“Markets can remain irrational longer than you can remain solvent” — John Maynard Keynes

1. Biggest U.S. Banks Race to Rescue First Republic — Eleven banks have deposited $30 billion in First Republic Bank, according to a joint statement from the heads of the Treasury, Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp.; gand Wells Fargo WFC ; are each making a $5 billion uninsured deposit into First Republic, the banks said in a statement Morgan Stanley and Goldman Sachs Group Inc. are kicking in $2.5 billion apiece, while five other banks are contributing $1 billion each.
2. ECB Delivers Half-Point Hike But Offers Little on Next Move — the European Central Bank went ahead with a planned half-point increase in interest rates but offered few clues on what may follow amid market turmoil that roiled Credit Suisse Group AG. The deposit rate was lifted to 3% on Thursday — as officials have been flagging since their last meeting six weeks ago and as the majority of economists anticipated, but dropped language from its statement indicating where borrowing costs are headed.
3. SVB Financial Files for Chapter 11 Bankruptcy Protection — SVB Financial Group filed for chapter 11 protection on Friday in New York bankruptcy court, the largest bankruptcy filing stemming from a bank failure since Washington Mutual Inc. in 2008. Silicon Valley Bank, the technology-focused lender and SVB Financial’s primary business, was taken over by federal regulators after it was crippled by a dash for the exits by depositors. The Federal Reserve stepped in to make depositors whole and reassure markets, although a number of other regional banks in the U.S. have seen their credit ratings cut and depositors pull cash.
4. Microsoft Adds the Tech Behind ChatGPT to Its Business Software — Microsoft Corp. MSFT 1.17%increase; green up pointing triangle is infusing its popular workplace software with the technology behind the viral chatbot ChatGPT, upgrading PowerPoint, Word, Excel and Outlook with new abilities in its latest move to try to stay ahead in the artificial-intelligence race. The software giant has gone all-in on generative AI, following its multibillion-dollar investment in ChatGPT’s creator OpenAI. In February, Microsoft rolled out a new version of its search engine Bing that used generative AI to give direct answers to questions and had a sophisticated chat tool. It announced Thursday that it is bringing the technology to its Microsoft 365 suite of software to enable users to create presentations, write documents and summarize emails—all from natural-language prompts.

The week ahead — Economic data from Econoday.com:

There will not be any re-cap for the week of March 10th, 2023. We are away for some needed R&R.

The staffs at EGS.

…“People somehow think you must buy at the bottom and sell at the top to be successful in the market. That’s nonsense! The idea is to buy when the probability is greatest that the market is going to advance”… Jesse Livermore

1. Home-Price Growth Slowed in 2022 — home-price growth decelerated in 2022 after a rapid rise in mortgage rates priced many buyers out of the market.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures home prices across the nation, rose 5.8% in the year ended in December, down from a 7.6% annual rate the prior month. The increase was the lowest December-to-December change since 2019. On a monthly basis, the index fell 0.8% in December compared with November, the sixth straight month-over-month decline. Existing-home sales dropped 17.8% in 2022 to the lowest level since 2014, as the surge in mortgage rates brought the pandemic-driven housing boom to an abrupt halt.
2. Long-Robust U.S. Labor Market Shows Signs of Cooling — demand for U.S. workers shows signs of slowing, a long-anticipated development that is appearing in private-sector job postings even while government reports indicate the labor market is running hot. Figures from ZipRecruiter Inc. and Recruit Holdings Co., two large online recruiting companies, show the number of job postings on their sites declined more late last year than the Labor Department report on job openings for that period indicated. The companies report available jobs fell further this year, potentially foretelling a decrease in openings in coming Labor Department reports, and a slowdown in hiring this year.
3. 10-Year Treasury Yield Tops 4% for First Time Since November — lingering inflation and fears of higher interest rates lifted the 10-year Treasury yield above 4% on Wednesday, marking a fresh acceleration for a historic bond-market rout.
The climb carried the key measure of borrowing costs back toward the decade-plus highs reached last year. Spurring the most recent leg: a run of strong economic data that dashed hopes inflation will rapidly slow to near the Federal Reserve’s 2% target. Yields topped 4% Wednesday morning after a slightly stronger-than-expected survey of manufacturing activity. Rising yields lift borrowing costs for consumers and companies, and hurt the prices of other investments by offering steady payouts with lower risk. The climb in yields has buffeted major stock indexes, with the S&P 500 losing around 2.6% in February.
4. Fed Official Says Hotter Data Will Warrant Higher Rates — the Federal Reserve will need to raise rates to higher levels than previously anticipated to prevent inflation from picking up if the recent strength in hiring and consumer spending continues, a central bank official said Thursday. Mr. Waller didn’t say in his prepared remarks whether he would continue to favor raising interest rates by a quarter-percentage point, which was his preference at the Fed’s last meeting, or whether he would instead support a larger half-point increase at its next gathering, March 21-22. The Fed’s rate-setting committee voted unanimously last month to slow rate increases by lifting their benchmark federal-funds rate by a quarter percentage point—to a range between 4.5% and 4.75%—following larger moves of a half point in December and 0.75 point in November.

