The stock market is forever surprising investors, but in the realm of risk the future’s a bit less uncertain, at least sometimes. That’s hardly a silver bullet, but it helps to manage expectations, especially in the task of deciding when and if market sentiment has gone too far in one direction or the other.
Macro Briefing: 16 March 2023
* France set for high-stakes vote on unpopular pension reform plan
* South Korea and Japan’s leaders meet for first time since 2011
* Shares of embattled Credit Suisse bank rebound on news of crucial loan
* US home builder sentiment continues to rebound in March
* Did SVB collapse from “wokeness”? No–there’s just no evidence for the claim
* Business inflation expectations rise in March via Atlanta Fed survey
* US Q1 GDP nowcast rises to strong 3.2%, based on Atlanta Fed’s GDPNow model
* US wholesale price inflation unexpectedly eases in February
* NY Fed Mfg Index continues to signal weak conditions in the sector
* US retail sales dip in February following January surge:
10-Year Treasury Yield ‘Fair Value’ Estimate: 15 March 2023
US interest rates have been on a roller coaster lately, but there’s a case for considering the possibility that yields have peaked. The wild card is the Federal Reserve, of course. The critical question: Will the Fed’s policy decisions over the next several months conflict or align with emerging signs that rates look set to more or less hold steady, if not decline, from current levels?
Macro Briefing: 15 March 2023
* Russian fighter jet collides with US drone over Black Sea
* Regional bank stocks rise, recovering some of Monday’s sharp losses
* Moody’s cuts view on entire banking system to negative from stable
* Fed will consider tougher rules for midsize banks after SVB collapse
* SVB collapse fueled by ‘the first Twitter-fueled bank run’
* Should Congress raise cap on deposits backed by the FDIC?
* China’s economy rebounds after Covid lockdown
* US consumer inflation continues to ease in February via 1-year change:
Nobody Expects A Banking Crisis, But…
There’s always a new one lurking. It’s the nature of the beast. Banking is inherently unstable. Most of the time that’s not obvious and banking operations run smoothly. But panics flare up, sometimes for trivial reasons but inevitably a new bank run emerges. Chalk it up to behavioral ticks, irrationality or whatever narrative framing makes you happy. But history is clear: as long as banks have existed, the latent instability roars forth anew every so often.
Macro Briefing: 14 March 2023
* Investors rush into safe havens as banking turmoil roils markets
* Outlook for more Fed rate hikes under new scrutiny amid banking turmoil
* Wall Street considers risks beyond banking system after SVB collapse
* China’s Xi to meet Putin in Moscow, as early as next week
* Russia agrees to 60-day extension of wartime grain-export deal
* N. Korea continues to launch missiles to sea as allies hold drills
* US and allies unveil details on submarines aimed at patrolling Pacific
* Policy-sensitive 2-year Treasury yield falls sharply amid fears of banking crisis:
US Bonds Rise As Risk-Off Sentiment Strengthens
Government bonds recovered last week, leading the risk-off trade in global markets amid the second-largest bank failure in US history on Friday.
Macro Briefing: 13 March 2023
* All SVB depositors will be protected, say US regulators
* US regulators close another bank: Signature Bank
* Wall Street considers how far the banking panic will spread
* US Banks have $620 Billion in unrealized losses, raising contagion worries
* North Korea fires submarine missiles ahead of US-South Korea military drills
* Biden bars oil drilling for nearly 3 million acres in Alaska
* Goldman Sachs no longer sees a Fed rate hike for the March 22 policy meeting
* Appeal of cash will increase in years ahead, predicts co-CIO at Bridgewater
* US payrolls rose more than expected in February
* US 10-year Treasury yield falls sharply amid SVB bank failure:
Book Bits: 11 March 2023
Liz Hoffman
Summary via publisher (Crown/Penguin Random House)
In Crash Landing, award-winning business journalist Liz Hoffman shows how the pandemic set the economy on fire—but if you look closely, the tinder was already there. After the global financial crisis in 2008, corporate leaders embraced cheap debt and growth at all costs. Wages flatlined. Millions were pushed into the gig economy. Companies crammed workers into offices, and airlines did the same with planes. Wall Street cheered on this relentless march toward efficiency, overlooking the collateral damage and the risks sowed in the process.
Research Review | 10 March 2023 | ETFs
ETF Dividend Cycles
Pekka Honkanen (University of Georgia), et al.
February 2023
Exchange-traded funds (ETFs) collect approximately 7% of all U.S. corporate dividends, which they are required to redistribute to investors. How do the funds manage these dividend flows, and does such management have spillover effects on other financial markets? In this paper, we document a new stylized fact of the “ETF dividend cycle:” ETFs gradually invest in money market funds (MMFs) when they accumulate dividend receipts and periodically withdraw from MMFs when they distribute dividends. This cycle creates periodic liquidity shocks to MMFs and, consequently, to the Treasury markets as the affected MMFs liquidate some of their short-term Treasury holdings to satisfy ETFs’ dividend-driven withdrawals. As a result, ETF dividend cycles can explain flows to MMFs and fluctuations in Treasury yields.