Market 03/21: Macroeconomic indicators up, soft landing prospects improve

Auction of 16 billion 10Y TIPS (Treasury Inflation-Protected Securities)

FYI: The principal amount when buying TIPS (principle) will be adjusted upward if inflation and downward if deflation.

• TIPS interest rate remains fixed but coupon payments will be adjusted according to inflation conditions

• 10Y TIPS auctioned only once every 3 months, most demand from foreign investors.

• High Yield: 1.932% (market yield: 1.91% | January 2023 auction: 1.810%)

  • 2.9% Bids at High Yield (January: 53.51%)

• Bid-to-Cover Ratio: 2.35

• Allocation ratio: foreign demand dominates

  • Foreign investors: 71.99%

  • Dealers (dealer): 11.97%

Summary of Powell's Press Conference after FOMC on 03/20/2024

1. Cutting rates too quickly could cause inflation to rise again

2. Current interest rates likely have peaked

3. Unexpected labor market weakness could be a reaction signal

4. Willing to keep rates higher for longer if necessary

5. Need clearer evidence that inflation is heading toward 2%

Read more: Details of yesterday's FOMC meeting results.

US macro indicators today (03/21): soft-landing outlook for Fed

LEI economic indicator and manufacturing indexes today both show soft-landing within Fed's reach:

• Leading Economic Index (LEI) for February unexpectedly rises again, +0.1% M/M, after a series of declines since February 2022

• Philly Fed manufacturing index falls from +5.2 last month to +3.2 in March, (but still higher than estimate -2.5)

  • New orders rise again, prices paid fall significantly and shipments increase

  • Employment improves but still in contraction territory

• US Manufacturing PMI for March (from S&P Global) rises to 52.5 (from previous 52.2 & higher than estimate 51.8)

  • Services PMI falls from 52.3 last month to 51.7 (lower than expected 52).

Initial and continuing jobless claims both decline last week - downward revisions for 20 straight weeks

• Initial jobless claims fell to +210,000 in the previous week (estimate +213,000, prior week +212,000)

• Continuing jobless claims fell to 1.807 million.

• Continuing claims revised lower in the previous week - 20th consecutive week of downward revisions

=> This indicates the labor market remains tight…

• However, WARN layoff notices continue to rise sharply…

Existing home sales unexpectedly surged higher in February

• February existing home sales rose +9.5% M/M, (higher than estimate of -1.3% decline and prior month's +3.1% M/M increase).

• Total existing home sales SAAR rose to 4.38 million - highest level in 12 months

• With a 2-month lag to interest rates, existing home sales unlikely to sustain current momentum

• Average selling price up 5.7% Y/Y to 384,500 USD

• Sales rose in 3/4 regions, strongest in the West at +16.4%

Q2 earnings update: Micron, Accenture

1. Micro

• Revenue: up from 3.69 billion USD last year to 5.82 billion USD Q2 FY24, thanks to AI segment

• Diluted EPS: 0.71 USD

• Gross margin: 18.5%

• Operating income: 191 million USD

• Quarterly dividend: 0.115 USD/share

2. Accenture

• Revenue 15.8 billion USD

  • Consulting services: 8 billion USD

  • Managed services: 7.8 billion USD

• GAAP EPS up +10% to 2.63 USD

• Free cash flow: 2 billion USD

• GAAP operating margin: 13%

• Quarterly cash dividend: 1.29 USD/share, +15% Q/Q

Other news

1. Reddit shares debut, opening price likely 53% above IPO price.

   • While Reddit priced IPO shares at the high end of the proposed range.

   • Reddit's IPO is currently the largest of the year.

2. EU probes Apple and Google on compliance with new digital rules

3. U.S. government sues Apple over smartphone market monopoly allegations.

4. Swiss National Bank (SNB) unexpectedly cuts rates to 1.5% — ahead of ECB and Fed.

   • SNB's Swiss Franc stockpile is one of the 10 most traded currencies in the world.

• Inflation expectations sharply revised downward suggest another SNB rate cut is very likely in June to 1.25%.

5. Biden administration cancels $5.8 billion in student debt for nearly 78,000 borrowers

6. Japan's Nikkei stock index hits new high; yen (JPY) holds at record low.

Read more about BOJ rate hike and impacts at:

• News of the day: Japan raises interest rates for the first time in 17 years

• BOJ's post-Shunto pivot speed - impact on global markets