispersion within the market,” said Ripley. “There are pockets that are doing better than others.”

    [ad_2]

    Source link

  • Stocks end higher Friday, as Nasdaq scores best first half of a year since 1983

    Stocks end higher Friday, as Nasdaq scores best first half of a year since 1983

    [ad_1]

    U.S. stocks closed higher Friday, ending the month and the first half of 2023 with robust gains as a long-anticipated economic recession failed to materialize. The Dow Jones Industrial Average
    DJIA,
    +0.84%
    rose about 283 points on Friday, or 0.8%, ending near 34,405, according to preliminary FactSet data. It gained 4.6% in June and 3.8% over the year’s opening six months, its best first half since 2021, according to Dow Jones Market Data. Stocks have been in rally mode in 2023 as inflation continued to retreat under a regime of sharply higher interest rates. The bullish tone, especially for a select few technology stocks, has endured even as Fed Chairman Jerome Powell repeatedly said a few more interest-rate increases look likely this year, and that rates will likely stay high for awhile. Yet the U.S. economy hasn’t tipped into a recession, suggesting the Fed might have room to pull off a “soft landing” for the economy, or at least only a mild recession, as it fights to bring down the cost of living to its 2% annual target. On Friday, the personal-consumption expenditures price index, a key inflation gauge, eased to a 3.8% annual rate in May, the slowest level since April 2021. Against that backdrop, the S&P 500 index
    SPX,
    +1.23%
    rose 1.2% on the session, 2.3% in June and 15.9% in the first half, its best start to a year since 2019. But the Nasdaq Composite Index was the standout, gaining 1.5% on Friday and 31.7% in the first half of 2023, which was its best first half since 1983, according to Dow Jones Market Data.

    [ad_2]

    Source link

  • What’s at stake for stock and bond investors in second half of 2023

    What’s at stake for stock and bond investors in second half of 2023

    [ad_1]

    There’s a lot riding for stock and bond investors in the second half of the year, with the biggest question centered around whether the idea of “immaculate disinflation” can come fully to fruition.

    The term refers to the notion that inflation might meaningfully dissipate from here, without a significant uptick in U.S. unemployment or a major recession. It’s considered to be the perfect scenario for investors and policy makers, who want inflation back down to their 2% target, and one in which the Federal Reserve’s main policy rate target wouldn’t need to go much higher from its current level between 5%-5.25%.

    What makes the path ahead so tricky is that core readings that represent the purest reads on inflation are proving to be stubborn and it isn’t clear whether they’ll turn meaningfully lower, fast. If they don’t, that would likely put pressure on central bankers to keep up their inflation fight and has the potential to drive up interest-rate expectations, as well as Treasury yields. Though the bond market has come around to the fact there won’t likely be any rate cuts by the Fed soon, it still isn’t completely on board with the idea of higher rates for longer — which, in turn, is helping to support equities for now.

    “The problem for the disinflation people or believers is that the core readings continue to come in too high,” said Jeffrey Cleveland, director and chief economist at Payden & Rygel, a Los Angeles-based investment management firm that oversees $148.9 billion in assets.

    Friday’s core reading from the Fed’s favorite inflation gauge — known as the PCE — was 0.3% for the month of May, and has been at or above that mark for six straight months.

    Via phone, Cleveland said his firm expects the monthly core PCE reading to end the year above 0.3%, but “you need monthly core PCE readings to be 0.1% or 0.2% to see meaningful disinflation.” If inflation surprises to the upside, “the whole Treasury curve moves up, with the 2-year rate most susceptible,” which would likely dent the performance of stocks.

    Cleveland said he expects the policy-sensitive 2-year Treasury yield BX:TMUBMUSD02Y to get back to 5% by December — a level that was last seen in March.

    The first six months of this year have turned out to be great for U.S. equities, with the Nasdaq-100
    NDX,
    +1.63%
    on track for its best first-half performance on record, as investors came around to the idea that the economy is resilient enough to absorb higher rates. The unemployment rate stood at 3.7% as of May as the U.S. added a shockingly large number of jobs, while annual core readings from the consumer-price index and PCE index came in at 5.3% and 4.6%, respectively, for May.

    Read: How stocks and every other major asset have performed in first half of 2023 — and over the last 18 months

    Meanwhile, the benchmark 10-year yield
    TMUBMUSD10Y,
    3.812%    ,
    which reflects investors’ long-term U.S. outlook, has remained relatively contained near 3.75% for months as robust U.S. data rolled in, accompanied by signs of overall inflation easing when waning gas and food prices are factored in.

    Data released this week reaffirmed that the U.S. economy and labor market are holding up, despite 5 percentage points of Fed rate hikes since March 2022. With policy makers signaling two more hikes may be on the way starting in July, the risk is that the economy continues to prove resistant to policy makers’ actions and requires even more tightening.

    “Not only is the U.S. economy continuing to prove resilient in the face of significantly tighter monetary policy, but it also appears the starting point of the economy for 2023 was even higher than previously anticipated with the consumer proving to be an even stronger force across the first three months,” said Stifel, Nicolaus & Co. economists Lindsey Piegza and Lauren Henderson, in a note this week. 

    Via phone, Henderson said her Chicago-based firm isn’t buying into the “immaculate disinflation” theory yet and thinks inflation “is proving stickier and more persistent than many expected.”

    Stifel, which updates its forecasts on a quarterly basis, is standing by its year-end expectations for the 2- and 10-year Treasury yields
    TMUBMUSD10Y,
    3.812%
    to be at 4.65% and 3.45%, respectively, she said. That’s below the current levels for those rates because Stifel economists foresee a short, shallow recession “sometime in the fourth quarter or beyond,” as policy makers push the fed-funds rate target up to 5.75% by year-end and stay there through 2024, according to Henderson.

    Inside the market for fixings, or derivatives-like instruments in which bets can be made on upcoming consumer-price index reports, traders have been coalescing around the view that the annual headline CPI rate is likely to start falling toward 2% this year. They even see the core CPI reading dropping to roughly 2.5% annually and to 0.2% monthly, in relatively quick fashion.

    However, one big name has a warning. Former New York Fed President Bill Dudley said inflation could easily go higher than his estimated 2.5% long-term average, and that the 10-year Treasury yield might even go above his “conservative” estimate of 4.5%.

    On Friday, financial markets were focused on the positive aspects of the PCE report, with all three major U.S. stock indexes
    DJIA,
    +0.97%

    SPX,
    +1.31%

    COMP,
    +1.49%
    higher in afternoon trading. Meanwhile, 3-month
    TMUBMUSD03M,
    5.320%
    through 30-year Treasury yields
    TMUBMUSD30Y,
    3.854%
    all moved lower.

