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Bull Case vs. Bear Case Part II (Tactical Ideas and My Opinion)

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What’s in Today’s Report:

  • Bull Case vs. the Bear Case Part II (Tactical Ideas and My Opinion)

Futures are little changed as global inflation and regional bank liquidity stress both remain elevated.

The Fed’s balance sheet shrank slightly as discount window borrowing dropped –22 bln. while BTFP lending increased 10.7 bln. as bank liquidity stress didn’t get much worse, but it didn’t get much better, either.

On inflation, EU HICP fell to 6.9% from 8.5% y/y, but core HICP rose to 5.7% from 5.6%, reflecting still sticky inflation.

For the final day of the first quarter focus will be on inflation and specifically the Core PCE Price Index (E: 0.4%, 4.7%) and investors need to see that number at or below expectations to further the “Fed Pivot” idea that’s supporting stocks.  We also get Consumer Sentiment (E: 63.4) and the five-year inflation expectations and there’s one Fed speaker Williams (3:05 p.m. ET).  As mentioned, if the data and Williams support the “Fed Pivot” idea, stocks can extend the rally.  If they refute that idea, stocks could give back some of the recent gains.

Tom Essaye Quoted in Barron’s on March 24th, 2023

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Stocks Gain as Volatile Week Ends

“Bottom line, banks have reemerged as the primary influence on markets in the back half of the week and if the weakness in the sector continues today, stocks will have a very hard time extending yesterday’s modest bounce,” says Tom Essaye, the founder of Sevens Report Research. Click here to read the full article.

The True Indicator of Banking Stress

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What’s in Today’s Report:

  • The True Indicator of Banking Stress
  • Case Shiller Home Price Index and Consumer Confidence: Charts

Stock futures are trading solidly higher with overseas markets following some positive bank headlines out of Europe and strong price action in Asian tech shares.

BABA announced a corporate restructuring plan that sent shares higher by 14% overnight, boosting sentiment across Asian equity markets and buoying U.S. equity futures with tech leading the way higher.

In Europe, it was reported that UBS has brought back former CEO Sergio Ermotti to oversee the CS takeover which is further easing some of the angst surrounding the recent turmoil in the banking sector.

Looking into today’s session, there is one more housing data release to watch: Pending Home Sales (E: 1.0%) before Fed Vice Chair Barr continues with his Congressional testimony regarding recent bank failures at 10:00 a.m. ET. There is also a 7-Yr Treasury Note auction at 1:00 p.m. ET.

Bottom line, equity markets appear to be stabilizing but the tape does remain thin and tentative with the “pain trade” to the upside. One materially negative headline out of the banking sector or regarding Fed policy, however, could reignite the volatility of recent weeks.

Progress on the Banks?

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What’s in Today’s Report:

  • Weekly Market Preview:  Do the Banks Stabilize?
  • Weekly Economic Cheat Sheet:  Key Inflation Data on Friday

Futures are modestly higher following the successful merger of Silicon Valley Bank over the weekend.

First Citizens agreed to buy much of Silicon Valley Bank’s assets, and that resolution combined with larger deposit insurance chatter is helping stocks to rally this morning.

Economically, the only notable report overnight was the German Ifo Business Expectations and it was better than expected at 91.2 vs. (E) 88.0.

Today focus will remain on the banks and as has been the case, Frist Republic is the key – resolution for that bank remains the next step towards broader stability in the banking sector.  Economically, today we get the Dallas Fed Manufacturing Index (E: -13.5) and have one Fed speaker, Jefferson at 5:00 p.m. ET, but neither should move markets.

Catalysts to Watch This Week

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What’s in Today’s Report:

  • Roadmap for the Catalysts This Week
  • Economic Takeaways – Inflation Is Still High and the Consumer Is Still Healthy (For Now)
  • FOMC in Focus This Week – Will The Fed Signal a Pause?

Stock futures are little changed but cross-asset money flows remain cautious with Treasuries and gold both trading higher as the latest developments in the global banking sector are digested.

Swiss regulators brokered a deal for UBS to take over Credit Suisse for $3.2B over the weekend, a steep discount from CS’s $8B market value on Friday but global bank shares are relatively stable to start the week today helping the broader market hold steady in early trade.

The Fed and several other major central banks coordinated efforts to boost liquidity in dollar swaps over the weekend in their latest attempt to ease strains in the global financial system, which so far, is being received fairly well.