The week ahead — Economic data from Econoday.com:

“Stock market doesn’t only teaches to make money but it also teaches lot about life, patience, persistence and wisdom.” ― Raj Mishra

1. U.S. Home Sales Fall for 12th Straight Month — Sales of previously owned homes, which make up most of the housing market, fell 0.7% in January from the prior month to a seasonally adjusted annual rate of 4 million, the slowest since October 2010, the National Association of Realtors said Tuesday. January sales fell 36.9% from a year earlier.
January’s decline marked the longest streak of back-to-back monthly declines on record in figures going back to 1999, NAR said. Surprisingly strong inflation, jobs and retail spending figures in recent weeks have fueled expectations that the Federal Reserve could raise interest rates more than investors anticipated. The Fed has aggressively raised its benchmark federal-funds rate to cool the economy and bring down high inflation, hitting the rate-sensitive housing market particularly hard.
2. Fed Minutes Show Most Officials Favored Quarter-Point Rate Rise — Officials at their meeting earlier this month agreed to slow rate increases by lifting their benchmark federal-funds rate by a quarter-percentage point, following larger moves of a half point in December and 0.75 point in November. Minutes from that meeting, showed most thought a slower pace provided the best way to manage the risks of raising rates too much or too little. But the minutes also revealed some officials were concerned about stopping or slowing their inflation-fighting campaign too soon. The latest increase brought the fed-funds rate to a range between 4.5% and 4.75%, extending the fastest series of rate rises since the early 1980s. While the quarter-point rate rise was backed unanimously by the rate-setting committee, the minutes said a few officials favored or would have also agreed to support a half-point increase.
3. Economy Showing Strength in Early 2023 After Last Quarter’s GDP Gain Revised Modestly Lower — gross domestic product, a broad measure of the goods and services produced across the U.S., rose at a 2.7% annual rate in the fourth quarter, adjusted for seasonality and inflation, the Commerce Department said Thursday. That was down from a previous estimate of 2.9% growth, and slower than the third quarter’s 3.2% growth. Entering this year, forecasters had projected the economy to cool, but recent data shows a strong labor market and improved spending. Worker claims for unemployment benefits, a proxy for layoffs, ticked down last week, the Labor Department said Thursday. Hiring accelerated last month and the unemployment rate fell to a 53-year low. Retail sales jumped 3% in January, reversing two consecutive months of decline, a separate Commerce Department report showed. Business activity, particularly in the services sector, picked up in February, according to surveys of manufacturers and service providers released last week.