    [ad_2]

    Source link

  • Dow ends 270 points higher, Nasdaq closes flat on upbeat economic data

    Dow ends 270 points higher, Nasdaq closes flat on upbeat economic data

    [ad_1]

    U.S. stocks ended mostly higher Thursday, getting a boost from the financial sector, on positive tones from the banking sector and the economy. The Dow Jones Industrial Average
    DJIA,
    +0.80%
    rose about 269 points, or 0.8%, ending near 34,122, according to preliminary FactSet data. The S&P 500 index
    SPX,
    +0.45%
    ended 0.5% higher, while the Nasdaq Composite Index
    COMP,
    -0.00%
    closed virtually unchanged. The S&P 500’s financial sector was a standout, climbing 1.7%, a day after 23 of the nation’s biggest banks passed annual “stress tests,” designed to model their ability to withstand a severe global recession scenario. The U.S. economy also saw a revised gross domestic product reading of 2% in the first quarter. Federal Reserve Chairman Jerome Powell on Thursday also downplayed concerns that the Federal Reserve might be at risk of going too far with its rate hikes, at a meeting with other global central bankers in Spain, while also saying that coming rate decisions would be decided on a meeting-to-meeting basis.

    [ad_2]

    Source link

  • The banking crisis has eased but a credit crunch still threatens the U.S. economy

    The banking crisis has eased but a credit crunch still threatens the U.S. economy

    [ad_1]

    Financial disruptions in 2008 contributed to the deep economic downturn that came to be known as the Great Recession. Could recent bank failures similarly lead to a broad U.S. recession?

    The $532 billion of assets of the three banks that failed in March and April 2023 exceed the inflation-adjusted value of $526 billion of assets of the 25 banks that failed in 2008. Yet the current situation differs in many ways from the underlying economic circumstances at the outset of the Great Recession.

    Still, that experience, as well as others, show how financial distress can lead to macroeconomic weakness which then contributes to further financial distress, resulting in a downward spiral during which credit becomes tight, investment is curtailed and growth stalls.

    Bank distress can have adverse consequences for borrowers and the broader economy. One source of recent U.S. bank vulnerabilities is the rapid increase in interest rates. Banks take in deposits that can be withdrawn in the short term and use them to make loans and invest in securities at interest rates that are fixed for some time.

    As interest rates rise, the value of banks’ existing portfolio decreases as new investments at higher rates are more attractive. By one estimate, the U.S. banking system’s market value of assets is $2.2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity.

    These book losses are realized if banks have to sell those assets to cover withdrawals from depositors. At the same time banks face challenges in maintaining deposit levels, depositors are less willing to place their money in low-return checking and savings accounts as higher-interest opportunities become increasingly available. 

    Banks that failed in 2023 have had specific weaknesses that made them particularly vulnerable. Silicon Valley Bank (SVB), for example, was particularly exposed to risk from rising interest rates as it had heavily invested in longer-term government bonds which lost market value as interest rates rose and its management failed to hedge against this risk.

    SVB was also especially vulnerable to a run by depositors because over 90% of the value of its deposits exceeded the $250,000 amount guaranteed by the Federal  through the Federal Deposit Insurance Corporation (FDIC). Depositors holding accounts in excess of this guaranteed amount, both individuals and companies (whose accounts were used for making payroll, among other reasons) are only partially protected in case of bank failure so they have an incentive to withdraw funds at the first sign of trouble.

    Moreover, depositors were connected to each other through business and social groups, so news traveled quickly seeding the conditions for a classic bank run at Twitter speed. Signature Bank also had about 90% of its assets uninsured and its portfolio was heavily concentrated in crypto deposits. Both banks grew rapidly with inadequate risk and liquidity management practices in place and, while regulators had raised concerns about these risks, they had not taken more forceful actions to address them, according to a GAO report. Meanwhile, First Republic Bank, catered to wealthy depositors and for this reason also had a high share of uninsured deposits that made it more vulnerable to a bank run as its bond assets lost value amidst rising interest rates.

    Commercial banks reduce lending when their deposits fall or when they otherwise cannot meet regulatory requirements. Deposits represent an important source of banks’ ability to lend. As a bank’s deposits decrease, it has less resources available for lending since other sources of funds are not as easily obtained.

    A bank may also cut lending in an effort to satisfy regulations such as meeting or exceeding the Capital Adequacy Ratio. Regulators require banks to have enough capital on reserve to handle a certain amount of loan losses. The Capital Adequacy Ratio decreases when loans fail and the bank sees its loan loss reserves decline. The bank can then increase its Capital Adequacy Ratio by using funds that would otherwise be devoted to commercial loans or by shifting from loans to other assets that are less risky (such as government securities).

    There is evidence that this effect contributed to the cutback in bank lending in New England in the 1990-1991 U.S. recession when there was a collapse in that region’s real estate market. A bank may choose to reduce lending if there are concerns about solvency even if it is not yet hitting up against the formal capital adequacy ratio requirement. 

    Read: San Francisco at risk of more falling ‘dominos’ as $2.4 billion of office property loans come due through 2024

    A credit crunch occurs when borrowers who would otherwise receive loans are precluded from doing so because of a restriction on the supply of loans by banks. But a reduction in bank lending could also reflect a decrease in borrowers’ demand for loans.

    Researchers have used a variety of methods to identify when there is a credit crunch rather than just a lower demand for loans. For example, a credit crunch could be identified through looking for differential borrowing, employment, and performance patterns by bank-dependent companies as compared to those that have access to financing through bond or equity markets. Bank-dependent companies are typically smaller than those that have access to other types of financing.

    Credit crunches due to bank distress can undermine investment and economic growth. An early and influential analysis by Ben Bernanke, who went on to chair the Federal Reserve and served during the 2008 Great Financial Crisis, analyzed the effects of bank failures during the Great Depression. He found that bank failures had a particularly strong effect in reducing the amount of borrowing by households, farmers, and small businesses in that period, which contributed to the severity and duration of the Great Depression.

    The U.S. banking system has been made more resilient since that time, but there is still evidence of the effect of a credit crunch on regional U.S. economies. The April 2023 IMF Global Financial Stability Report argued that a credit crunch in the United States could reduce lending by 1%, which would lower GDP growth by almost 0.5 percentage points.

    Michael Klein is the executive editor of EconoFact. He is the William L. Clayton Professor of International Economic Affairs at The Fletcher School at Tufts University.

    This commentary was originally published by EconoFact: Banks, Credit Crunches, and the Economy.

    More: Justice Department to weigh updating banking competition rules

    Also read: Senators make headway on clawing back pay from failed banks’ CEOs, as key committee advances bill

    [ad_2]

    Source link

  • S&P 500 scores best day in almost two weeks as tech shares march higher

    S&P 500 scores best day in almost two weeks as tech shares march higher

    [ad_1]

    U.S. stocks jumped on Tuesday, with the S&P 500 scoring its best daily gain in almost two weeks as technology shares climbed and housing data pointed to continued resilience in the U.S. economy, despite the Federal Reserve’s sharply higher interest rates. The Dow Jones Industrial Average
    DJIA,
    +0.63%
    rose about 211 points, or 0.6%, ending near 33,926, according to preliminary FactSet data. The S&P 500 index
    SPX,
    +1.15%
    gained 1.1%, posting its best daily percentage gain since June 15, according to FactSet data. The Nasdaq Composite Index
    COMP,
    +1.65%
    rose 1.7%. Stocks appeared poised to resume a tech-fueled rally that has the S&P 500 up 14% on the year so far and the Nasdaq about 29.5% higher. The S&P 500’s information technology sector jumped 2% Tuesday, while Communication Services rose 1.1%. Bolstering the tone, new home sales surged 12.2% in May, while the S&P CoreLogic Case-Shiller 20-city house-price index climbed in April.