There are no notable economic reports today and no Fed officials are schedule to speak which will leave focus on the price action in banks today. If financials can hold above last week’s lows, that will be a positive, but if the selling pressure continues, the broader market is likely to be dragged lower with the banks as the March Fed meeting comes into focus.

Why Have RSP and SPY Diverged?

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What’s in Today’s Report:

  • Why Have RSP and SPY Diverged?

Futures are little changed following a mostly quiet night as markets digest the actions by large banks to shore up FRC.

Positively, banks borrowed $165 billion from the Fed via the discount window and the new BTFP this week and that importantly shows banks are using the Fed’s programs to shore up liquidity.

On inflation, core EU HICP met expectations at 5.6% y/y, although that’s an increase from the previous 5.3% gain.

Today focus will remain on any banking headlines and economic data, but as long as there are no surprises from either (meaning KRE is stable) then stocks can digest this week’s volatility and hold yesterday’s gains.

Economically, notable reports today include Industrial Production (E: 0.4%), Consumer Sentiment (E: 67.0) and Leading Indicators (E: -0.2%), but again it’ll take a substantial surprise from them to move markets.

Tom Essaye Quoted in Forbes on March 14th, 2023

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‘Head Fake Rally’? Dow Jumps 400 Points On Bank Stocks’ $37 Billion Recovery

Sevens Report analyst Tom Essaye warned in a Tuesday note that the most recent market gains could be little more than a “head fake rally,” explaining that the Federal Reserve’s actions to protect depositors at Silicon Valley Bank and Signature Bank could actually cause inflation to linger even longer. Click here to read the full article.

Tom Essaye Quoted in Yahoo News on March 14th, 2023

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US Stocks Shake Off Market Jitters; Bonds Fall: Markets Wrap

Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, expects that the data will keep the Fed on track to raise rates 25 basis points next week.

“Given the bank troubles, this report isn’t bad enough to put 50 bps back on the table, but if the Fed wants to maintain credibility on inflation, then this report says they have to hike again next week and not signal they are done,” Essaye wrote. Click here to read the full article.

 

Market Multiple Table Chart

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What’s in Today’s Report:

  • Market Multiple Table Chart
  • Update on Credit Suisse
  • An Important Difference Between Now and 2008

Futures are little changed despite the Swiss National Bank providing Credit Suisse (CS) liquidity, as that news isn’t eliminating general market anxiety.

Credit Suisse is rallying more than 20% pre-open after it was granted a $54 billion credit line from the Swiss National Bank.

Despite the positive CS news, investors remain very nervous and jittery about U.S. regional banks (especially FRC).

Today is an important day as there are numerous potentially market moving events this morning, with the most important being the ECB Decision (E: 50 bps hike). Markets will want to see the ECB “blink” in the face of market turmoil and hike less than 50 bps.  If the ECB sticks to a 50 bps hike, don’t be shocked to see more volatility today.

Economically, the hope that the Fed “blinks” and does not hike 25 bps next week has helped support stock and bond markets this week, so investors will want to see today’s economic data come in soft enough to make no hike more likely next week.  Key reports today are, in order of importance: Philly Fed (E: -15.8), Jobless Claims (E: 205K), Housing Starts (E: 1.315M).

Market Multiple Table: March Update

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What’s in Today’s Report:

  • Market Multiple Table – March Update (Printable PDF Available)
  • February CPI Takeaways
  • Breakdown in the Energy Markets: Oil Update

Markets are trading with a risk-off tone this morning amid renewed worries about the global banking system.

Credit Suisse’s 2022 annual report revealed “material weaknesses” but the bank’s chairman ruled out government assistance while the largest shareholder, the Saudi National Bank, said further financing was not an option. The negative news flow has sent Credit Suisse shares down more than 20% to a new record low this morning and that is dragging global bank stocks lower and weighing heavily on sentiment.

Economic data overnight was mostly better than expected with Housing Sales in China notably rising more than expected while the PBOC injected more liquidity into he system than anticipated, both of which helped bolster Asian markets overnight.

Looking into today’s session, focus will be on economic data early with PPI (E: 0.3%, 5.4%), Retail Sales (E: -0.3%), the Empire State Manufacturing Index (E: -7.7), and the Housing Market Index (E: 41) all due out this morning.

Regarding the data, markets want to see a further decline in inflation metrics and more slowing in growth readings to help shore up less hawkish Fed expectations, however, focus will also remain on the banking sector and if banks can’t stabilize and start to rebound broadly, the major indexes are going to have a hard time finding their own footing today.