Market 04/23: S&P PMI shows manufacturing activity slowest in 4 months

Record auction of USD 69 billion 2Y Treasury Notes positive

• High Yield: 4.898% (market yield: 4.904% | previous session: 4.595%)

  • Stop-through: 0.6bps

  • Of which 77.90% awarded bidders requested this yield (higher than previous: 49.16%)

• Bid-to-Cover ratio: 2.65 (higher than previous: ~2.62)

• Allocation ratio:

  • Indirect: 66.21% (previous: 65.76%)

  • Dealers: 15.08% (previous: 13.36%)

Although this is a positive auction session with a large stop-through, Treasury Note yields are still relentlessly rising. Demand for this relatively short-term note shows signs of declining as more dealers are needed to step in.

S&P Manufacturing PMI lower than expected - Richmond Fed Manufacturing Index improves but still low

S&P PMI manufacturing activity grows slowest in 4 months

• Composite PMI falls to 50.9 (< estimate 52 & previous 52.1).

• Manufacturing PMI falls to 49.9 (< estimate 52 & previous 51.9) - lowest in 4 months.

• Services PMI falls to 50.9 (< estimate 52 & previous 51.7) - lowest in 5 months.

• Manufacturing input costs hit one-year high.

• Total new orders fall for the first time in six months.

→ Higher interest rates and prices reduce demand.

• Companies cut back on employment for the first time in 4 years.

• Business confidence falls to lowest since November last year.

• Notably: Job cuts in the PMI report mainly from the services.

  • Excluding the Covid period, April services employment falls the most since late 2009.

Richmond Fed Manufacturing Index improves but remains low

Richmond Fed Manufacturing Index (blue) rises slightly to -7 in April (> estimate -8).

• New orders increase. Employment readings down to -2.

New home sales rise to highest since September

• March new home sales increase +8.8% MoM (vs -5.1% previous), reaching 693,000 units.

  • …as builders are willing to cut prices/reduce mortgage rates/pay closing costs in the first few years to stimulate demand.

• Average new home price falls -1.9% YoY to 430,700 USD; median sales price 524,800 USD.

  • New home supply rises to 477,000 units in the month, highest since 2008 → Rising inventory pushes prices lower.

• However, existing home sales continue to be hampered by mortgage rates rising above 7% last week + limited supply (unlike new home market).

• Refinancing activity (blue) remains low historically even as mortgage rates (orange) continue to rise.

Demand for luxury housing remains high

• Total luxury home supply increases +12.6% YoY in Q1/2024 - largest increase ever.

  • Non-luxury home supply decreases -2.6% YoY.

• Average luxury home price hits record at 1,225,000 USD in Q1/2024, up +8.7%/YoY.

  • Non-luxury home prices rise +4.6% YoY, reaching 345,000 USD.

Crypto market: Venezuela uses crypto to sell oil - threat to US Petrodollar system

• Venezuela is shifting oil sales from USD to crypto as US sanctions on Venezuelan oil are reinstated.

  • Venezuela's state oil company, PDVSA, is considering using Tether.

  • This directly threatens the Petrodollar system that the US wants to maintain (details here).

• BlackRock records positive flows for 71 consecutive trading days since Spot Bitcoin ETF launch, enters top 10 ETFs with continuous inflows.

• SEC proposes massive $5.3 billion fine against Terraform Labs and Do Kwon after fraud conviction.

Earnings Report: SAP, Pepsico, Spotify, GM, UPS

SAP ER: Cloud Backlog record growth

• Cloud backlog (Value of cloud service contracts recognized in the next 12 months): up +27% YoY, to 14.2 billion EUR.

• Restructuring costs: 2.2 billion EUR.

• Revenue: up +8% YoY, to 8.0 billion EUR.

• Cloud services revenue: up +20% YoY, to 3.7 billion EUR.

FY24 revenue guidance: up +25% YoY, to 17.0 - 17.3 billion EUR.

Pepsico ER: US sales weaker than international

• EPS: 1.61 USD (beat expected 1.52 USD).

• Revenue: up +2.3% YoY, to 18.25 billion USD (beat expected 18.07 billion USD).

  • US demand down due to Quaker Oats recalls (salmonella contamination risk) + higher beverage/snack prices.

  • International growth remains strong, especially in emerging markets.

• FY2024 revenue guidance +4% YoY.

Spotify ER: Earnings beat expectations after a year of cost cuts

Users:

• Monthly active users (MAU): up +19% YoY ~ 615 million (missed expected by 3 million). / Premium: up +14% YoY ~ 239 million (in line with guidance).

Financials:

• Revenue: up +20% YoY, to 3.6 billion EUR (in line with guidance).

  • Spotify laid off 17% of staff at the end of last year.

• Operating margin: 5% (+10% YoY).

Q2 FY24 guidance:

• MAU: +15% YoY ~ 631 million | Premium subscribers: up +11% YoY ~ 245 million.

• Estimated revenue about 3.8 billion EUR.

General Motors ER: Revenue beats expectations thanks to truck sales

• EPS: 2.62 USD ( > expected 2.14 USD).

• Revenue: up +7.6% YoY, reaching 43.01 billion USD (> expected 41.92 billion USD).

  • …driven by truck sales in North America, up +7.4% YoY.

  • In China, loss of 106 million USD and international markets loss of 10 million USD.

• Net income: up +26% YoY, reaching 2.95 billion USD.

UPS ER: Profit beats estimates thanks to cost cuts

• EPS: 1.43 USD, down -35% YoY but higher than estimates.

• Revenue: 21.7 billion USD (< estimate 21.9 billion USD).

  • UPS will cut 12,000 jobs to cut 1 billion USD costs this year.

• FY2024 revenue outlook: 92 billion - 94.5 billion USD (estimate 93.1 billion USD)

Some other news:

1. iPhone sales in China down -19% YoY Q1/2024, worst since COVID-19 pandemic. Huawei up +70% YoY.

2. China obtains Nvidia chips through products of Super Micro, Dell and Taiwan's Gigabyte Technology, despite US strengthening sanctions last year.

3. Gold price today fell sharply after geopolitical risks eased.

4. Japan preliminary manufacturing PMI up to 49.9 Apr (vs 48.2 Mar) - below 50.0 threshold for 11 consecutive months. → Manufacturing activity recovers after many months of stagnation.