    [ad_2]

    Source link

  • Dow gives back earlier gains, stocks end lower after Russia’s brief rebellion

    Dow gives back earlier gains, stocks end lower after Russia’s brief rebellion

    [ad_1]

    U.S. stocks closed lower Monday, after Russia on the weekend was rocked by a brief revolt from the Wagner mercenary force. The Dow Jones Industrial Average
    DJIA,
    -0.04%
    fell about 11 points, or less than 0.1%, ending near 33,715, according to preliminary FactSet data, giving up earlier gains in the final moments of trade. The S&P 500 index
    SPX,
    -0.45%
    fell 0.4%, while the Nasdaq Composite Index
    COMP,
    -1.16%
    closed down 1.2%. Stocks have been struggling to extend a recent rally driven by a handful of technology stocks that earlier in June lifted major indexes to their highest levels in more than a year. Investors and oil markets were on edge Monday after a brief mutiny in Russia over the weekend raised concerns about potential disruptions to global oil supplies. U.S. crude prices edged higher Monday, with West Texas Intermediate oil for August
    CL00,
    +0.53%

    CLQ23,
    +0.53%
    ending slightly below $70 a barrel.

    [ad_2]

    Source link

  • HELOCs are back. Cash-strapped borrowers are tapping into a $33 trillion pile of home equity.

    HELOCs are back. Cash-strapped borrowers are tapping into a $33 trillion pile of home equity.

    [ad_1]

    Goodbye pandemic refi cash-outs. Hello HELOCs?

    Home-equity lines of credit (HELOCs) and second-lien mortgages have been staging a notable comeback as U.S. homeowners look for liquidity and ways to monetize the pandemic surge in home prices, according to BofA Global.

    It used to be that borrowers sitting on an estimated $33 trillion pile of equity built up in their homes could simply refinance and pull out cash, until the Federal Reserve’s rapid rate hikes began squelching the option.

    Now, with mortgage rates above 6%, and the Fed penciling in two more rate hikes in 2023, cash-strapped homeowners have been seeking out alternatives to extract cash from their properties.

    While cash-out refinances tumbled 83% in the fourth quarter of 2022 from a year before, HELOCs rose 7% and home-equity loans grew 31%, according to the latest TransUnion data.

    “Borrower demand remains high, particularly given household budgets have been pressured by rising food and energy costs,” a BofA Global credit strategy team led by Pratik Gupta’s, wrote in a weekly client note.

    Risky loans to subprime borrowers and home equity products helped precipitate the 2007-2008 global financial crisis and the era’s wave of devastating home foreclosures.

    At the time, households had more than $1.2 trillion of home equity revolving and available credit (see chart), whereas the figure was closer to $900 billion in the first quarter of this year.

    Home equity products are making a big comeback as households seek liquidity


    BofA Global, New York Fed Consumer Credit Panel/Equifax

    The pandemic saw home prices surge, giving a big boost to home equity levels. The Urban Institute pegged home equity in the U.S. at $33 trillion as of May, up from a post-2008 peak of about $15 trillion.

    BofA analysts argued this time home equity products look different, with roughly $17 trillion of tappable equity across 117 million U.S. homeowners, and most borrowers having high credit scores and low rates.

    “The vast majority of that — $14 trillion — is from the cohort of homeowners who own their homes free & clear,” Gupta’s team wrote.

    Another $1.6 trillion of equity could be available from Freddie Mac and Fannie Mae borrowers, according to his team, which pegged an estimated 94% of all outstanding U.S. first-lien home mortgages now below 4% rates.

    Major banks own the bulk of home equity balances (see chart), led by Bank of America Corp.
    BAC,
    +1.23%    ,
    PNC Bank
    PNC,
    +0.57%    ,
    Wells Fargo,
    WFC,
    -0.05%    ,
    JPMorgan Chase
    JPM,
    +0.24%
    and Citizens
    CFG,
    +0.35%    ,
    according to the team, which notes several other major banks appear to have hit pause on their programs.

    A smaller portion of HELOCs and second-lien mortgages have been securitized, or packaged up and sold as bond deals, while nonbank lenders have been offering the products as well.

    Stocks closed lower Monday, taking a pause from a recent rally, as investors monitored weekend tumult in Russia. The Dow Jones Industrial Average
    DJIA,
    -0.04%
    was less than 0.1% lower, while the S&P 500 index
    SPX,
    -0.45%
    was off 0.5% and the Nasdaq Composite
    COMP,
    -1.16%
    fell 1.2%, according to FactSet.

    Related: The economy was supposed to cave in by now. It hasn’t — and GDP is set to rise again.

    [ad_2]

    Source link

  • What’s next for markets after aborted Wagner mutiny leaves Russia’s Putin weakened

    What’s next for markets after aborted Wagner mutiny leaves Russia’s Putin weakened

    [ad_1]

    Investors will start the week nervously sorting through the aftermath of a short-lived rebellion by the mercenary Wagner Group that’s seen leaving Russian President Vladimir Putin weakened.

    “As Monday’s global markets are set to begin trading, investors are laser-focused on whether the short-lived Russia insurrection was only the beginning of a much deeper thunderbolt set to rock geopolitical, economic and market stability in the days and weeks ahead,” Greg Bassuk, chief executive officer at AXS Investments in New York, told MarketWatch on Sunday in emailed comments.

    U.S. stock-index futures edged up after the start of electronic trading Sunday night, while oil rallied. Futures on the Dow Jones Industrial Average
    YM00,
    +0.14%
    rose 25 points, while S&P 500 futures
    ES00,
    +0.15%
    edged up 0.1% and Nasdaq-100 futures gained 0.2%.

    Global stocks fell last week as interest-rate hikes by European central banks stoked recession fears. In the U.S., the S&P 500
    SPX,
    -0.77%
    ended a streak of five straight weekly gains, while the Dow Jones Industrial Average
    DJIA,
    -0.65%
    and Nasdaq Composite
    COMP,
    -1.01%
    also pulled back.

    See: Russia’s short-lived revolt could have long-term consequences for Putin, as questions remain over Prigozhin’s whereabouts

    ‘Real cracks’

    While a weakened Russia raises the prospects of a favorable outcome for Ukraine 16 months after Putin’s decision to invade, the potential for further internal strife in the nation with the world’s largest nuclear arsenal is less comforting, observers noted.

    “This raises profound questions. It shows real cracks,” U.S. Secretary of State Antony Blinken told CBS News’ “Face the Nation” on Sunday morning.

    Putin’s hold on power “certainly seems shakier than it was a few days ago,” but there remains “no clear contender to replace him, by election or coup,” said Benjamin Friedman, policy director at Defense Priorities, a foreign-policy think tank in Washington, D.C.