1. US Inflation Stays Elevated, Adding Pressure for More Fed Hikes — US consumer prices rose briskly at the start of the year, a sign of persistent inflationary pressures that could push the Federal Reserve to raise interest rates even higher than previously expected.
The overall consumer price index climbed 0.5% in January, the most in three months and bolstered by energy and shelter costs, according to data out Tuesday from the Bureau of Labor Statistics. The measure was up 6.4% from a year earlier. Excluding food and energy, the so-called core CPI advanced 0.4% last month and was up 5.6% from a year earlier. Economists see the gauge as a better indicator of underlying inflation than the headline measure.
2. U.S. Retail Sales Rebounded Sharply in January — U.S. retail sales jumped 3% in January as consumers broadly boosted spending on vehicles, furniture, clothing and dining out, adding to signs that economic growth picked up at the start of the year. The unexpectedly strong January employment report and still solid wage gains bode well for consumer spending, and some economists think economic growth could be picking up. The Federal Reserve has raised interest rates aggressively since last March in an attempt to slow the economy and bring down inflation. The consumer-price index climbed 6.4% in January from a year earlier, down slightly from 6.5% in December but still well above the Federal Reserve’s 2% inflation target. Retail sales grew broadly across the economy in January, including at restaurants, car dealerships, department stores and furniture and appliance sellers.
3. January PPI Report Shows Producer Prices Rose — U.S. supplier prices rose 6% in January from a year earlier, a sign of still stubborn inflation pressures in the economy.
That increase in the producer-price index, which generally reflects supply conditions in the economy, was slower than December’s 6.5% gain, the Labor Department said Thursday. And it was down markedly from the 11.7% rise in March 2022, the recent peak. The PPI increased 0.7% in January from the prior month, compared with a revised 0.2% drop in December, and significantly faster than the 0.2% average monthly rise in the year before the pandemic. Fed officials in recent public appearances have steeled themselves for a long inflation fight. Earlier this month policy makers raised their benchmark federal-funds rate by 0.25 percentage point, bringing it to a range between 4.5% and 4.75%, the highest level since 2007. Officials are on track to raise interest rates at their meeting in March and to signal further increases will be likely.
4. Two Fed Officials Would Have Supported Larger Rate Increase This Month — two Federal Reserve officials said they would have supported raising interest rates by a half percentage point at the central bank’s meeting earlier this month given the strength of economic demand and inflation. Ms. Mester said it was too early to specify the size of the rate increase that would be appropriate at the Fed’s next meeting, on March 21-22. But she said that the central bank wasn’t locked in to raising rates by a quarter point at coming policy meetings. “It’s not always going to be, you know, 25 [basis points],” she said during a question-and-answer session at a conference in Sarasota, Fla. “As we showed, when the economy calls for it, we can move faster. And we can do bigger [increases] at any particular meeting. St. Louis Fed President James Bullard also said Thursday he would have favored a half-point rate increase at the last meeting and that he would support moving as quickly as possible to raise rates to just below 5.5%.

The week ahead — Economic data from Econoday.com:

There will not be any re-cap for the week of February 10th, 2023. We are away for some needed R&R.

Have a good week.

The staffs at EGS.

The week ahead — Economic data from Econoday.com:

“Don’t look for the needle in the haystack. Just buy the haystack.” — John Bogle,

1. Worker Pay Gains Cooled Modestly Late Last Year as Fed Weighs Inflation — employers spent 1% more on wages and benefits last quarter versus the prior three months, a slowdown from a 1.2% increase in the third quarter, the Labor Department said Tuesday. From a year earlier the employment-cost index advanced 5.1%, in line with the 5% annual gain in the third quarter. The compensation report confirms other recent signs that wage growth has slowed, and comes as Fed officials start a two-day policy meeting. They are likely on Wednesday to approve raising their benchmark federal-funds rate by a quarter percentage point, down from their half-point increase in December, which followed four straight increases of 0.75 point.
2. Fed Approves Quarter-Point Rate Hike, Signals More Increases Likely — the Federal Reserve approved an interest-rate increase of a quarter-percentage-point and signaled plans to raise rates again next month to continue lowering inflation. The decision Wednesday followed six consecutive rate rises that were larger, including an increase of a half-point in December and a 0.75-point increase in November. The latest increase caps a year in which the Fed lifted its benchmark federal-funds rate from near zero to a range between 4.5% and 4.75%, a level last reached in 2007. That extends the central bank’s most rapid pace of rate increases since the early 1980s to fight inflation, which hit a 40-year high last year.
3. ECB Hikes by Half-Point and Signals Same Again in March — the European Central Bank lifted interest rates by a half-point, with President Christine Lagarde saying another such move is almost certain next month, despite conceding that the inflation outlook is improving.
Policymakers, as expected, raised the deposit rate to 2.5%, the highest since 2008. Lagarde warned that the most aggressive bout of monetary tightening in ECB history isn’t done — even as energy prices plunge and the Federal Reserve moderates the pace of its own hikes.
4. Unemployment Falls to 3.4%, Lowest in 53 Years, Jobs Report Shows — the U.S. labor market accelerated at the start of the year as broad-based hiring added a robust 517,000 jobs and pushed the unemployment rate to a 53-year low. January’s payroll gains were the largest since July 2022 and snapped a string of five straight months of slowing employment growth, the Labor Department said Friday. The unemployment rate was 3.4% last month, its lowest level since May 1969. Wage growth continued to soften last month, despite the strong job gains. Average hourly earnings grew 4.4% in January from a year earlier, down from a revised 4.8% in December. Annual revisions to employment and pay data suggest that wage growth has been cooling—but at a slower pace than previously thought.
5. Industry Group Surged – Shows Bullish Patterns — courtesy of Sentiment Trader, several industry groups surges — see below chart for more details.

