Market 11/07: Tech pulls the market despite FED members' statements

Market coverage 11/07:

Breaking news: WeWork officially files for bankruptcy protection

WeWork, the office-sharing company once valued at up to USD 47 billion, has filed for Chapter 11 bankruptcy under US bankruptcy law.

• WeWork's failure truly reflects the difficulties of commercial real estate amid high interest rates.

Summary of latest statements by Fed officials

Fed members did not confirm plans on when to cut interest rates and only emphasized the priority of curbing inflation.

Key points in Fed officials' speeches:

1. Fed Kashkari: Fed "may have to do more" to bring inflation back to 2%, "recent economic data is quite strong".

2. Fed official Goolsbee: On the right track on inflation, but not yet achieved the target.

3. Fed official Waller: Everything is booming in Q3 GDP and Fed is paying close attention to this. If rate hikes cause instability, Fed has other tools.

Only the Bank of England signals rate cuts from mid-2024, while Fed members are showing they will continue monitoring economic data.

Middle East war not much affecting oil and energy prices recently

Oil prices fall lower than economists' predictions ahead of Middle East war scenario.

Natural gas prices down 15% last week.

Retail hiring for this holiday season drops sharply

• Retail hiring for this year's US holiday season drops sharply to 135,000 employees - the lowest since 2018.

  • This is a mild sign that the labor market is gradually weakening + not very optimistic outlook for retail sector this holiday season.

New York Fed report on US household credit stress

1. Long-term delinquency status (>90 days) continues to rise for all types of loans except student loans and mortgages

2. Credit card payment delinquency balances are on an upward trend, though still below pre-pandemic levels.

3. Mortgage delinquency rates for 30-60 days and >90 days rise back to pre-pandemic levels.

4. Credit debt stress in auto loans concentrated in young age group (18-39 years old).

Trade deficit rises to -USD 61.5 billion in September

September 2023 trade balance deficit: -USD 61.5 billion, widening by -USD 2.9 billion from August (-USD 58.7 billion).

• September exports: USD 261.1 billion, (up +USD 5.7 billion from August).

• September imports: USD 322.7 billion, (up +USD 8.6 billion from August).

High interest rates pressure governments

Bloomberg analysis shows:

• Estimated annual interest on US public debt exceeded USD 1000 billion at the end of last month.

• This amount has doubled in the past 19 months, equivalent to 15.9% of the federal budget for fiscal year 2022.

The Fed's balance sheet has been reduced, but remains high compared to history.

• Not only the US, the proportion of developing countries with borrowing costs higher than the US +10bps has increased from <5% (2019) to 23% (current).

  => Shows the level of stress that small economies are enduring.

According to IMF forecasts, the government debt burden of small economies will exceed 78% of GDP in 2028, compared to just >53% a decade ago. 

Banks are gradually loosening lending standards

The likelihood of a corporate debt crisis is not high.

• Moody's statistics show that corporate debt crises usually occur when the number of companies rated BBB- or lower surges.

• This figure is currently only slightly above the long-term average, lower than in 2015-16, when falling oil prices triggered a series of defaults in the energy sector.

The latest Fed survey of lenders shows a slight decline in the number of banks tightening lending standards.

Goldman Sachs Financial Conditions Index fell -0.5% last week - one of the largest declines (loosening of borrowing conditions) in the past 2 decades.

According to Fed's SLOOS October data, although banks remain restricted in consumer lending willingness, there has been a slight improvement compared to previous data.

Uber's earnings report

Uber's Q3 earnings missed analyst expectations, but the company showed bookings revenue growth higher than expected.

• Total bookings +21% Y/Y to USD 35.3 billion

• Revenue +11% Y/Y to USD 9.3 billion (USD 0.2 billion below expectations)

• Operating margin 4% (+10pp Y/Y)

• Cash flow from operations USD 1 billion

• EPS: USD 0.1 (USD 0.02 below expectations)

Q4 guidance:

• Total bookings ~USD 37 billion.

• Adjusted EBITDA ~USD 1.2 billion.

Other news

1. Reserve Bank of Australia meets market expectations, hikes rates by another 25 bps to 4.35% in today's meeting, ending a streak of 4 consecutive rate pauses.

2. UBS reports first quarterly loss in nearly 6 years due to costs from acquiring former rival Credit Suisse.