    Nonetheless, the war in Ukraine “is weakening Russia in various ways, including by creating internal strife and dangerously discontented elites who have some power,” Friedman told MarketWatch. “The perception of Putin’s fallibility and weakness is growing and creates its own reality. That is dangerous to him. It’s hard to predict what additional power grabs and instability that could create,” he said.

     See: Russia’s short-lived revolt could have long-term consequences for Putin, as questions remain over Prigozhin’s whereabouts

    ‘Bloodbath’ of volatility?

    AXS Investment’s Bassuk said the further turmoil “could drive a bloodbath of market volatility amid its impact on the war with Ukraine, a shifting balance among the G-8 superpowers, and the already heightened potential for a U.S. and global recession.”

    Analysts have warned that an uptick in volatility may be overdue. The Cboe Volatility Index
    VIX,
    +4.11%    ,
    a measure of expected volatility in the S&P 500 over the next 30 days, last week fell to its lowest since January 2020 and ended Friday below 14. Its long-term average stands near 20. The subdued performance, which has accompanied a year-to-date rally of more than 13% for the S&P 500 index, is taken by some market watchers as a sign of complacency.

    Read: Why the ‘easy money’ has been made in the stock-market rally — and what comes next

    Potential ‘nonevent’

    But the quick termination of the rebellion could make it more of a “nonevent” for capital markets as trading resumes, said Marc Chandler, managing director at Bannockburn Global Forex.

    While conventional wisdom sees signs of Putin’s weakness, the Russian leader has often been underestimated, he said.

    “The war in Ukraine is likely unaffected, and Kyiv’s counteroffense thus far seems rather muted. The risk is that the war escalates if Kyiv resorts to medium- and long-range missiles to hit Russian assets in Crimea, and possibly in Russia proper,” Chandler said.

    The rebellion, led by Wagner Group chief Yevgeny Prigozhin, saw the mercenary paramilitary force take over Russia’s southern military headquarters in Rostov-on-Don amid little resistance before marching largely unchallenged toward Moscow. Putin, without mentioning him by name, accused Prigozhin of treason.

    The advance halted a little more than 120 miles from the capital before Prigozhin abruptly stood down in a deal that would see him sent to Belarus and charges against him of leading an armed rebellion dropped.

    As events unspooled Saturday, analysts warned that extended strife could spark a flight to quality when markets reopened into assets like U.S. Treasury bonds
    TMUBMUSD10Y,
    3.720%    ,
    the U.S. dollar
    DXY,
    -0.14%
    and other havens like the Japanese yen
    USDJPY,
    -0.21%    ,
    Swiss franc
    USDCHF,
    -0.06%
    and gold
    GC00,
    +0.32%    .

    The dollar was little changed versus major rivals in the early going Sunday evening, while gold for August delivery
    GCQ23,
    +0.32%
    edged up 0.2%.

    All eyes on oil

    Meanwhile, commodity and financial markets have seen big swings since Russia invaded Ukraine on Feb. 24, 2022.

    First and foremost, the invasion produced a global energy shock. Russia was the world’s third-largest crude producer behind the U.S. and Saudi Arabia, and a key supplier of natural gas to Western Europe.

    Crude-oil futures soared in the immediate aftermath of the invasion, with the global benchmark Brent crude
    BRN00,
    +0.91%
    topping out just shy of $140 a barrel in early March 2022 after closing at $94.05 on the eve of the invasion.

    Natural-gas prices had also soared, and fears of shortages led to a scramble by European governments to fill storage amid apocalyptic predictions about a harsh 2022-’23 winter.

    Energy prices subsequently fell back. Crude oil is trading well below levels seen ahead of the invasion. And despite waves of sanctions by European and U.S. governments and price caps aimed at limiting Moscow’s ability to fill its coffers, Russian crude supplies remain robust.

    Oil prices were on the rise Sunday night, with WTI up 87 cents, or 1.3%, to trade at $70.03 a barrel, while Brent gained 91 cents, or 1.2%, to $74.76 a barrel.

    August Brent crude
    BRNQ23,
    +0.95%
    settled Friday at $73.85 a barrel, falling 3.6% last week. West Texas Intermediate crude for August delivery
    CL00,
    +0.91%    ,
    the U.S. benchmark, dropped 3.9% last week to end Friday at $69.16 a barrel.

    Jorge Leon, senior vice president at Rystad Energy, noted that in the past 35 years, geopolitical shocks involving big oil producers have seen crude futures jump by an average of 8% in the five days after the start of the triggering event (see chart below).


    Rystad Energy

    A rise of that magnitude looks unlikely given how quickly the rebellion was quelled, he said.

    “Given that the short-lived event this weekend in Russia appears to have ended, we do not expect to see such a significant increase in oil prices next week. We do, however, believe that the geopolitical risk amid internal instability in Russia has increased,” Leon said in emailed comments.

    —Barbara Kollmeyer contributed.

    [ad_2]

    Source link

  • U.S. stock futures little changed after short-lived Wagner mutiny in Russia; oil futures rise

    U.S. stock futures little changed after short-lived Wagner mutiny in Russia; oil futures rise

    [ad_1]

    U.S. stock-index futures opened near unchanged and attempted to edge higher Sunday night, as investors reacted to chaotic weekend events that saw a short-lived rebellion that pitted the mercenary Wagner Group against the Russian military leadership. After advancing to within around two hours of Moscow, the mutiny was abruptly halted, with Wagner Group leader Yevgeny Prigozhin reportedly agreeing to depart for Belarus. Analysts said the events, while a potential plus for Ukraine 16 months after Russia’s invasion, appeared to weaken Russian President Vladimir Putin’s hold on the country, That raises concerns about the potential for further internal strife, a recipe for uncertainty that could feed volatility in financial markets. Futures on the Dow Jones Industrial Average
    YM00,
    +0.09%
    rose 20 points, while S&P 500
    ES00,
    +0.10%
    futures ticked up 2.75 points and Nasdaq-100 futures
    NQ00,
    +0.16%
    edged up 11.25 points shortly after the start of electronic trading. Moves for all three contracts amounted to less than 0.1%. Stocks fell last week, with the S&P 500
    SPX,
    -0.77%
    snappng a streak of five straight weekly gains. Oil futures rose, with West Texas Intermediate crude for August delivery
    CL.1,
    +1.26%

    CL00,
    +1.26%    ,
    the U.S. benchmark, up 48 cents, or 0.7%, at $69.64 a barrel on the New York Mercantile Exchange.

    [ad_2]

    Source link

  • What’s next for markets after aborted Wagner mutiny leaves Russia’s Putin weakened

    What’s next for markets after aborted Wagner mutiny leaves Russia’s Putin weakened

    [ad_1]

    Investors will start the week nervously sorting through the aftermath of a short-lived rebellion by the mercenary Wagner Group that’s seen leaving Russian President Vladimir Putin weakened.

    “As Monday’s global markets are set to begin trading, investors are laser-focused on whether the short-lived Russia insurrection was only the beginning of a much deeper thunderbolt set to rock geopolitical, economic and market stability in the days and weeks ahead,” Greg Bassuk, chief executive officer at AXS Investments in New York, told MarketWatch on Sunday in emailed comments.

    U.S. stock-index futures edged up after the start of electronic trading Sunday night, while oil rallied. Futures on the Dow Jones Industrial Average
    YM00,
    +0.14%
    rose 75 points, while S&P 500 futures
    ES00,
    +0.12%
    edged up 0.2% and Nasdaq-100 futures gained 0.3%.

    Global stocks fell last week as interest-rate hikes by European central banks stoked recession fears. In the U.S., the S&P 500
    SPX,
    -0.77%
    ended a streak of five straight weekly gains, while the Dow Jones Industrial Average
    DJIA,
    -0.65%
    and Nasdaq Composite
    COMP,
    -1.01%
    also pulled back.

    See: Russia’s short-lived revolt could have long-term consequences for Putin, as questions remain over Prigozhin’s whereabouts

    ‘Real cracks’

    While a weakened Russia raises the prospects of a favorable outcome for Ukraine 16 months after Putin’s decision to invade, the potential for further internal strife in the nation with the world’s largest nuclear arsenal is less comforting, observers noted.

    “This raises profound questions. It shows real cracks,” U.S. Secretary of State Antony Blinken told CBS News’ “Face the Nation” on Sunday morning.

    Putin’s hold on power “certainly seems shakier than it was a few days ago,” but there remains “no clear contender to replace him, by election or coup,” said Benjamin Friedman, policy director at Defense Priorities, a foreign-policy think tank in Washington, D.C.

    Nonetheless, the war in Ukraine “is weakening Russia in various ways, including by creating internal strife and dangerously discontented elites who have some power,” Friedman told MarketWatch. “The perception of Putin’s fallibility and weakness is growing and creates its own reality. That is dangerous to him. It’s hard to predict what additional power grabs and instability that could create,” he said.

     See: Russia’s short-lived revolt could have long-term consequences for Putin, as questions remain over Prigozhin’s whereabouts

    ‘Bloodbath’ of volatility?

    AXS Investments’ Bassuk said the further turmoil “could drive a bloodbath of market volatility amid its impact on the war with Ukraine, a shifting balance among the G-8 superpowers, and the already heightened potential for a U.S. and global recession.”

    Analysts have warned that an uptick in volatility may be overdue. The Cboe Volatility Index
    VIX,
    +4.11%    ,
    a measure of expected volatility in the S&P 500 over the next 30 days, last week fell to its lowest since January 2020 and ended Friday below 14. Its long-term average stands near 20. The subdued performance, which has accompanied a year-to-date rally of more than 13% for the S&P 500 index, is taken by some market watchers as a sign of complacency.

    Read: Why the ‘easy money’ has been made in the stock-market rally — and what comes next

    Potential ‘nonevent’

    But the quick termination of the rebellion could make it more of a “nonevent” for capital markets as trading resumes, said Marc Chandler, managing director at Bannockburn Global Forex.

    While conventional wisdom sees signs of Putin’s weakness, the Russian leader has often been underestimated, he said.

    “The war in Ukraine is likely unaffected, and Kyiv’s counteroffense thus far seems rather muted. The risk is that the war escalates if Kyiv resorts to medium- and long-range missiles to hit Russian assets in Crimea, and possibly in Russia proper,” Chandler said.

    The rebellion, led by Wagner Group chief Yevgeny Prigozhin, saw the mercenary paramilitary force take over Russia’s southern military headquarters in Rostov-on-Don amid little resistance before marching largely unchallenged toward Moscow. Putin, without mentioning him by name, accused Prigozhin of treason.

    The advance halted a little more than 120 miles from the capital before Prigozhin abruptly stood down in a deal that would see him sent to Belarus and charges against him of leading an armed rebellion dropped.

    As events unspooled Saturday, analysts warned that extended strife could spark a flight to quality when markets reopened into assets like U.S. Treasury bonds
    TMUBMUSD10Y,
    3.727%    ,
    the U.S. dollar
    DXY,
    -0.11%
    and other havens like the Japanese yen
    USDJPY,
    -0.19%    ,
    Swiss franc
    USDCHF,
    -0.03%
    and gold
    GC00,
    +0.18%    .

    The dollar was little changed versus major rivals in the early going Sunday evening, while gold for August delivery
    GCQ23,
    +0.18%
    edged up 0.2%.

    All eyes on oil

    Meanwhile, commodity and financial markets have seen big swings since Russia invaded Ukraine on Feb. 24, 2022.

    First and foremost, the invasion produced a global energy shock. Russia was the world’s third-largest crude producer behind the U.S. and Saudi Arabia, and a key supplier of natural gas to Western Europe.

    Crude-oil futures soared in the immediate aftermath of the invasion, with the global benchmark Brent crude
    BRN00,
    +0.73%
    topping out just shy of $140 a barrel in early March 2022 after closing at $94.05 on the eve of the invasion.

    Natural-gas prices had also soared, and fears of shortages led to a scramble by European governments to fill storage amid apocalyptic predictions about a harsh 2022-’23 winter.

    Energy prices subsequently fell back. Crude oil is trading well below levels seen ahead of the invasion. And despite waves of sanctions by European and U.S. governments and price caps aimed at limiting Moscow’s ability to fill its coffers, Russian crude supplies remain robust.

    Oil prices were on the rise Sunday night, with WTI up 87 cents, or 1.3%, to trade at $70.03 a barrel, while Brent gained 91 cents, or 1.2%, to $74.76 a barrel.

    August Brent crude
    BRNQ23,
    +0.80%
    settled Friday at $73.85 a barrel, falling 3.6% last week. West Texas Intermediate crude for August delivery
    CL00,
    +0.69%    ,
    the U.S. benchmark, dropped 3.9% last week to end Friday at $69.16 a barrel.

    Jorge Leon, senior vice president at Rystad Energy, noted that in the past 35 years, geopolitical shocks involving big oil producers have seen crude futures jump by an average of 8% in the five days after the start of the triggering event (see chart below).


    Rystad Energy

    A rise of that magnitude looks unlikely given how quickly the rebellion was quelled, he said.

    “Given that the short-lived event this weekend in Russia appears to have ended, we do not expect to see such a significant increase in oil prices next week. We do, however, believe that the geopolitical risk amid internal instability in Russia has increased,” Leon said in emailed comments.

    —Barbara Kollmeyer contributed.

    [ad_2]

    Source link

  • Rebellion in Russia could trigger selloff in U.S. stocks and flight to safe assets, analysts say. Here’s what investors should know.

    Rebellion in Russia could trigger selloff in U.S. stocks and flight to safe assets, analysts say. Here’s what investors should know.

    [ad_1]

    Watch what happens over the next 36 hours.

    That was the advice from one financial analyst as U.S. investors awoke on Saturday to news of an apparent armed rebellion against Moscow led by Yevgeny Prigozhin, the owner of the powerful Russian mercenary organization Wagner Group.