The week ahead — Economic data from Econoday.com:

“Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria,” — Franklin Templeton

1. 4Q GDP up 2.9% in 4Q, Still Risks a Stall in 2023 — Gross domestic product rose at a 2.9% annualized pace, down from 3.2% in the third quarter. A separate report on labor markets published Thursday also pointed to a resilient economy, rather than one on the verge of a slump, with weekly jobless claims unexpectedly falling. For the Fed, which has hiked interest rates at the steepest pace in a generation over the past year, the data suggest that there’s still a path to what’s known as a “soft landing.” That’s a scenario in which tighter monetary policy cools household spending and lowers inflation – but avoids squeezing the economy so hard that it ignites mass layoffs nationwide.
2. Corporate Layoffs Spread Beyond High-Growth Tech Giants — this week, four companies trimmed more than 10,000 jobs, just a fraction of their total workforces. Still, the decisions mark a shift in sentiment inside executive suites, where many leaders have been holding on to workers after struggling to hire and retain them in recent years when the pandemic disrupted workplaces. Unlike Microsoft Corp. and Google parent Alphabet Inc., which announced larger layoffs this month, these companies haven’t expanded their workforces dramatically during the pandemic. Instead, the leaders of these global giants said they were shrinking to adjust to slowing growth, or responding to weaker demand for their products. The U.S. labor market broadly remains strong but has gradually lost steam in recent months. Employers added 223,000 jobs in December, the smallest gain in two years. The Labor Department will release January employment data next week.
3. Consumer Spending Fell 0.2% in December as Inflation Cooled — spending by U.S. households decreased 0.2% in December from the prior month, the Commerce Department said Friday, compared with a downwardly revised 0.1% decrease in November. Households cut spending on goods last month and increased spending slightly on services. The personal-consumption expenditures price index—the Federal Reserve’s preferred gauge of inflation—rose 5% in December from a year earlier, after increasing 5.5% in November.
The core PCE-price index, which captures underlying inflation after removing volatile food and energy prices, rose 4.4% in December from a year earlier—its slowest pace since October 2021. That compared with 4.7% in November. The central bank aims for 2% annual inflation.
4. Tesla Has Become One of the Hottest Stock-Option Trades on Wall Street — Tesla options trading has surged recently: Nearly three million contracts now change hands on an average day, according to Cboe Global Markets data. That is up from 1.5 million a year ago and more than any other stock. Only wagers on the SPDR S&P 500 ETF outpace those on Tesla. Tesla now accounts for roughly 7% of all options trading on an average day, based on Cboe and OCC data. On Jan. 6, the busiest day on record, more than 5.2 million contracts traded, nearly 10% of all options. Activity in Tesla options surpassed volumes tied to the Invesco QQQ exchange-traded fund—which tracks Nasdaq-100 stocks—in December for the first time in nearly two years. And it edged out trading in Apple Inc. options on a sustained basis in July, a notable feat for the S&P 500’s now sixth-largest company by market cap to leapfrog the leader.

The week ahead — Economic data from Econoday.com:

“Any idiot can face a crisis – it’s day to day living that wears you out.” – Anton Chekhov

