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Nasdaq up ~1%, S&P 500 edges green, DJI slips
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Tech jumps to lead S&P sector gainers; utilities weakest
group
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Dollar, gold, crude decline; bitcoin up >5%
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U.S. 10-Year Treasury yield rises to 3.45%
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WHEN IT COMES TO COPPER, GREEN IS THE NEW GOLD -GOLDMAN SACHS (1335 EDT/1735 GMT) After a strong thrust in early January, copper prices have retreated on growing recession fears:
This has occurred even as copper micro fundamentals have continued to strengthen, according to an economics research team at Goldman Sachs (GS). The GS analysts note that Chinese copper demand rose 4% year-over-year in 2023 Q1. With this, GS is highlighting that green sectors (renewables and electric vehicles) remain the key drivers of the demand strength. "While investor appetite for copper continues to be restrained given the close historical tie between copper fundamentals and global growth, we believe the increasing influence of the structural green demand surge on fundamentals remains underappreciated," write the analysts. GS says that green demand accounted for 4% of consumption in 2020, makes up 7% today and by their estimates is on course to rise to 17% by 2030, accounting for 47% of additional copper demand (2023-30E). More importantly, GS believes an increased focus on energy security combined with the rise in strategic industrial competition – sparking a so-called 'green tech arms race' between Europe and the U.S. - in a mad dash to attract clean-tech capital – is boosting green capex growth and diversifying green demand drivers. Additionally, the firm estimates the U.S. Inflation Reduction Act alone will boost global copper demand by ~1%, exemplifying the additional demand upside from strategic clean-tech re-industrialization.
(Terence Gabriel)
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U.S. HOME PRICES TO DIP, BUT THEN REBOUND – VANGUARD (1205 EDT/1605 GMT) U.S. home prices are likely to drop by an average 5% year-over-year in the second half of this year as the economy faces a likely recession, but several factors will also support a rebound over the following two years, according to Vanguard Investment Strategy Group. Declines of more than 10% in the annualized rate of investment in housing construction and improvements have coincided with recession all but two times, both of which occurred during wartime when defense spending supported the economy, Vanguard said. In the last three quarters of 2022, declines in these investments were around 20%. “The housing downturn is part of the reason why we view a mild U.S. recession in 2023 as most likely.” The interest-rate sensitive housing sector offers relatively early signs of the lagged economic effects of changing monetary policy, Vanguard noted, but “as affordability normalizes… housing should act as an economic stabilizer.” The asset manager notes that several factors are likely to support U.S. housing activity in the coming years. These include “1) the structural undersupply of homes that’s prevailed since the 2008 global financial crisis; 2) robust demographic trends and favorable sentiment toward homeownership; and 3) strong borrower fundamentals and high equity cushions.”
(Karen Brettell)
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WEDNESDAY DATA: SOFT AS AN EASY CHAIR (1145 EDT/1545 GMT) Data on Wednesday added a few more brush strokes to the mural depicting a softening economic landscape and rising interest rates.
New orders of long-lasting merchandise from U.S. companies jumped 3.2% last month, blowing past the 0.7% consensus. The Commerce Department's Durable goods report , which covers everything from waffle irons to fighter jets, owed its upside surprise to a 78.4% surge in commercial aircraft orders. "Durable goods orders and shipments were boosted in March by a jump in the volatile transportation category, and the rest of the details weren't impressive," writes Oren Klachkin, lead U.S. economist at Oxford Economics. "Durable goods activity is especially sensitive to credit conditions, and we think that increasingly restrictive lending standards and relatively high interest rates will lead businesses and consumers to pull back on spending." So-called core capital goods , which excludes aircraft and defense items and is widely viewed as a barometer of U.S. business spending plans, did indeed surprise in the other direction, dropping 0.4%, worse than the nominal 0.1% decline analysts expected. "We think bigger falls in orders are coming over the next few months as credit conditions continue to tighten," says Kieran Clancy, lead U.S. economist at Pantheon Macroeconomics.
The Commerce Department also released its advance take on last month's goods trade balance and wholesale inventories. The difference between the value of goods imported to the U.S. and domestically produced merchandise sent abroad narrowed by 8% in March to $84.6 billion. "The bigger-than-expected fall in the goods trade deficit largely is due to a 2.3% increase in exports of industrial supplies, which includes oil," Clancy adds. "That said, the spread between the domestic WTI benchmark and the international Brent benchmark—the main driver of net oil trade—points to a narrowing in the months ahead."
