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The Fed raged, but the US Treasury corrected everything

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Fed's rate hike
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The Fed raged, but the US Treasury corrected everything

After a week-long pause, the Fed reduced its portfolio of government bonds by $32.4 billion and mortgage securities by 1.2 billion at once, the “other” assets of the Fed decreased by another $15 billion (where accumulated interest/coupons are usually taken into account), in total, the assets of the Fed decreased by $50.6 billion at once. But the US Treasury came to the rescue, which in a week reduced its reserves of “cache” at the Fed by $56.1 billion, and it did all this on February 15 in the amount of $87.9 billion. Despite the fact that one of the most significant weekly reductions of the Fed’s balance sheet took place this week, the banks did not have less dollars. And, given that banks have reduced reverse repos by $56 billion, there is even more free dollar liquidity – the balances on the accounts at the Fed have increased by $73.9 billion to $3.1 trillion.

There were more dollars, which helped the stock market in the face of the Fed’s aggressive rhetoric, but it certainly did not help the government debt market. Although the Ministry of Finance practically did not increase market debt during the week, the US government debt curve went up by 40-70 points in a week, the inversion of the curve remains around 1%.

The US Treasury still has a large margin of safety: $440 billion of cash in the Fed, which it will gradually spend in anticipation of the ceiling, adding dollars to the system and leveling the effect of the Fed’s QT and up to $400 billion of “emergency measures”. In April, the budget balance is usually positive (annual taxes), even with the growing costs of servicing the national debt, Yellen should have enough money until September.
After two consecutive months of buying US stocks by non-residents, “hot” loan money was attracted to the US market, in January, for the first time in six months, the volume of margin debt increased (positions with leverage) and immediately by $ 35 billion, to $ 641 billion. But they reached there through an increase in leverage, because the balance of funds on margin accounts did not grow, but even decreased from $164 billion to $161 billion. On the one hand, this is good for stocks at the moment, “hot” credit money has pulled up to record cashbacks and the influx of non-residents’ money, but this is in the moment.

If you look a little further, then against the background of the degradation of profits, the cashbacks may be lower (this is even if the Democrats cannot push through a tax increase). High rates will actively eat up free capital on margin accounts – margin is expensive, and for every dollar of cash now $4 borrowed is decent. The Fed is still aggressive:

✔️ hawks Mester and Bullard, although they have already increased by 50 bps again
, ✔️ the rest intend to keep the rate high, at least until the end of the year.

A reversal of the Fed, of course, is possible, but it is more likely to happen together with a financial shock (economic processes are much more inert than financial ones), which is unlikely to be positive for the market at the first stage of the action. In this regard, the arrival of “hot” credit money, although it supports stocks at the moment, but at the same time forms a mass for future descent when the market conditions worsen…. ​​#USA #inflation #economy #Fed #debt #rates #dollar

⚖️ Markets are putting the Fed’s rate hike in March on:

Fed's rate hike

0.25% with 82% probability
0.50% with 18% probability

a day ago:
0.25% with 85% probability
0.50% with 15% probability

a week ago:
0.25% with 91% probability
0.50% with 9% probability
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

For the first time in the current US rate hike cycle, the market expects a rate higher than the Fed lays down

US rate hike cycle

📍 For the first time in the current US rate hike cycle, the market expects a rate higher than the Fed lays down (blue line).
Back in early February, market expectations for the end of the year were at 4.4%, on 16.02. – 5.08%, and on 17.02. – 5.13%.
📍 At the same time , the hawks )supporters of a tough policy) want to raise the rate by 0.5% in March, which is not yet being laid by the market. So, despite the sharp shift in market expectations on the subject of monetary policy, surprises are not over yet, and in general, they are now frequent guests.
#rate #usa #fed #finance #prep

The historical chart of the discount rate in the United States tells us that in the cycle of rate increases

chart of the discount rate in the United States

The historical chart of the discount rate in the United States tells us that in the cycle of rate increases, there is always some kind of “accident” in the financial system, which may be local (1987, 1998, etc.), or lead to a financial crisis (2008, 1929, etc.), but it always happens.
In addition, the current rate of rate hikes are second only to the 70-80 years of the last century – this definitely poses a danger that cannot be quantified.
#history #crisis #recession
Seasonal factors are a short-term risk factor. Thoughts for the next month.
Seasonal factors are a short-term risk factor, but the arguments in favor of stocks remain unchanged

Although there have been some “hot” inflationary economic data recently, it is too easy and tempting for supporters of inflation to pounce on them and think that inflation is skyrocketing.

