Market 03/01: Fed members express divergent views

Fed officials' statements: differences in views on inflation and monetary policy

Barkin: Yesterday's report showed high inflation

Yesterday's PCE still high: Wage pressure and inflation persist.
Will not rush to cut interest rates.

→ Barkin has a neutral stance so this hawkish view is noteworthy.

Williams (Fed New York)

Economy remains resilient, adding more jobs.
Expecting rate cuts at the end of this year: currently, no need to cut or raise the policy rate.

Mester (Fed Cleveland)

January PCE: inflation is cooling.
Economy and monetary policy remain solid: job growth may slow.
Scenario three rate cuts seems still valid.

Bostic (Fed Atlanta)

Inflation falling faster than expected, but still need to be vigilant.
Rate cut in summer is appropriate.
Banking system still stable: concerns about non-bank risks + geopolitics

Goolsbee (Fed Chicago)

Supply chain recovery was the driver of disinflation last year (2023).
Labor supply shock may have long-term effects:
- labor force participation rate higher than expected.
- Continued productivity growth impacts monetary policy:
Housing inflation issue is quite strange.
Fed's real interest rate is quite high, "...don't want to keep this level longer than necessary".

Fed official Waller

Current QT pace not stressing financial markets.

According to Torsten Slok, Chief Economist at Apollo Global Management, "Fed will not cut rates this year and rates will stay higher for longer."

Market news: Stocks continue to hit new highs, NYCB continues to be the weak point of the banking sector.

US stocks continue to surpass peaks thanks to the AI boom

S&P 500 surpasses 5,116: up +25% from 10/27, +130% from the bottom (March 2020)

Nasdaq 100 also closes at highest level since 2021.

→ AI growth is the main driver boosting the stock market over the past year.

According to UBS, AI growth could drive S&P 500 up 20% in 2024.

NYCB continues to raise concerns about regional banking crisis

Recently, New York Community Bank reported issues “weaknesses in internal control processes related to loan reviews”.

NYCB shares continue to plummet more than 30% (lowest level in 27 years).

Regional bank stocks fell on Friday amid concerns about the health of the sector after three shocking crises.

SPDR S&P Regional Banking ETF also fell more than 1%, while the bank stock composite index fell < 0.5%, S&P 500 rose slightly.

S&P Global Manufacturing PMI vs ISM: widest divergence in 3 years

S&P Global Manufacturing PMI rose to 52.2 in February (> previous: 50.7), highest since June 2023.
ISM Manufacturing PMI fell to 47.8 (much lower than expected 49.2).

→ Results of 2 surveys diverging the most in 3 years.

Manufacturing PMI of S&P Global:

Input prices rose more slowly + Selling prices rose at the fastest pace since April 2023.
Customer demand domestic and foreign rose at the fastest pace since May 2022, possibly due to easing cost-of-living crisis.
→ boosting sales.

→ Businesses increasing investment in staff + equipment to boost output in coming months.

Manufacturing PMI of ISM:

New orders, Input prices and Employment all fell from previous month.
- Employment fell at the lowest rate since June 2020.

UMich survey: consumer confidence falls for the first time in 3 months

Consumer confidence index (February) revised lower for the first time in 3 months to 76.9 (< previous 79 and expected 79.6).

→Consumer sentiment more pessimistic in February: 5-year inflation expectations higher than expected.

1-year inflation expectations: 3.0% (previous: 3.0%).
5-year inflation expectations: 2.9% (previous: 2.8%).

Earnings Reports: Dell, Zscaler

Dell ER: Beats earnings expectations due to increased AI servers demand

EPS: 2.20 USD (> expected 1.73 USD).
Revenue: 22.32 billion USD (> expected 22.16 billion USD) - 4.9 billion USD from AI servers
- AI servers orders up ~40% and backlog nearly doubled,
- Infrastructure Solutions Group (ISG) revenue: 9.3 billion USD, -6% YoY but up +10% QoQ.

Q1/FY2024 guidance: Revenue 21 - 22 billion USD.

Dell stock surges more than 26% after positive report.

Zscaler ER: Stock drops despite beating estimates

EPS: 0.76 USD (> expected 0.18 USD).
Revenue: +35.4% YoY, reaches 525 million USD (> expected 18 million USD).
Net income (loss): +50% YoY, reaches -28.5 million USD (> previous -57.45 million USD).
Operating margin: -8.66%

FY2024 guidance: Revenue 2.118 - 2.112 billion USD.

Zscaler CEO says customers will gradually realize shortcomings of traditional firewall security → gradually shift to Zero Trust platform.

Other news:

Elon Musk sues OpenAI and CEO Sam Altman for violating founding principles, “not fulfilling the mission to develop artificial intelligence for the common benefit of humanity”.
- Recently, OpenAI also introduced new board members.