    Others speculated that the crisis in Russia could drive U.S. stocks lower, as some traders were already betting on a selloff once markets reopen on Monday due to this sudden spike in geopolitical risk.

    “The developments in Russia are ultimately going to suggest President Putin’s leadership is weakening quickly and that resources may shift away from the war with Ukraine. It is too early to say how this will impact Wall Street, but the risk of desperate measures from Putin might make some investors nervous,” Edward Moya, senior market analyst at Oanda, said Saturday.

    A simmering feud between Prigozhin, the leader of the military contractor whose mercenary forces have been fighting alongside Russian military troops in Ukraine, and the Russian Defense Ministry came to a head early Saturday as Prigozhin led his troops to successfully overtake a Russian military outpost near the Ukrainian frontier, which the Kremlin has used as its command center for overseeing the war in Ukraine.

    Amid the mixture of reliable information and unfounded speculation, market analysts have scrambled to make sense of the situation and what it might mean for financial markets and the global economy.

    The main theme that has emerged so far is that U.S. stocks would suffer unless the Russian military managed to quickly suppress the rebellion, as may have occurred with reports late Saturday that Prigozhin had halted a Wagner advance on Moscow and, in fact, might be relocating to neighboring Belarus. But how would something that could potentially cut short the war in Ukraine — which has been a bugbear for markets since the full-scale invasion by Russian forces in February 2022 — be a negative for stocks?

    The answer is that chaos leads to uncertainty, and that uncertainty is anathema to markets — especially when it could disrupt global oil and food supplies.

    “I’d bet on this creating more uncertainty which is generally going to be negative for risk … in the short term at least you see higher geopolitical risk premia — longer term the risks are on both sides really: does this precipitate the collapse of the Russian front and the war ends?” said Neil Wilson, chief market analyst at Finalto, in a note to clients on Saturday.

    Others noted that the crisis is coming at a vulnerable time for U.S. markets, while Michael Antonelli, a market strategist at R.W. Baird & Co., suggested in a tweet that the crisis “has to be” bearish for U.S. stocks.

    The S&P 500 index
    SPX,
    -0.77%
    closed out its worst week since March on Friday as a series of interest-rate hikes in the U.K. and across Europe last week sparked fresh fears of a global recession. Some analysts noted that the pullback swiftly followed signs that investors are growing more bullish following a powerful rally that sent stocks to their highest levels in 14 months. There are concerns that this shift in sentiment could presage investors’ final capitulation.

    Sven Henrich, founder and lead strategist of Northman Trader, noted that the Cboe Volatility Index
    VIX,
    +4.11%    ,
    the market’s so-called fear gauge, which measures the stock market’s expectations for volatility over the next 30 days, managed to finish last week below 13.5, its lowest level since January 2020, even as stocks pulled back.

    If stocks do continue to slide, that would mean new lows for the Vix have proved to be a reliable counterindicator, suggesting that investors had grown complacent before being walloped by a fresh shock.

    Asian markets will be the first to react to ongoing developments by Sunday evening Eastern time, but derivatives traders using CME Group’s Globex platform to trade swaps tracking the value of U.S. equity indexes are already betting on a selloff.

    Meanwhile, bitcoin
    BTCUSD,
    +0.11%    ,
    an asset that does reliably trade 24/7, was down just 0.8% at $30,675, a slight pullback after achieving its highest level in a year late last week. By Saturday evening the leading cryptocurrency has reversed that earlier dip.

    Where might investors turn for safety if markets do become chaotic?

    Finalto’s Wilson said investors could seek shelter in the currency market, where the U.S. dollar
    DXY,
    +0.47%    ,
    Swiss franc
    USDCHF,
    -0.02%
    and maybe the euro
    EURUSD,
    +0.32%
    and British pound
    GBPUSD,
    +0.02%
    could benefit from a spike in demand. More “de-risking” could send investors into ultrasafe government bonds like U.S. Treasurys
    TMUBMUSD10Y,
    3.741%    ,
    which could help to push yields lower, as bond yields move inversely to prices.

    Wilson anticipated that European indexes could be “more exposed to de-risking due to makeup and proximity to Russia and the war in Ukraine.” He also noted the possibility that this latest crisis could send the S&P 500 and Nasdaq Composite
    COMP,
    -1.01%
    higher if investors decided to seek shelter in high-quality growth names like Apple Inc.
    AAPL,
    -0.17%    ,
    Nvidia Corp.
    NVDA,
    -1.90%
    or Microsoft Corp.
    MSFT,
    -1.38%    ,
    which have helped to drive this year’s equity-market rally.

    Whatever happens, the outcome of the crisis should be more clear within the next 35 hours, Wilson said.

    “[H]ow the market opens after the weekend will depend on what happens in the next 36 hours. … [I]t could all be over by then,” Wilson said.

    Regardless, one of the first to interpret the market’s reaction on Monday will be Melbourne-based Chris Weston, head of research at online broker Pepperstone.

    Until then, he cautioned investors against reading too much into the Wagner situation, since analysts’ visibility into a very complicated geopolitical situation is “poor.”

    “The humble market participant would simply say they have no edge in knowing how this plays out and our visibility to read this through to markets is currently poor — the information is often biased and it’s hard to truly know what is fact and what is fed to influence. … [W]ill this lead to genuine regime change, fail or perhaps inflame and lead to a market shock?” Weston said in comments provided to MarketWatch.

    “At this point we simply don’t know, but it feels like we get enough clarity on potential outcomes and even timelines in the next 24-48 hours — at this point the prospect of modest downside risk on Monday is elevated and naturally we’ll be watching crude and EU assets most closely,” he said.

    Terry Haines, founder of Pangea Policy, said in an email to clients that the ongoing uncertainty fueled by the Wagner rebellion reveals the fragility of the Putin regime, and might marginally boost chances of a Ukraine victory.

    But Haines also conceded that it’s a “developing and unstable situation with various facets that on net add to geopolitical uncertainties, to which markets usually react negatively.” Investors must also consider that, should that rebellion fail, it could be “replaced by stronger Russian control” or create further instability as “Wagner disintegrates.”

    In that same vein, Jim Bianco, head of Bianco Research, offered up a joke aimed at all the armchair geopolitical analysts suddenly flocking to Twitter.

    Markets may take a look at this crisis and view it as a “bullish development after some initial volatility, the Kobeissi Letter’s editor in chief and founder, Adam Kobeissi, told MarketWatch in Saturday comments.

    “After all, the end of the war in Ukraine is the market’s top geopolitical driver right now, and if this increases the odds of a peace agreement and/or Russia withdrawing from Ukraine, it is likely to be perceived as bullish over the next few weeks,” he said.

    He recommended that investors keep an eye on prices of oil and gold, which could be particularly sensitive to any fresh developments.

    “If this means more conflict,” he said, “then oil
    CL.1,
    +0.51%    ,
    bonds
    TMUBMUSD10Y,
    3.741%
    and gold
    GC00,
    +0.04%
    are poised to rally.”

    [ad_2]

    Source link

  • Can the United States and China resolve trade disputes?

