The Dividend Cafe - The DC Today - Wednesday, December 6, 2023

Episode Date: December 6, 2023

Today's Post - https://bahnsen.co/486oKwS If you’re surprised by how much expectations have turned down for U.S. interest rates and Fed policy in 2024, you should see what those crazy cats in Europe have going. Markets are now fully pricing in SIX rate cuts next year – 1.5% reduction in their lending rate. Bank CEOs testified before the Senate finance committee today, making the case that the planned increase in capital requirements would be detrimental. They specifically pointed to where the cost of such increased capital would come from – customers. A not-unexpected talk. Former House Speaker Kevin McCarthy (Bakersfield, CA) announced his resignation from Congress today. I hereby predict he will make more money in 2024 than he did in 2023. 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. Well, hello and welcome to the Wednesday edition of DC Today. I would say it's another reasonably boring day in the markets. The Dow ended up, it was up or flat most of the day, it ended up down 70 points, so just 0.19%. And then the S&P was exactly 20 basis points worse than that, down 0.39%. And the NASDAQ was exactly 20 basis points worse than that, down 0.59%.

So all three market indices down a bit, kind of proportionally worse from Dow to S&P to NASDAQ. Best performing sector today was utilities. It's generally, by the way, not going to be a great day in the market when utilities are the leader, but they were up a full 1.4%. And then energy was, again, the worst day in the the market down 1.6 percent with oil prices down over four percent on the day closing below 70 dollars in the 69 plus change the bond market rallying again the tenure all the way down to 412 basis points 4.12 percent down five basis points, 4.12%, down five basis points today. So there has been a tiny bit of breakup lately here, just a matter of days of that correlation between stocks and bonds. You've had bonds continue to rally. Stocks have sort of sputtered a little bit, nothing severe, but

based on how tight the correlation has been and really how tight we kind of expect it to stay. It's at least noteworthy. In terms of economic data, first, the European Central Bank, the ECB, the futures market is pricing in six rate cuts for next year, more severe than people are expecting the Fed to do, for next year, more severe than people are expecting the Fed to do, and they're expecting the ECB to start first. So 150 basis points theoretically coming out of the deposit rate at the European Central Bank. Of course, the futures market could be wrong, but that's what the market expectation is now, which is quite surprising. The ADP private payrolls number came this morning, 103,000 new jobs in November, but 120,000 have been expected. The bulk of the slowdown we see isn't leisure and hospitality, which had been utterly on fire since the kind of post-COVID reopening now for a couple of years.

Other economic day-to-day, the trade deficit came in at $64.3 billion, which was exactly in line with expectations. But I just do want to point out, exports are down on the year a little over 1%. Imports are up. I'm saying this backwards. Exports are up. Imports are down year over year. Kevin McCarthy, former Speaker of the House, he did announce his resignation this morning, so he'll be leaving the House. Bakersfield, California, it's a reasonably safe red seat, but Speaker McCarthy will be headed out, not interested in staying in the Congress, if no longer the Speaker.

Then the eight major bank CEOs all testified before the Senate Finance and Banking Committee this morning and really hammered at this idea of Basel III level capital requirements. In other words, requiring the banks to hold more capital against their loans and against their assets. Just sort of a more conservative approach still than the ones they've already had, which have been dramatically tightened since financial crisis. And they made the argument that the additional cost has to be borne through a higher return and that higher return has to come from customers paying a lower deposit rate, receiving a higher mortgage rate, but that there would be some offset to protect the net interest margin if there's going

to have to be higher capital amounts held. I don't know that the Senate understands all this stuff. I thought that the banking CEOs did a good job today, but I think it's a big deal. I think that if they were to fully go forward to implement what has been recommended, it could be real problematic in terms of the plumbing of our financial system. That is to say, financial markets moving, capital moving, and doing so a proper amounts of liquidity, lending, and appetite for borrowing, that there is a very good chance at a time when regional banks have already really gone to the sidelines, that if the big banks were to see some sort of slowdown because of stricter capital requirements, it could be macroeconomically impactful. I don't

know that it's going to happen, but today was a big step forward in making that case. That's all we have today. You do have initial jobless claims coming tomorrow. The BLS monthly jobs report will come on Friday. Brian Saitel is going to bring you DC Today tomorrow as I'm in just a kind of excessive load of client meetings tomorrow. But you'll enjoy hearing from Brian and I'll enjoy being with you in the Dividend Cafe on Friday. Thanks for listening. Thanks for watching.

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