But the Fed depends on the data, and does not “react to them,” and until the main factors of inflation grow rapidly – energy, housing and wages – the Fed will raise rates, but in a predictable way. This is what determines the lower volatility and this is what allows the multipliers to grow this year.

We assume that the shares will grow strongly in 2023, and the expansion of the spectrum contributes to this. For this, there were three factors that are observed only at major turning points in the markets, and this confirms our opinion that October 12, 2022 was the main minimum.

But we also have to respect seasonal factors, and we believe that 16.02-07.03 remains a period when markets may stall. As shown in the picture, the aggregate of 7 previous years, when the markets gained > 1.4% according to the “rule of the first 5 days”.

Performance of sectors, goods, currencies, companies as of 02/18/2023
Performance of US Equity Sectors (YTD):

1. Consumer Cyclical: +16.5%
2. Technology: +13.9%
3. Communications: +11.6%
4. Real Estate: +8.2%
5. Financial: +7.2%
6. Industrials: +6.7%
7. Materials: +6.2%
8. Consumer Defensive: +0.1%
9. Healthcare: -0.9%
10. Energy: -1.0%
11. Utilities: -2.2%

Performance of Metals in the USA (YTD):

1. Iron ore +12.2%
2. Copper +8.3%
3. Gold +1.4%
4. Zinc +1.3%
5. Aluminum +0.6%
6. Steel -3.4%
7. Nickel -9.1%
8. Silver -9.7%
9. Platinum -15.0%
10. Palladium -17.0%

Performance commodities in the USA (YTD):

1. Cocoa +6.9%
2. Lumber +0.2%
3. Soybeans +0.2%
4. Corn -0.1%
5. Sugar -1.1%
6. Wheat -2.1%
7. Oil -3.2%
8. Gas -49.4%

Top 5 Growth/Fall Leaders in the S&P 500 (YTD):

1. Tesla: +69.1%
2. Warner Bros. Discovery: +62.8%
3. Catalent: +58.6%
4. Align: +50.2%
5. Royal Caribbean Cruises: +47.7%

1. Lumen: -24.7%
2. Enphase: -22.6%
3. Baxter: -19.6%
4. APA: -18.4%
5. Pfizer: -15.7%

Top 5 leaders of growth/decline on NASDAQ* (YTD):

1. Coinbase: +84.2%
2. Tesla: +69.1%
3. Warner Bros. Discovery: +62.8%
4. Lucid Group: +60.0%
5. Airbnb: +53.9%

1. Enphase Energy: -22.6%
2. Sirius XM: -21.2%
3. APA: -18.4%
4. Chesapeake: -15.1%
5. ZoomInfo: -14.6%

* cap. > $10 billion

Top 10 largest US companies by capitalization (YTD):

1. Apple +17.4%
2. Microsoft +7.6%
3. Google +6.8%
4. Amazon +15.7%
5. Tesla +69.1%
6. Berkshire Hathaway -0.2%
7. NVIDIA +46.4%
8. Visa +7.6%
9. UnitedHealth -5.9%
10. Meta* +43.7%

Top 5 leaders of growth/decline of Chinese stocks* (YTD):

1. Baidu: +29.3%
2. Aluminum Corp of China: +23.4%
3. Li Auto: +22.7%
4. Netease: +22.0%
5. HSBC: +21.8%

1. JD Health: -17.2%
2. Meituan: -16.7%
3. Smoore: -15.9%
4. Kuaishou: -15.3%
5. Henhan: -8.3%

Top 10 largest companies in China by capitalization (YTD):

1. Tencent +17.8%
2. Kweichow Moutai +5.2%
3. Alibaba +16.0%
4. ICBC +2.0%
5. CCB +2.7%
6. China Mobile +11.6%
7. HSBC +21.8%
8. Contemporary Amper +7.2%
9. Agricultural Bank of China +3.8%
10. CM Bank +3.1%

