The Dividend Cafe - The DC Today - Thursday, March 16, 2023

Episode Date: March 16, 2023

Today's Post - https://bahnsen.co/3JHE8Wf Brian Szytel here with you today reviewing continued market volatility with today’s 700-point swing, albeit today to the upside, surrounding ongoing stress in the financial sector, along with a significant list of new economic data points. I have a full agenda in today’s video podcast link below with updates on employment, manufacturing, interest rates, and a deep dive into what is unfolding in the banking sector and what it may mean for you. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com

Welcome to the DC Today, your daily market synopsis of the Dividend Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets. Hello and welcome to DC Today. My name is Brian Seitel. It is Thursday the 16th and another kind of more volatile day of trading to sort of go through and a really pretty good amount of economic data that's out today that I wanted to kind of go through with obviously the biggest headlines still being sort of this ongoing ripple effects and reverberations through the financial sector and some of these banks. And I'll kind of touch on all of these things. But let's kick it off. So last night, or yesterday, actually, in markets, we had a down day across the board. Actually, not across the board. The NASDAQ actually was higher. But we ended up closing sort of at the highs of the session. And following into that close,

futures were also positive. We were up something like 100 points for most of the night. And then things kind of fell off right before the open, probably due to Europe being lower. But so we opened up down maybe 100 points, a little more than that. But we were down something like 300 and a little over 300 points by about 1030 a.m. Eastern. And then the ECB came out and raised interest rates by 50 basis points. And initially, it kind of saw markets sell off more. And that's kind of what led to that decline. And then we just slowly but surely sort of started climbing higher from there and ended

up closing up 373 points on the Dow for the day. So if you add those two numbers together, it's almost a 700 point swing on the day. So more volatility. And it has to do with different actions being taken in some of these banks. And I'll sort of touch on that. The ECB raising rates by 50 basis points was originally in the cards, although given the volatility, I think markets were actually thinking they would do something less than that. And Lagarde was out today saying that, you know, no, that they're going to fight inflation, they're going to keep rate, you know,

which is too high in Europe, they're going to raise rates by 50 basis points. And again, that's taking their equivalent to Fed funds up to 3%. So it's still below ours, it's a 450 to 475. Of course, they were negative a year ago. So there's there's that they were sort of digging out of a deeper hole on interest rate policy. After that announcement, Fed funds futures are actually still pointing to like a 75, 76% chance of a 25 basis point hike next week by the Fed in the US. And I think it speaks to us having maybe gotten a little ahead of the curve as compared to say where the ECB is, and maybe just in a different part of the cycle. So I kind of look at it as

almost a token at this point. I mean, if we're at 450 to 475, and they're going to take us up 25 basis points, and then in all likelihood, potentially pause at some point, I think we're getting pretty close to this thing. Interesting, for me at least, on interest rates and on the yield curve yesterday, we were as low on the 210 spread as about 40 basis points following some of the flight to safety issues and market turmoil. We were over 100 basis points for quite a while, past month or two. And so it's actually somewhat of a good sign to see that the yield curve a little less inverted, although it's still inverted. Today, we were about 60 basis points on the 210 spread. So off of yesterday, quite a bit, but still less than the 100. And rates across the spectrum have pretty much come down.

The two-year was actually before ECB's announcement was at 390 on the day, we closed something like 417. It's a pretty big move. The Fed follows the two-year pretty closely as far as where Fed funds is going to go. It's still below where Fed funds is, which historically hasn't always been the best of signs. So if the two-year's at 417, in other words, and we're at 475, it either speaks to markets thinking the Fed has gone too far and will cut or we're going to have a slowdown or both. But across the board, yeah, yield curve today was a bit flatter. The big news, and this is not me saying this because it's just all over the place and I've taken a ton of inbound calls from people hearing about it and being concerned about it.

