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Main U.S. indexes sharply lower: Nasdaq down >2%
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Cons disc weakest S&P 500 sector; energy just below flat
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Dollar up; crude slips; gold, bitcoin decline
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U.S. 10-Year Treasury yield rises to ~3.92%
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LARGE U.S. BANKS FACE FALLING DEPOSITS, FEWER TREASURY
HOLDINGS AND SLIPPING LOAN GROWTH (1233 EST/1733 GMT)
Consumers are raiding their piggy banks, banks are selling
their Treasuries to make up for the cash shortfall, and tighter
credit standards are putting a damper on loan demand.
In a BNY Mellon note, forex and macro strategist John Vellis
describes a chain reaction in which deposits are shrinking as
rising interest rates are sending investors looking for more
attractive places to park their cash, sending overall deposits
held by large financial institutions down by 4.2% year-on-year.
Vellis doesn't cite hot inflation as a possible reason
deposits are shrinking and the saving rate is drifting near
historical lows.
As a side note, on Friday, the Commerce Department is due to
release its wide-ranging personal consumption expenditures
(PCE)report, which will provide the latest data on both
inflation and the saving rate.
"Furthermore, the decline in reserves has forced banks to
similarly reduce holdings of Treasury and Agency securities in a
bid to raise cash," Vellis writes.
Tighter financial conditions brought about by the Federal
Reserve's restrictive monetary policy is stunting loan growth.
"The quantity of loans issued by large domestically chartered banks peaked just before the new year at $6.53 trillion, and is now down to $6.45 trillion," the note says.
That amounts to a 1.2% drop.
"(It's a) small decline to be sure, but in light of falling
deposits and tighter credit standards, it nevertheless reflects
monetary policy tightening – and suggests business activity will
slow," Vellis adds.
(Stephen Culp)
*****
MUCH ADO ABOUT THE DEBT LIMIT (1203 EST/1703 GMT)
Goldman Sachs economists Tim Krupa and Alec Philips, like
most peers, expect debt limit showdown this summer in Washington
to roil markets the closer we get to the decision.
The economists expect the debt limit deadline to hit in
early to mid-August and their base case is that Congress will
raise it before the Treasury has to delay scheduled payments.
Last week, the Congressional Budget Office warned the United
States could face debt-ceiling crisis this summer without a
deal.
In past instances, uncertainty around the debt ceiling has
often led to increased volatility in the markets and dislocation
of Treasuries maturing closest to the stated deadline. So far,
however, few assets are showing signs of pricing risks to this
uncertainty, the economists said in the note.
Treasuries maturing close to the debt limit deadline appear cheaper, while equity options are not signaling any risk premiums for the summer at this point, according to the note. There are two exceptions – one, the U.S. sovereign 1-year credit default swap spreads that have hit levels last seen in 2011; and two, equities with greater exposure to government spending that have lagged the benchmark S&P 500 index. As the main source of uncertainty is the level of April tax collections, Krupa and Philips said, we expect greater clarity on the deadline by late April or early May.
This could, in turn, lead to higher volatility around the
deadline and impose a greater risk premium on Treasuries
maturing near the date.
(Bansari Mayur Kamdar)
******
TWO-FER TUESDAY: HOME SALES, FLASH PMI (1112 EST/1612 GMT)
A partly cloudy duet of economic indicators on Tuesday
provided evidence that business activity is recovering and home
sales, which have fallen for a full year, might have at long
last found a trough.
Sales of pre-owned U.S. homes unexpectedly fell
by 0.7% in January to an even 4 million units at a seasonally
adjusted annualized rate, according to the National Association
of Realtors (NAR).
What's more, the December decrease was revised to a
steeper-than-previously-stated -2.2%. Consensus called for a
2.0% increase to 4.1 million units SAAR.
The report marks the twelfth-straight monthly decline, and
existing home sales are now below the brief, one-month nadir of
the pandemic crash that occurred in May 2020.