    Can the United States and China resolve trade disputes?

    [ad_1]

    Washington and Beijing pledge to stabilise relations after the US secretary of state’s visit to China.

    China and the United States have been fighting a trade war for years. But, the economies of the two global powers are deeply interdependent.

    And tensions between the world’s two largest economies, which have caused relations to sink to a historic low, are hurting businesses.

    During a rare meeting in Beijing, the US secretary of state and China’s president agreed on a need to stabilise relations.

    Elsewhere, Kenya’s president wants to reduce the country’s massive public debt. But, many Kenyans are outraged by proposed tax increases.

    Plus, Japan’s fishing industry faces a new threat, 12 years after the Fukushima nuclear disaster.

    [ad_2]

    Source link

  • U.S. stocks fall to cap off worst week since collapse of Silicon Valley Bank

    U.S. stocks fall to cap off worst week since collapse of Silicon Valley Bank

    [ad_1]

    U.S. stocks fell Friday with the S&P 500 index on track for its worst week since the collapse of Silicon Valley Bank in March suggesting the three month rally may be coming to an end.

    Investors sought safety in bonds and the U.S. dollar as a wave of interest-rate hikes and hawkish commentary from international central bankers revived worries about global economic growth.

    How are stocks trading?

    • The S&P 500
      SPX,
      -0.51%
      fell 32 points, or 0.8%, to 4,349.

    • The Dow Jones Industrial Average
      DJIA,
      -0.43%
      fell 204 points, or 0.6%, to 33,741.

    • The Nasdaq Composite
      COMP,
      -0.75%
      slid 145 points, or 1.1%, to 13,484.

    On Thursday, the Dow industrials fell 4.81 points, or less than 0.1%, to close at 33,946.71. The four-day slide is the blue-chip gauge’s longest losing streak since a five-day drop that ended on May 25, according to Dow Jones Market Data. Both the S&P 500 and Nasdaq finished higher, snapping a three-day losing streak.

    What’s driving markets

    U.S. stocks on Friday looked set to snap the longest streak of weekly gains since 2019 for the Nasdaq.

    Concerns that interest rate rises by central banks might harm global economic growth were weighing on global equities on Friday, analysts said, following interest rate rises in the U.K., Switzerland, Norway and Turkey on Thursday. The latest batch of rate hikes followed moves by the central banks of Canada and Australia earlier this month.

    Data released on Friday also showed business activity in the eurozone losing momentum in June, according to a purchasing managers survey. U.S. economic growth may also be slowing. The S&P Global U.S. services index fell to a 54.1 in June from 54.9 in the prior month, a two-month low, while the manufacturing index, meanwhile, slid to a five-month low of 46.9 from 51 in May.

    “US stocks are sliding as the global growth outlook continues to deteriorate following soft global PMI readings,” Edward Moya, Senior Market Analyst at Oanda wrote in a note Friday. “The risk of a sharper economic downturn is greater for Europe than it is for the US, so that could keep the dollar supported over the short-term.”

    With central banks around the world promising to raise borrowing costs even higher to tame inflation, analysts focused on the potential ramifications of higher interest rates for both the health of the economy and equity valuations. In the U.S., analysts across Wall Street have warned that the S&P 500 and Nasdaq Composite valuations are again looking unreasonably rich.

    The price-to-earnings ratio for the S&P 500 based on Wall Street’s forecasts for corporate earnings over the next 12 months is just shy of 19, according to FactSet. That’s higher than the five-year average.

    While the Federal Reserve opted to leave interest rates on hold in June, Chair Jerome Powell reiterated in Congressional testimony this week that senior Fed officials strongly support hiking rates “a couple of times” later this year.

    Ryan Belanger, founder and managing principal at Claro Advisors, is among the analysts who believe the market’s rally is getting ahead of itself.

    “The market is too confident that the Federal Reserve can engineer a soft landing and it would be wise for investors to reduce exposure to stocks,” Belanger said in emailed commentary.

    With the S&P 500 down nearly 1.5% for the week, stocks are on track for their biggest such pullback since March 10, FactSet data showed.

    Of course, the market is coming off a rally which is leading some to conclude that this might be a healthy pullback. The S&P 500 had climbed for five straight weeks through June 16, its longest such winning streak since November 2021, Dow Jones Market Data show.  Meanwhile, the technology-heavy Nasdaq had logged eighth straight weekly advance to mark its longest stretch of gains since March 2019.

    “Some of this is a bit of a giveback and when you look at the market action from the last month and a half, we’ve kind of gone parabolic,” said Paul Nolte, senior wealth manager and market strategist at Murphy & Sylvest Wealth Management, during a phone interview with MarketWatch.

    Defensive assets like the dollar and high-quality sovereign bonds were outperforming on Friday, with the yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.742%
    falling five basis points to 3.744%. Yields on 10-year U.K. gilt
    TMBMKGB-10Y,
    4.317%
    and 10-year German bunds were down by 10 basis points or more. Crude prices
    CL.1,
    -1.12%    ,
    which are sensitive to expectations for the global economy, fell 1.6% to $68.49 a barrel.

    However, U.S. Treasury Secretary Janet Yellen struck an upbeat tone Friday when she said during an interview with Bloomberg that recession risks in the U.S. have faded “because look at the resilience of the labor market, and inflation is coming down.”

    Investors will hear from Cleveland Fed President Loretta Mester later. She’s expected to speak at 1:40 p.m. Eastern Time.

    Companies in focus

    [ad_2]

    Source link

  • U.S. economy running close to 2% growth rate in second quarter, S&P says

    U.S. economy running close to 2% growth rate in second quarter, S&P says

    [ad_1]

    This version corrects the manufacturing PMI data which fell to a six-month low of 46.3 in June from 48.4 in the prior month.

    The numbers: The S&P Global “flash” U.S. service sector activity index fell to a 54.1 in June from 54.9 in the prior month, a two-month low. 

    Economists surveyed by the Wall Street Journal has forecast a reading of 53.3.

    The S&P Global “flash” U.S. manufacturing sector index, meanwhile, slid to a six-month low of 46.3 from 48.4 in May. Economists had expected a 49 reading. 

    Readings above 50 signifies expansion; below that, contraction.

    Key details: In the services sector, new orders increased at a strong rate in June. The pace of expansion was close to May’s 13-month high.

    On the other hand, manufacturers recorded the fastest rate of contraction in new orders since last December. They linked the drop to muted consumer confidence. Foreign client demand was also subdued.

    Inflation was seen as moderating. The overall rate of selling prices for goods and services dropped to the lowest level since late 2020.

    Big picture: The S&P PMIs try to look ahead at the health of the economy, a critical question with even Federal Reserve officials saying that the outlook for the U.S. is hidden in a fog.

    A composite output index from S&P showed the fifth straight month of increases in private sector activity.

    What S&P Global said: “The overall rate of expansion of business activity in the
    US remained robust in June, consistent with GDP rising at a rate of 1.7% to put second quarter growth in the region of 2%,” said Chris Williamson, chief business economist at S&P Global.