We sort of had the Silicon Valley Bank deal going to FDIC and all uninsured depositors get shored up. We know that news, call it Monday. Tuesday, we sort of had Credit Suisse and First Republic come into the news more about some issues that they have, particularly First Republic. And overnight, the Swiss National Bank backstopped Credit Suisse with 50 billion Swiss franc, which was good on the day. And again, it was a combination of that somewhat, I guess, positive news, although, you know, Credit Suisse is still trading at two dollars a share. So I guess go figure. And then a large consortium of U.S. banks, more than 10 of them, all the big ones, all the ones that you would guess, put together a deposit amount of about 3030 billion to go into First Republic. And they committed to holding the, this is just deposits, just cash coming into accounts.

Because as there is essentially somewhat of a run on that bank as deposits are coming out, they have the Fed to provide loans and they have the support, but really they need fresh capital. They need the ability to allow people to withdraw funds, withdraw cash. And as you know, banks are levered. And so there isn't as much on deposit as they've lent out and as their liabilities are. So that was good news and was supportive of the shares. I think that they were still down a little on the day. And they're frankly still down, you know, 75% or so from the high. So I don't think it's over yet necessarily. But that was what was moving markets, a combination of Swiss Bank coming in for one of their bigger banks, and then, you know, a consortium of all of ours kind of supporting

another fairly decent sized bank here. And markets were happy about that, I guess, for the day. But this is ongoing. There was some economic data points today I'll kind of go through here. Initial jobless claims were 192 versus 206. So what it's saying is basically the labor market is still very tight, very strong, very resilient. You know, the increase in interest rates so far hasn't really slowed down the labor market to speak of. And that's a data point that would support that. So you're just kind of still getting this mixed bag of data as we go through, you know, the effects of what rate policy will ultimately do to the economy. There was a manufacturing number out. It's the Philly Fed manufacturing data came out. And this was actually weaker than expected. So you have

sort of labor markets a little stronger than expected today. Then you have manufacturing data that was weaker than expected. It came in at something like negative 23 versus a negative 15. And inside of that number, actually, there was quite a bit of lower new shipments and lower prices paid for the past couple of years. 2020, mid of 2020 is the last time we've seen new shipments and some of those prices come in that low. So that all speaks to me as if the Fed is kind of getting what they want. And, you know, as they say, don't fight the Fed. And so, again, mixed bag labor still tight manufacturing, some price numbers coming in a little weaker than expected. And that's good. And then somewhat surprising, at least to me,

was that housing actually for as many things as I've said negative about it, because it's technically in a negative environment right now with interest rates being so high and mortgage rates being so high and so on and so forth. Housing starts and building permits actually today were higher than expected. They came in something like almost 10% month over month. Again, you kind of a mixed bag again, labor market still tight, manufacturing, some price pressures coming weaker than expected. Then all of a sudden, housing pokes a little higher. All these things Fed pays attention to. There's a lot of inbound inquiries now. I put one in the Ask Brian section today about counterparty risk. It's come up a few times just because it's in the news a lot.

People are hearing about some of these terms. They don't really fully understand what it means. And it's basically a risk of default of one financial institution causing issues for another. They hold assets on their balance sheet. And should those assets get marked down or they have to sell them, that can harm liquidity and that can harm the ability for that bank to stay viable. And I touch on that a little bit. So tomorrow we've got David back with you for Dividend Cafe and where he's doing more of a Q&A format. Again, just because there's this great amount of inbound interest in what's going on in banks and, you know, should people move money around and all that stuff. And so he's got a great kind of different format for you tomorrow on Dividend

Cafe. We have industrial production tomorrow and consumer sentiment on the economic calendar. So not a ton, but a little bit of data that will come in. And of course, we'll see how everything trades overnight and into tomorrow morning. But with that, I'll let you go today. I appreciate you listening very much. I appreciate questions as you have them fire away. And I enjoy speaking with you. And if I don't speak with you, wishing you the best of luck on your March Madness bracket as we started the NCAA tournament today. And of course, happy St. Patrick's on Friday if I don't speak to you. With that, I'll let you go. Thank you again for watching DC Today. on Friday if I don't speak to you. With that, I'll let you go. Thank you. as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein.

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