Market 02/20: Economic indicator confirms "hard-landing" disappoints

Leading economic condition indicator (LEI) disappoints

Conference Board's composite index of leading economic conditions (Leading Economic Indicator - LEI) continues to decline in January:

down -7% YoY and -0.4% MoM (< expectation -0.1% MoM) - longest decline streak since Lehman Brothers collapse.

LEI's annual growth rate remains negative, causing this index to diverge further from real GDP. → Weaker economic activity still lies ahead.
Despite soft-landing expectations, LEI shows no signs of 'recovery', declining to the March 2006 peak level and 2020 trough.

Monthly growth data (MoM) shows:

Largest positive contribution: continues to be Stock prices: (+0.10)
Largest negative contribution: Average workweek (-0.18)

China: PBOC cuts interest rates - expands series of growth stimulus policies

PBOC cuts 5-year LPR rate for the first time since June 2023 to 3.95% (previously: 4.20%).

1-year tenor LPR rate unchanged: 3.45%.
Read more: China's fiscal-monetary stimulus policies recently.

→ However, investors still consider this measure insufficient, "needs more positive support", as next month is peak season for home sales.

Residents are curtailing home purchases due to higher-than-expected mortgage costs + concerns over sharp drops in home prices → Real estate revenues decline.

Q4/2023, China records 952 protests: ~17% related to housing + ~61% related to issues labor.

Earnings reports: Walmart, Home Depot, Barclays

Walmart ER: Impressive growth in online sales revenue

Revenue: +5% YoY, reaching 173.4 billion USD (> expected 4.1 billion USD).
Non-GAAP EPS: 1.80 USD (> expected 0.15 USD).
US sales: +6% YoY.
Online sales: +23% YoY.
Advertising revenue: +33% YoY.

FY25 forecast:

Sales: +3 - 4% YoY.

Walmart recently acquired TV manufacturer Vizio for 2.3 billion USD to boost advertising operations.

Home Depot ER: Revenue forecast cut due to reduced consumer spending

Contrary to Walmart's positive report, Home Depot cuts revenue forecast

→ Mixed picture on US consumer spending situation.

EPS: 2.82 USD (> expected 2.77 USD).
Revenue: 34.79 billion USD (> expected 34.64 billion USD).

Home Depot emphasizes decline in consumer spending, especially for big-ticket items due to:

Deferred shopping due to inflation + Delayed new home purchases due to high interest rates.
Prioritizing spending on experiences.

Expected sales decline of about ~1%.

Barclays ER: Stock rises after large-scale restructuring plan

Revenue: -3% YoY, reaching 5.6 billion GBP.
Credit loss charges: 552 million GBP (> 498 million GBP Q4/2022).
Tier 1 capital ratio (CET1): 13.8% (< 14% previous quarter).
Total quarterly operating expenses (almost unchanged): 4 billion GBP.

Barclays announces large-scale restructuring plan, including:

Cost cuts + Asset sales + Business unit reorganization.
Return 10 billion GBP to shareholders from 2024 - 2026 through dividends and share buybacks.

→ Target savings of 2 billion GBP.

Events this week:

Fed Meeting Minutes - Wednesday
S&P Global Manufacturing PMI - Thursday
Existing home sales - Thursday
Remarks by 5 Fed officials this week.

Corporate earnings calendar

~15% of S&P 500 companies reporting earnings.

Some other news:

Nasdaq tense ahead of Nvidia earnings report on Wednesday.
- Nvidia leading semiconductor sector decline, options market forecasting Nvidia stock price volatility of about ~11%.
Super Micro Computer down 1/3 from peak on 02/16. In less than 2 trading days, SMCI lost ~20 billion USD market cap.
Capital One acquires Discover Financial for 35.3 billion USD.

Expected this week: over 50 billion USD in bonds issued by blue-chip companies:
- due to heightened M&A activity (at least ~314 billion USD in deals pending).