Top 5 Growth/Fall Leaders on MOEX* (YTD):

1. Polymetal +27.5%
2. Globaltrans +25.7%
3. Sberbank +13.2%
4. Ozone +12.9%
5. Pole +12.7%

1. Tatneft -9.2%
2. Tatneft AP -6.6%
3. X5 Group -5.7%
4. Lukoil -5.6%
5. Rosneft -5.6%

People’s portfolio of shares of the Russian Federation on the Moscow Exchange (shares)*:

1. Sberbank JSC: 26.6%
2. Gazprom: 22.5%
3. Lukoil: 10.4%
4. Norilsk Nickel: 9.6%
5. Sberbank AP: 7.1%
6. Yandex: 5.4%
7. Rosneft: 5.3%
8. Surgutneftegaz AP: 5.1%
9. Novatek: 4.2%
10. MTS: 3.8%

Company Results (YTD):

1. Sberbank JSC +12.8%
2. Gazprom -5.8%
3. Lukoil -5.9%
4. Norilsk Nickel -5.7%
5. Sberbank AP +11.3%
6. Yandex +8.5%
7. Rosneft -6.2%
8. Surgutneftegaz AP +2.6%
9. Novatek -4.4%
10. MTS +5.5%

Portfolio result since the beginning of the year: +2.0%.

Currencies and Cryptocurrencies* (YTD):

1. USD** +0.2%
2. EUR -0.1%
3. GBP -0.4%
4. JPY -2.3%
5. CNH +0.8%
6. RUB -4.9%
7. KZT +3.3%

1. Bitcoin +49.2%
2. Ethereum +42.1%
3. Ripple +17.0%
4. Cardano +64.3%
5. Solana +134.8%
6. DogeCoin +25.5%

* against the US dollar
** DXY – dollar index

Performance of World Indices (YTD):

US:
S&P-500: +5.9%
NASDAQ: +12.0%

Asia:
Shanghai Comp.: +4.4%
Nikkei: +6.1%
Nifty 50*: -1.0%
KASE**: +4.0%
XU100***: -9.7%

Europe:
DAX: +10.6%
FTSE-100: +7.1%
CAC-40: +12.7%
MOEX: +0.5%

* indian index
** kazakhstan index
*** Turkish index

Source: https://finviz.com

@ESG_Stock_Market

Moderate greed in crypto, greed in stocks is in the risk zone. Be cautious ♨️. Fear greed index

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Fear and greed nasdaq
Post Views: 63

Fear and greed nasdaq, moderate greed in cryptocurrencies, greed in stocks is at risk. What are we trying to say?

fear greed index

Why was the stock market depressed on Friday? US: The overheated labor market doesn’t want to cool down. Fear and greed nasdaq

Statisticians traditionally revised the U.S. labor market numbers in February, with historical data revised up by 813,000, and the gain in employment in January was an incredulous 517,000, of which 443,000 was in the private sector. So quite unexpectedly there was another million employed, i.e., the labor market was even hotter than thought. Of course, the main thing here is the data revision, but compared to the December report, there were 1.3 million more people employed in January.
The unemployment rate in January was at its lowest level since 1969, dropping to 3.4%. Labor force participation rose slightly (62.4%), but it’s still decently below pre-decline levels. The labor force participation rate has also risen slightly to 60.2%, although it too remains below pre-set levels, and that’s with the current near-zero unemployment rate. The fact that the labor market has even improved in recent weeks was indicated by the benefits data, which fell below 200K per week, the current report has confirmed it.

With wages also turned out to be somewhat better, the slowdown in 2022 was lower than previously thought, and growth even accelerated somewhat in January. This was not due to an increase in hourly wages (+0.3% mom), but more to the estimate of hours worked. Production and non-management payrolls added 0.8% mom and 9.2% yoy, more than twice the average pre-crisis level.

