Market 04/16: 10Y T-bond yield rises to near 6-month high

Officials' statements on inflation and policy

Powell: Inflation data becomes harder to predict (uncertain)

• Strong inflation in the previous quarter has made it uncertain whether the Fed can cut rates by year-end (uncertain)

• If inflation persists, the Fed may maintain current interest rates if necessary

• Recent data does not provide confidence on inflation (being contained)

• Tightening policies will take more time to take effect.

Jefferson: maintain higher rates longer if inflation persists

• If incoming data shows inflation more persistent than expected, maintaining the current tightening stance is appropriate

• The Fed's task of taming inflation is not yet complete.

• Inflation may decline further if rates are kept at current levels.

• Labor market remains strong, supply and demand continue to rebalance

IMF: disinflation process has slowed since early 2024

The progress in bringing inflation to target levels appears to be slowing since the beginning of the year. This remains the top priority for policymakers.

March starts + building permits drop sharply - pessimistic sentiment in real estate market

• Housing starts plunge -14.7% M/M - biggest drop since April 2020, far exceeding estimate of -2.4% M/M.

• Building permits -4.3% M/M, stronger than estimate of -0.9% and prior +2.3%

• Multi-family housing starts fall to lowest since COVID lockdown

• Single-family home building permits -5.7% to 973,000 from prior 1.032 million - hit lowest since Oct 2023

• Large building permits will help create more residential construction jobs, supporting the overall labor market

• Home purchase applications likely to continue declining as market lowers expectations for Fed rate cuts

Pessimistic sentiment weighs on housing market ahead of Fed's (higher)-for-longer stance:

• According to Fed survey: 44% of renters have no expectation of becoming homeowners…

  • 35% lack savings for down payment

  • 33% cannot afford mortgage payments at current rates.

    

US industrial production grows for 2nd straight month

March industrial production rises +0.4% M/M as estimated and prior month

• Manufacturing: +0.5% M/M, slightly down from prior +1.2%

• Utilities: +2% M/M vs. prior -7.6%

• Capacity Utilization rose slightly, from 78.2% to 78.4% but still below expectations.

• Manufacturing industrial group index up +0.5% M/M (better than expected +0.2% increase), equivalent to +0.8% Y/Y

Market news: 10-year Treasury yield rises to near 6-month high

10Y Treasury yield has risen +90 bps since the beginning of the year and reached near for the first time 4.70% since November 2023.

• After T-bond 10Y reached this high last time, S&P 500 rose 14.6%; Russell 2000 up 15.9%

China: Economic growth faster than expected in the first quarter

China's Q1 GDP +5.3% Y/Y, up slightly from previous quarter and beat estimates

• Most of the recovery came in the first two months of the year.

• In March, retail sales growth slowed again and industrial output missed forecasts

• China's industrial capacity utilization fell to 73.6% - the lowest since the pandemic

• Q1 price gauge continues to fall - 4th consecutive quarter of decline, longest decline streak since 1999 —> deflation persists

• Household savings rate remains high, not yet normalized to pre-pandemic levels

Crypto market: 1 billion USDT just minted at Tether Treasury Wallet

• 1 billion USDT just minted at Tether Treasury Wallet

• Grayscale fund just transferred 5377 BTC worth 338.5 million USD to Coinbase

Earnings results: Bank of America, Morgan Stanley, UnitedHealthGroup, Johnson&Johnson

1. Bank of America

• Revenue down 1.6% to 25.98 billion USD due to lower net interest income compared to a year ago

• Profit down 18% to 6.67 billion USD, equivalent to 76 cents/share

• Net interest income was 14.19 billion USD, above StreetAccount's 13.93 billion USD estimate.

2. Morgan Stanley

• Revenue up 4% to 15.14 billion USD.

  • Asset management up 4.9% to 6.88 billion USD, above StreetAccount estimate by 230 million USD

  • Equity trading up 4.1% to 2.84 billion USD, 160 million USD above expectations

  • Fixed income trading down 3.5% to 2.49 billion USD, but still higher than expectations by 120 million USD.

  • Investment banking up 16% to 1.45 billion USD, far exceeding estimates of 1.40 billion USD,

• Q1 earnings up 14% from a year ago to 3.41 billion USD, equivalent to 2.02 USD/share

3. UnitedHealthGroup

• Revenue 99.8 billion USD, up 8.7% Y/Y.

  • UnitedHealthcare: Revenue 75.4 billion USD, growth due to increasing number of customers.

  • Optum: Revenue 61.1 billion USD, strong operating performance in the Health sector thanks to expanded customer base.

• Adjusted EPS is 6.91 USD

4. Johnson&Johnson

• Revenue: 21.4 billion USD, up 2.3% YoY, showing consistent growth across segments.

  • Innovative Pharmaceuticals: revenue 13.6 billion USD, +1% Y/Y

  • MedTech: revenue 7.8 billion USD, +4.5% Y/Y thanks to electrophysiology and general surgery products.

• Diluted EPS: Up to 2.20 USD from -0.19 USD

Other news

1. Major banks have begun recording CRE losses in their business performance reports.

• Charge-off rate for commercial real estate loans now nearly double the 2020 peak.

2. Small companies often spend more on interest payments than large businesses, making them more sensitive to rising interest rates.

3. Apple loses top smartphone manufacturer position to Samsung

4. Biden administration proposes draft to forgive student loans