"Home sales are bottoming out," says Lawrence Yun, chief
economist at NAR. "Prices vary depending on a market’s
affordability, with lower-priced regions witnessing modest
growth and more expensive regions experiencing declines."
Inventories, pushed to record lows amid a COVID-driven
stampede for the suburbs, rose by 2.1%. At the current pace of
sales, it would take 2.9 months to sell every home on the
market.
"Rising inventories and lower prices could provide support
to home sales," notes Rubeela Farooqi, chief U.S. economist at
High Frequency Economics, who also notes that in view of rising
home prices and mortgage rates, "affordability remains a key
constraint for buyers."
Separately, S&P Global issued its current month "flash"
purchasing managers' indexes (PMI) for the manufacturing and services sectors, both of which
landed to the north of analyst expectations.
Factory activity contraction decelerated, rising 0.9 points
to 48.8, contracting at a shallower pace, while the services
reading jumped 3.4 points to 50.2, edging back into expansion
territory.
A PMI reading above 50 indicates monthly expansion; below
that level signifies contraction.
"February is seeing a welcome steadying of business activity
after seven months of decline," writes Chris Williamson, chief
business economist at S&P Global. "Despite headwinds from higher
interest rates and the cost of living squeeze, the business mood
has brightened amid signs that inflation has peaked and
recession risks have faded."
Risks remain, however. Williamson flags wage inflation as a
potential trigger for higher interest rates, which could "subdue
the nascent expansion."
Disappointing forecasts from Walmart and Home Depot soured investor risk appetite.
All three major U.S. stock indexes are down more than 1% in
morning trading, with consumer discretionary ,
transports , and small caps among those groups
taking the biggest hits.
(Stephen Culp)
*****
CONSUMER DISCRETIONARY LEADS WALL STREET'S EARLY LOSSES
(1004 EST/1504 GMT)
Wall Street's three major indexes are lower on Tuesday with
broad declines and particular pressure on retail stocks as Home
Depot and Walmart Inc both issued full-year
earnings guidance that was lower than analysts had expected.
The S&P 500's consumer discretionary index is leading declines, last down 2.1%, while the S&P retail index is down 2.7%.
The sole gaining index among the S&P's 11 major industry
sectors is energy , which is being boosted by rising oil
prices. If their early trading trends continue to the close S&P
500 and Nasdaq would clock three straight sessions of
declines.
The Dow would erase its Friday advance unless it regains some ground.
Here is a snapshot from 1004 AM: (Sinéad Carew)
*****
DOW INDUSTRIALS: GLASS CEILING OR GLASS FLOOR? (0900
EST/1400 GMT)
The Dow Jones Industrial Average , which ended Friday
at 33,827, has essentially gone sideways for more than three
months.
With this, a daily historical volatility measure has now
collapsed to its tightest reading since early-September 2021.
Thus, the blue-chip average appears especially ripe for much
more spirited action, or indeed, a next trend:
Daily Bollinger Band (BB) width has compressed to 0.0207 or
its lowest reading since 0.0205 on September 7, 2021.
Including the September 2021 low, and prior to the current
print, the DJI has seen five sub-0.0400 BB width troughs (four
which preceded declines and one which preceded a rally).
The average immediate decline was as much as 6.2% over the
next 12 trading days. The rally was 6.4% over the next 18
trading days.
Low BB width does not in itself predict direction, and it
could become more compressed. However, with e-mini Dow futures suggesting more than 300 points of downside pressure at
Tuesday's open, the DJI looks poised to test its lower daily BB,
which ended Friday at around 33,570.
In the event the Dow closes below this line, coupled with a
BB width rise, a more sustained downside flurry may ensue.
The DJI has support at its December 22 low of 32,573. The
200-day moving average (DMA) ended Friday around 32,345.
If the DJI can reverse back above its 20-DMA, which should
be around 33,950 on Tuesday, it can instead tilt the blue-chip
average toward an upside range breakout.
(Terence Gabriel)
*****
FOR TUESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT
- CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
