Market 03/22: Yuan drops after PBOC signals stronger QE and lower exchange rate target

Statement by Fed official: Jerome Powell

Powell's statement at “Fed listens” this morning:

• The pandemic has had “long-term” impacts on the economy.

• To make good policy, the Fed cannot rely solely on macroeconomic data but also needs to listen directly to people and businesses.

• He made no comments on the interest rate outlook

China: Yuan (CNY) falls to this year's low

Yuan drops after PBOC signals stronger QE and lower exchange rate target:

• PBOC set the daily average reference rate for CNY lower than expected at the start of today.

  • A move indicating PBOC is ready to devalue the CNY…

• Accompanied by PBOC Deputy Governor Xuan Changneng stating that China still has room to lower the bank reserve requirement ratio.

  • A form of QE => increases the divergence in US-China monetary policy.

Immediately after, CNY fell up to 0.4% to 7.2299 per USD - the sharpest drop this year, breaching the 7.2 level that Beijing had defended for many months…

After the 7.2 level was breached, USD/CNH (offshore USD/CNH exchange rate) also surged to a recent 5-month high.

• (i.e. the Yuan also depreciated in the international forex market).

• Currently, the excessive drop in CNY price has forced PBOC to intervene to protect the CNY: i.e. ramp up buying CNY (by selling large amounts of USD).

Crypto-currencies: Dogecoin, Litecoin and Bitcoin Futures to start trading on 04/01 at Coinbase

• Coinbase to launch Futures trading for Dogecoin, Litecoin and Bitcoin Cash from 04/01/2024

• Sweden's Central Bank, Riksbank, ends e-Krona pilot project (Sweden's digital currency.

  • Riksbank also releases report: focusing on offline functionality and user experience.

• Over 2.5 billion USD Bitcoin and Ethereum Options expire today, as the market cools down….

  • 25,000 BTC options expire with Put Call Ratio of 0.56, Maxpain at 67,000 USD and notional value of 1.7 billion USD

  • 250,000 ETH options expire with Put Call Ratio of 0.51, Maxpain at 3,500 USD and notional value of 890 million USD.

Earnings update: Nike, Lululemon, FedEx

1. Nike

• Revenue unchanged YoY at 12.4 billion USD (beat estimates by 130 million USD)

• Non-GAAP EPS 0.98 USD (beat estimates by 0.23 USD)

• Inventory -13% Y/Y to 7.7 billion USD

• Direct sales revenue unchanged YoY at 5.4 billion USD

• Business restructuring charges: 0.3 billion USD

2. Lululemon

• Revenue: Q4 +16% Y/Y to 3.2 billion USD, full year revenue +19% Y/Y to 9.6 billion USD.

  • US: +9% Y/Y

  • International: +54% Y/Y

• Diluted EPS Q4: 5.29 USD

• Gross margin: 59.4%

• New stores: Opened 25 new stores in Q4, ending the year with 711 stores.

Lululemon shares plunge as Q1 revenue forecast misses Wall Street expectations due to declining store sales in the US

3. FedEx

• Revenue -2% Y/Y to 21.7 billion USD (missed estimates by 0.4 billion USD)

• Non-GAAP EPS 3.86 USD (beat estimates by 0.38 USD)

• The margin increase mainly comes from the DRIVE program

• FY24 earnings guidance:

  • Single-digit decline

  • Non-GAAP EPS ~17.8 USD

Other news

1. Donald Trump's social media company may go public after Digital World Acquisition Corp shareholders vote to approve the merger

2. Janet Yellen's hearing foreshadows tax policy conflict after Biden's tax cuts end

   • President Joe Biden supports extending income tax cuts for those with income under 400,000 USD/year.