    Market reaction: Stocks
    DJIA,
    -0.65%

    SPX,
    -0.77%
    opened lower on Friday on talk of more interest rate hikes from global central banks. The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.741%
    fell to 3.72%.

    [ad_2]

    Source link

  • Dow sheds 100 points, stocks post 3-session drop after Fed’s Powell says expect more rate hikes

    Dow sheds 100 points, stocks post 3-session drop after Fed’s Powell says expect more rate hikes

    [ad_1]

    U.S. stocks closed lower for a third session in a row, retreating after recently touching their highest levels in more than a year. The Dow Jones Industrial Average
    DJIA,
    -0.30%
    shed about 102 points, or 0.3%, ending near 33,951, the S&P 500 index
    SPX,
    -0.52%
    closed 0.5% lower and the Nasdaq Composite Index
    COMP,
    -1.21%
    shed 1.2%, according to preliminary FactSet data. Stocks have been drifting lower in the past three sessions, pausing a recent rally that lifted the S&P 500 out of a bear market. The second-guessing by bulls comes as the Federal Reserve appears near, but not finished, raising rates in this cycle. Fed Chairman Jerome Powell told Congress on Wednesday to expect more rate hikes this year, with inflation still running well above the central bank’s 2% annual target. Fed officials kept their policy rate in a 5%-5.25% range in June, but signaled potentially two more rate hikes this year. The Fed’s “dot plot” indicates the benchmark rate could peak in a 5.5%-5.75% range.

    [ad_2]

    Source link

  • Economist who anticipated bank failures says U.S. recession may be just around the corner

    Economist who anticipated bank failures says U.S. recession may be just around the corner

    [ad_1]

    An economist who delivered a prescient warning about the health of the U.S. banking system earlier this year is now saying a long-awaited U.S. recession could finally arrive in the months ahead.

    Steve Blitz, chief U.S. economist at TS Lombard, said in a research note shared with MarketWatch on Wednesday that “…the recession view remains very much intact” as banks rein in lending while companies’ profits appear to have weakened once again during the second quarter ending in June.

    Both are signs that the U.S. economy is slowing, and the stock market’s “daydream”, which has helped to propel the S&P 500 index
    SPX,
    -0.24%
    nearly 14% higher so far this year according to FactSet data, might soon come to an abrupt end.

    The pace of lending growth at small and large U.S. banks has slowed to almost nothing, according to TS Lombard’s analysis of Federal Reserve data on bank lending released weekly. It is the latest milestone in a trend that has persisted for most of this year, and even longer for large banks, the data show.


    TS LOMBARD

    Meanwhile, the U.S. Treasury’s plan to issue a flood of T-bills to replenish its coffers now that the federal debt ceiling has been raised could divert even more money away from markets and the economy.

    See: The debt-ceiling deal may spark a new worry: Who will buy the deluge of Treasury bills?

    Treasury has already started the process, and it is expected to issue $1 trillion in bills before the end of August, according to an estimate from BofA Global strategists. T-bills are Treasury bonds with maturities between four and 52 weeks.

    Finally, signs of slowing corporate earnings growth could push the economy over the edge. Even as Wall Street analysts have been raising their expectations for corporate profits, a slowdown in quarterly tax payments suggests that earnings have actually continued to sag in 2023. This comes after profits for S&P 500 firms previously shrank on a year-over-year basis during the first quarter of 2023 and fourth quarter of 2022, according to FactSet data.

    U.S. Treasury Department data show corporate tax receipts are down 12% year-to-date through June 16, according to a TS Lombard analysis.

    Lower tax payments means lower profits, Blitz said. And weaker profits will likely lead to more layoffs and a slowdown in wage growth, which could compound the impact from slowing credit creation and the flurry of T-bill issuance.

    “Lower corporate earnings are a key indicator pointing to lower personal income and employment sooner rather than later. Aiding and abetting this process is the pace of lending slowing to a crawl – and then Treasury pulling 9% of GDP, annualized, out of the economy in the current quarter,” Blitz said.


    TS LOMBARD

    Hopes that the U.S. economy might avoid a recession have helped to lift stocks this year and investors are clinging to signs signs that the U.S. economy, particularly the labor market and the housing market, remains robust.

    Blitz addressed some of these concerns, saying that corporate profits will lead to lower employment, while dismissing a surge in housing starts last month as a one-time “outlier.”

    According to Commerce Department data released Tuesday, the closely watched measure of U.S. home-building rose 21.7% in May to a seasonally adjusted annual rate of 1.631 million, blowing away economists’ expectations for a modest decline.

    See: U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on 

    “Housing is critical in getting to a recession, only 2001 saw a recession without a major contraction in home construction. It is possible for this to occur again, given the expected mildness of the downturn. Still, recessions rarely develop when construction is roaring ahead,” Blitz said.

    “To this point, May looks like an outlier rooted in a jump in April homes sold that weren’t yet started,” he added.


    TS LOMBARD

    Blitz also cited a drop in railcar loadings of lumber and metal products as a sign that a recent uptick in the health of the manufacturing economy is already fading.

    And even if the U.S. does manage to delay a recession, the Federal Reserve and markets could face other problems, like a a resurgence of inflation.

    “Absent a recession, inflation will reaccelerate later in the year. Not to 8% or so, 5% is more likely,” he said.

    A longtime chronicler of the U.S. economy, Blitz noted back in February that small U.S. banks could be vulnerable due to a number of factors, including a paucity of reserves and a mismatch between the duration of their loans and the short-term nature of their deposit obligations.

    The asset-liability mismatch in particular became a major problem when Silicon Valley Bank collapsed into federal receivership a few weeks later after a last-ditch attempt to raise funding triggered a devastating bank run.

    Wall Street economists had expected a U.S. recession would begin as soon as the first quarter of 2023, but so far, the economy has proven unexpectedly resilient to the Fed’s interest rate hikes, even after the central bank raised borrowing costs by five percentage points since March 2022.

    [ad_2]

    Source link

  • Dow ends nearly 250 points lower, stock-market rally pauses ahead of Fed testimony

    Dow ends nearly 250 points lower, stock-market rally pauses ahead of Fed testimony

    [ad_1]

    U.S. stocks closed lower on Tuesday, the first day of trading after the long federal Juneteenth holiday. The Dow Jones Industrial Average
    DJIA,
    -0.72%
    fell about 245 points, or 0.7%, ending near 34,053, while the S&P 500 index
    SPX,
    -0.47%
    closed about 0.5% lower and the Nasdaq Composite Index
    COMP,
    -0.16%
    shed 0.2%, according to preliminary FactSet figures. Stocks were lower to start the week, after the S&P 500 on Friday booked a fifth straight week of gains and stocks recently touched their highest level in more than a year. Investors were waiting on Federal Reserve Chairman Jerome Powell’s congressional testimony on monetary policy, which kicks off Wednesday, for more insights into the central bank’s thinking on interest rates, after senior officials penciled in two more potential hikes this year, while skipping a rate increase at its June meeting.

    [ad_2]

    Source link