Market 02/08: 30Y Bond Auction Positive - Past-Due Credit Debt Rises Sharply

30Y Treasury Bond Auction Positive

Auction Session 25 billion USD US 30Y Treasury Bond Quite Positive with 2bps Stop-Through:

• High Yield: 4.360% (lower than market yield: 4.380%) => stop through 2bps

  • However, High Yield higher than previous auction (4.229%)

  • Up to 82.55% of bidders bid at High Yield

• Ratio Bid-to-cover favorable: 2.40 (> January auction: 2.37)

• Foreign demand continues to increase: accounting for 70.69% successful auction value (higher than 67.77% previous auction)

  

Update on statements from US government officials

Barkin (Fed Richmond)

• No need to rush interest rate cuts.

  • … interest rates may still decrease this year though uncertain about the number of cuts

• Inflation over past 7 months quite positive: still considering next month's data - due to large seasonal adjustments in early year.

Yellen (Treasury): CRE Decline Will Not Cause Crisis

• Does not believe the decline in commercial real estate (CRE) sector is a systemic risk … though the weakness is undeniable.

• CRE risk will be a long-term drag but will not cause a crisis.

• Most forecasters believe expected interest rates will decrease.

Initial jobless claims cool but continuing claims remain high

New jobless claims last week decreased for the first time in 3 weeks: +218,000 (< expected: +220,000, prior week: +227,000).

→ Strong labor market continues to boost consumer spending.

• Decline widespread across states (Oregon and Ohio largest drops).

• Largest increases from Missouri and Texas areas.

• Continuing jobless claims also decreased from 1.894 million to 1.871 million. => this is still a fairly high number (except during Covid), indicating unemployed are increasingly struggling to find jobs.

• 10Y Treasury yield rises to 4.16% after strong labor report.

  

Despite job data showing strong labor market, number of large companies laying off is increasing:

Update on company layoffs:

1. Twitch: 35% workforce.

2. Roomba (iRobot): 31% workforce.

3. Hasbro: 20% workforce.

4. LA Times: 20% workforce.

5. Spotify: 17% workforce.

6. Levi's: 15% workforce.

7. Xerox: 15% workforce.

8. Qualtrics: 14% workforce.

9. Wayfair: 13% workforce.

10. Duolingo: 10% workforce.

11. Washington Post: 10% workforce.

12. Snap: 10% workforce.

13. eBay: 9% workforce.

14. Business Insider: 8% workforce.

15. Paypal: 7% workforce.

16. Charles Schwab: 6% workforce.

17. Docusign: 6% workforce.

18. UPS: 2% workforce.

19. Blackrock: 3% workforce.

20. Citigroup: 20,000 employees.

21. Pixar: 1,300 employees.

Credit delinquency rate rises fastest since the 2008 Financial Crisis

In the last month of 2023, total consumer debt increased slightly +1.561 billion USD, significantly lower than the estimate of +15.9 billion USD.

However, the credit card delinquency rate (blue) continued to rise to 6.36%, with the fastest increase since the 2007–08 Financial Crisis.

• Revolving credit (revolving credit) increases +8.4% YoY (1 billion USD) slowest since December 2021 but still quite fast compared to before.

• … and nonrevolving debt (nonrevolving credit) increased by an additional +0.5 billion USD.

• Auto loans have severe delinquency status: increased in Q4 to the highest level in over a decade.

• Record high interest rates also caused the personal savings rate to drop from over 5% to 3.7% - lowest since 2022 - in just a few months.

=> Consumer debt decreases but credit delinquency rate increases: indicating that people are trying to pay off all debt and may be having difficulty repaying credit debt.

Earnings reports: Disney, Paypal, ARM and S&P Global

Disney ER: Revenue beats expectations thanks to streaming segment less loss-making

• Revenue: +0% YoY, reaching 23.5 billion USD (< expected 0.3 billion USD).

• Non-GAAP EPS: 1.22 USD (> expected 0.18 USD).

  • Cash dividend: +50% → Thanks to cost reduction after mass layoffs in 2023.

• Streaming: -138 million USD (from -984 million USD last year) => reduced loss due to price increases.

• Disney+ subscribers continue to decline 1.3 million.

  • Expect to add +5.5-6 million users in Q2 as Charter cable subscribers receive free Disney+ subscriptions.

FY2024 EPS forecast: 4.60 USD, +20% YoY.

• Disney is investing 1.5 billion USD in Epic to create a game "ecosystem" capable of “expanding and linking with Fortnite”.

PayPal ER: Stock drops sharply, announces next layoff round

• Active accounts: -2% YoY, reaching 426 million.

• Transactions per account: +14% YoY, reaching 59.

• Revenue: +9% YoY, reaching 8.0 billion USD (beat estimates by 130 million USD).

• Non-GAAP EPS: 1.48 USD (beat estimates by 0.12 USD).

Q1/FY24 revenue forecast: +7% after FX adjustment.

• Previously (01/26), PayPal launched AI features to boost stock price.

• However, $PYPL still down sharply ~20% to date, after earnings report.

• Last week, PayPal announced cuts to 9% workforce ~ 2,500 employees.

ARM ER: Arm stock up over 50% driven by AI demand

• Revenue: +14% YoY, reaching 824 million USD, up 14% (beat expected 763 million USD).

• Adjusted EPS: 0.29 USD (> expected 0.25 USD).

ARM raises 2024 forecast: 3.15 - 3.2 billion USD (previously: 2.96 - 3.1 billion USD)

Arm's optimistic results contrast with some other chip companies like Intel, AMD and Texas Instruments due to concerns about stagnation in the semiconductor sector.

• ARM stock rises nearly 60% in the session after earnings report.

S&P Global ER:

• Revenue: +7% YoY, reaching 3.152 billion USD (> expected 3.13 billion USD).

  • … mainly thanks to the Ratings and Market Intelligence segments (Ratings + Market Intelligence).

• Net income surges : +34% YoY, reaching 579 million USD.

• Shareholder returns : 4.4 billion USD (1.1 billion USD dividends + 3.3 billion USD share buyback).

2024 revenue outlook: growth of 5.5 - 7.5%.

Some other news:

1. AtlantaFed wage growth indicator falls to +5% in January (from peak +6.7%).

   

2. December wholesale sales increase +0.7% MoM, higher than 0.3% estimate. Inventory increases +0.4% MoM.

   • First time since February 2023, both wholesale sales and inventory increase.

     

3. Natural gas storage levels have decreased 75 billion cubic feet (bcf), lower than 118 bcf from 5-year average.