Next, the value of goods stacked in the warehouses of U.S.
wholesalers repeated February's nominal 0.1%
growth, missing the 0.2% projection.
Finally, mortgage demand increased by 3.7% last week, in
spite of the fact that the cost of borrowing continued its
uphill hike, according to the Mortgage Bankers Association
(MBA).
The average 30-year fixed contract rate heated up
by 12 basis points to 6.55%.
"Although incoming data points to a slowdown in the U.S.
economy, markets continue to expect that the Fed will raise
short-term rates at its next meeting, which have pushed Treasury
yields somewhat higher," says Joel Kan, MBA's deputy chief
economist. "As a result of the higher yields, mortgage rates
increased for the second straight week to their highest level in
over a month."
Nevertheless, would-be borrowers persisted, with
applications for loans to purchase homes jumping
4.6% and refi demand rising 1.7%.
Tuesday's Case-Shiller report showed home price growth
cooling to its slowest pace in 11 years, so even with the recent
uptick in mortgage rates, monthly payments could be returning to
the realm of affordability for some potential buyers.
Even so, as illustrated below, overall mortgage demand
remains 36.8% below the same week last year:
(Stephen Culp)
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THE DIVIDENDS ARE COMING (1015 EDT/1415 GMT) S&P Global Market Intelligence has forecasted that 67 components, or 13.4%, of the S&P 500 will increase their dividends at their next announcements.
S&P projected the hikes by considering prior dividend histories, current news events, corporate guidance, estimated free cash flow, revenue estimates, debt ratios, capital expenditures and other factors, with each forecast coming with a "confidence level" to gauge the certainty of the analyst for the increase.
Many companies in the S&P 500 took advantage of the near-zero rates during the COVID-19 pandemic to keep financing costs manageable, according to Ryan Boyd, Market Intelligence head of business development for the Americas. As such, dividends should be able to stay resilient in the face of a slowing economy and higher borrowing costs.
Recent layoffs, such as those seen in the tech and financial sector, will provide a cost reduction and give an added buffer if companies believe they need to mitigate risk to shareholder returns, according to Boyd.
On a sector basis, 12 of the 37 companies, or 32.4%, in the consumer staples sector are forecast to hike dividends, the highest among the 11 major S&P sectors. The second highest sector is materials with 20.7% of the components seen increasing their dividends.
Utilities are expected to have the smallest dividend growth, at 6.7%.
As for individual companies, S&P sees UnitedHealth announcing a roughly $2.00 per share dividend, or a 21.2% increase, in June as the managed care company has boosted its divided over the last several years, with a five-year average growth rate of 19%.
The next largest are expected to be Goldman Sachs and Citigroup with increases of 20% and 19.6%, respectively.
(Chuck Mikolajczak)
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NASDAQ BREADTH HAS BEEN WHEEZING (0900 EDT/1300 GMT) It's no secret that a handful of tech-titans have been the driving force behind the market's 2023 gains. Indeed, the Nasdaq 100 index is sporting a year-to-date rise of more than 16%, while its equal-weighted version has risen just over 9%. The benchmark S&P 500 is up just over 6%. Meanwhile, of note, since early February, the Nasdaq daily advance/decline (A/D) line has been sharply diverging from the Nasdaq Composite :
The divergence between this market breadth measure and the IXIC has been highlighting the lack of participation under the surface. Unlike the Composite, which saw its 50-day moving average (DMA) cross above the 200-DMA in mid-March, the A/D line's intermediate-term moving average failed to confirm this event and rolled under the longer-term moving average.
And now, the A/D line is threatening its late-2022 trough. E-mini Nasdaq 100 futures are trading up around 1% ahead of Wednesday's open. However, it may be critical to see the advance broaden, and the A/D line quickly get back in gear to the upside with the Composite. Ultimately, weakness in the great mass of Nasdaq stocks exposes the IXIC to risk of a sharp decline in the event of tech-titan exhaustion.
(Terence Gabriel)
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FOR WEDNESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