It’s worth discounting the fact that this is a February report and revisions, but still, after seeing job openings rise sharply in December and amid record-low unemployment benefits, the market still looks like it’s very hot. And that will give the hawks at the Fed new arguments to kick the growing pigeonhole army. The market, on this, of course, is depressed …

A little clarity. ​​The Fed took it away, the Ministry of Finance added

The Fed continued to reduce the portfolio this week, removing $38 billion of government bonds from the balance sheet at once, over the past 4 weeks the portfolio has decreased by $60 billion – everything is according to plan. The Fed is not getting steadily on mortgages, but this is already a familiar story. The US Treasury, on the contrary, added $ 72 billion to the system, raising bank liquidity by $ 30 billion. Local fluctuations will occur here, but the main process will not change: the US Treasury will borrow little, the Fed will continue to QT, but the overall supply of public debt will be low. At the same time, the budget will spend the cache, adding liquidity, and the Fed will withdraw it through QT. And there will be such a swamp until Yellen runs out of cash on her accounts and “emergency measures” and the debt ceiling is raised – then the situation can shake up.

The US Treasury has published plans for the first half of the year, it needs to borrow $1.3 trillion in the market to end the half-year with $0.55 trillion in cash on the balance sheet. But they estimate the actual financing needs at $0.6 trillion for the first half of the year – this is due to the fact that annual taxes are paid in the second quarter and there is virtually no budget deficit. In this regard, Yellen, of course, rather catches up with fears, saying that the money will last until June, in reality they are quite capable of holding out until September without raising the ceiling, if there are no emergency expenses.
Interest expenses on debt in the 4th quarter have already officially amounted to $0.85 trillion (in annual terms, or 3.3% of GDP) – increased by 42% YoY. Net interest expenses adjusted for Fed payments and interest income in annual terms increased to $0.82 trillion (3.1% of GDP), which is 77% higher than in the 4th quarter of last year. By the end of the year, we expect more than $1 trillion in interest on the debt, which is comparable to the records of the 80s and a big fight over the budget.

Looking back at the decisions of the Fed and the ECB (the Bank of England does not count – they initially rather pretend that they are struggling with something, even though the head of the Central Bank said that this is not the end of the increase), although the Central Bank itself did not show much softness – they showed complete uncertainty, and if they themselves are not in why are you not sure – why should the market believe them and their forecasts? Well, the market generally does not believe them, but I think the market overestimates the softness of the Central Bank and underestimates the risks of recession and inflation …
#USA # inflation #economy #Fed #debt # rates #dollar

What did Powell tell us? Powell: postpone until March

What did Powell tell us? Powell: postpone until March

The press conference of the head of the Fed turned out to be even more insipid than her press release. Perhaps its main motive is only one thing: to raise it by the expected 25 bp and sit out until the March meeting, and then we’ll see. This is exactly what the entire speech of J. was dedicated to.Powell. He repeated dozens of times everything that the market has already heard many times and which he does not really believe.

In fact, trying (which is typical for the Fed under Powell) to sit behind the locomotive, because they are not sure of anything and (apparently) are very afraid to make a mistake again. The peak of the bid – we do not know, maybe higher, maybe lower… how long – some time, where it will turn – we will go there.

Powell said a lot of “I think”, “I think”, as a rule, everything he says after these phrases means a little more than nothing – it showed up well in the first term, the crown “I think inflation is temporary”, because he doesn’t have much of his own expertise.

“Powell is talking hawkishly at every opportunity he can, using all the standard phrases, but the dollar scoffs at this admonishment.” – in this comment, the whole attitude of the market to the signals of the Fed. When the market sees fear (to make a mistake) and uncertainty, it always bends its line. By the way, this does not mean at all that the market is right in its expectations, but while it bends, it bends.

It is possible to understand the Fed, the second mistake in a row can cost not only the chair to Powell himself, but also bear the quite material risk of losing the formal independence of the Fed, which forces them to take an extremely cautious position, leaving the doors open in all directions. But the markets are taking a very specific position, which threatens volatility on the one hand, while reducing the effectiveness of the Fed’s policy on the other.

Anyway, the Fed has suspended the situation until the March meeting, when they will have to publish forecasts. The markets interpret this as weakness, driving the dollar rates down, and risk assets and gold up. It is not a fact that this fuse will last for a long time, the first good reports on the labor market, or bad ones on inflation will be nervously perceived.
#Fed #rate #inflation #USA

 

It is not a recommendation for action.

“Praemonitus, praemunitus”

@ESG_Stock_Market

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