1. US Retail Sales Slide by Most in a Year in Broad-Based Decline — US retail sales fell in December by the most in a year, suggesting consumers are losing some of the resilience that’s kept the economy growing in the face of rapid inflation and steep Federal Reserve interest-rate hikes.
The value of overall retail purchases decreased 1.1% in December after a downwardly revised 1% drop in the prior month, Commerce Department data showed Wednesday. Excluding gasoline and autos, retail sales fell 0.7%. The figures aren’t adjusted for inflation. inflation has shown more consistent signs of slowing in recent months, putting the Fed on track to again slow the pace of interest-rate hikes. The central bank is expected to raise rates by a quarter point when it meets in two weeks.
2. US Producer Price Index Declines by Most Since Start of Pandemic — The producer price index for final demand fell 0.5% last month, the most since April 2020, and was up 6.2% from a year earlier, Labor Department data showed Wednesday. The median estimates in a Bloomberg survey of economists called for the index to fall 0.1% from a month earlier and rise 6.8% from December 2021. The monthly decline was driven by a plunge in goods prices, notably energy and food. Excluding those components, the so-called core PPI rose 0.1% in December and 5.5% from a year earlier.
3. Fed’s Brainard Favors High Rates for Some Time to Cool Inflation — Federal Reserve Vice Chair Lael Brainard said interest rates will need to stay elevated for a period to further cool inflation that’s showing signs of slowing but is still too high. “Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2% on a sustained basis,” Brainard said in prepared remarks for a University of Chicago Booth School of Business event. Brainard said that economic data in the past few months shows cooling consumer demand and wages and tighter financial conditions, all welcome outcomes for policymakers trying to rein in inflation that last year surged to a 40-year high.
4. Treasury Has About $500 Billion of Headroom After Debt Limit Hit — the Treasury Department has about $500 billion of extraordinary measures available that will allow the US to dodge a payments default as Congress works out an agreement on raising the debt limit, which the nation hit late last week.
Treasury Secretary Janet Yellen notified congressional leaders late last week that her department would be deploying two special accounting maneuvers to avoid breaching the debt limit. The Treasury later released a list of the extraordinary measures available, with some figures on how much financial space they offer. The initial two steps taken can free up about $350 billion of extra borrowing authority through early June, according to a Jefferies analysis of data from the department. The initial measures involve changes for two government-run funds for retirees. Later in June, a one-time move would then become available allowing the Treasury to suspend reinvestment in the Civil Service Retirement and Disability Fund, potentially creating an additional $143 billion in headroom, according to the Treasury’s release.
5. U.S. Existing-Home Sales Slid Last Year as Interest Rates Surged — Sales of previously owned homes, which make up most of the housing market, slid 17.8% in 2022 from the prior year to 5.03 million, the National Association of Realtors said Friday. The pandemic-fueled housing boom of 2020 and 2021 carried over to the start of last year. Then the Federal Reserve’s effort to cool the economy and curb inflation by raising interest rates flattened housing-market activity as borrowing rates more than doubled. In October, mortgage interest rates climbed to 7.08%, a two-decade high. More recently, mortgage rates have declined. The average rate on a 30-year fixed mortgage fell to 6.15% this week, the lowest rate since September. Mortgage applications for home purchases rose 25% on a seasonally adjusted basis in the week ended Jan. 13 from the prior week, according to the Mortgage Bankers Association.

The week ahead — Economic data from Econoday.com:

Most people are driven by greed, fear, envy, and other emotions that render objectivity impossible and open the door for significant mistakes. — Howard Marks

1. World Bank Cuts 2023 Global Growth Projection as Inflation Persists — The bank expects global growth to slow to 1.7% in 2023, down from an estimate of 3% growth in June. That would mark the third-weakest pace of global growth in nearly three decades, overshadowed only by the 2009 and 2020 downturns, according to the World Bank. A separate report showed that global inflation, while starting to cool, remains historically high. The forecast growth rate only narrowly keeps the global economy out of recession territory. The international development organization cited a coalescence of high inflation, rising interest rates, lower investment and Russia’s invasion of Ukraine as threats to growth, along with pandemic-related disruptions in China and stress in its real-estate sector.
2. U.S., Allies Prepare Fresh Sanctions on Russian Oil Industry — In meetings across Europe this week, Treasury officials are discussing the details of the coming sanctions on Russian oil products, which are set to go into effect Feb. 5. The penalties will set two price limits on Russian refined products: one on high-value exports such as diesel and another on low-value ones such as fuel oil, according to people familiar with the plans.
The new limits will follow moves last month by the U.S., European Union and their allies in the Group of Seven advanced democracies to cap the price of Russian crude exports at $60 a barrel. Those sanctions have had a relatively muted impact on global prices, encouraging Western officials who want to pressure Russia’s budget while minimizing volatility in critical global energy markets.
3. U.S. Inflation Slowed for Sixth Straight Month in December — The consumer-price index, a measurement of what consumers pay for goods and services, rose 6.5% last month from a year earlier, down from 7.1% in November and well below a 9.1% peak in June. Core CPI, which excludes volatile energy and food prices, climbed 5.7% in December from a year earlier, easing from a 6% gain in November. Many economists see increases in core CPI as a better signal of future inflation than the overall CPI. Core prices increased at a 3.1% annualized rate in the three months ended in December, the slowest pace in more than a year and down from 7.9% in June.
The figures added to signs that inflation is turning a corner following last year’s surge. They also likely keep the Fed on track to reduce the size of interest-rate increases to a quarter-percentage-point at their meeting that concludes on Feb. 1, down from a half-percentage point increase in December.

The week ahead — Economic data from Econoday.com: