Macrosynthesis
The Federal Reserve Pushes Forward
The Federal Reserve announced an additional .25% in the target federal funds rate on Wednesday.
Although major indexes initially jumped in price following the announcement, they quickly reversed with the S&P 500 falling nearly 2.5% from intraday highs. The whipsaw in prices represents investor confusion about what the future will entail.
Fed Chair Powell altered the standard talking points that the Fed would continue to raise rates and hold in restrictive territory.
"As a result [of the turbulence in the financial sector], we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation; instead, we now anticipate that some additional policy firming may be appropriate."
Is that like glute firming?
What exactly policy firming means was debated around the US media outlets. It matters less than the key message: the Fed doesn't need to raise rates much more because the banks will screw the economy for us by limiting borrowing (and slowing demand).
There was an initial celebration to the end of rate hikes and the Nasdaq soared. Then reality set in as investors realized the Fed just told us all it's going to be more difficult for businesses to get money in the near future i.e. that "some pain" the Fed said they would cause is almost here.
It's already been near impossible to pry cash from Venture Capital firms sitting on record amounts. Now, businesses are not going to be able to get loans as easily. The result? A lot of businesses are going to fold. THAT is why the Fed only needs to go "firm" itself.
Gold prices have been rising in response to fears the banking system could face additional stress, as shown in the graph above.
Federal Reserve chair Powell and Treasury secretary Janet Yellen reassured depositors about the safety of their money, but a subsequent sell-off in bank shares indicated investor confusion regarding government protection for depositors.
Yellen stated that authorities wouldn't guarantee all bank deposits, specifically those above the $250,000 federal insurance limit.
The market's reaction underlines ongoing concerns about uninsured deposits in small and regional banks after the collapse of Silicon Valley Bank and Signature Bank, with investors seeking clues about the extent of government intervention.
Trade Highlights
Real estate has been falling in the wake of higher interest rates and fears loans will be harder to get. A month ago, we alerted our Level 2 members to this trend and highlighted the DRV ETF - a short on the real estate market - as a trade idea. We exited the position last week with a gain of +21% in 26 days.
On the 22nd, we alerted Level 2 members that the big buyback from Teekay Corp (TK) would result in a large stock price move. It didn't disappoint. The stock was up +9% over the 4 hours following the alert.
By request, we've made our Level 2 membership month to month. You can now cancel at any time and not be billed for future months.
Noteworthy Events
This Weeks Recap
On Friday, the Dow Jones closed with a gain of over 130 points, as the S&P 500 and the Nasdaq rose approximately 0.6% and 0.3% respectively. Despite ongoing concerns about banking stability, the market experienced an upward trend. Deutsche Bank's US-listed shares decreased by only 3.1%, recovering from a 14% decline earlier in the session.
In the morning, Deutsche Bank announced it would redeem $1.5 billion in a set of tier 2 notes due in 2028, causing a market panic and driving European banking stocks sharply lower. To alleviate concerns, ECB President Christine Lagarde assured EU leaders that the euro area's banking sector remained resilient and that the central bank's toolkit could provide liquidity to the financial system if necessary.
Over the course of the week, the three major indices registered gains. The Dow experienced a slight increase of 0.1%, while the S&P 500 and the Nasdaq advanced 1% and 2.1% respectively.
Central Bank Digital Currency?
Moody's is warning that the banking industry may face a potential threat to their profitability due to the ongoing global economic shift towards central bank digital currencies.
On Monday, Florida Governor, Ron DeSantis announced legislation to ban the use of a federally adopted Central Bank Digital Currency (CBDC). “The Biden administration’s efforts to inject a Centralized Bank Digital Currency is about surveillance and control,” said DeSantis.
On Tuesday, Senator Ted Cruz introduced legislation to prohibit the Fed from implementing a Central Bank Digital Currency.
A new study from the U.S. treasury revealed that a CBDC could indeed destabilize banks, however- it could also help households. "The authors of the present study saw a risk of systemic deleveraging, that is, a reduction in banks’ equity, leading to reduced stability in times of crisis after the introduction of a digital currency..."
Liquidity Issues
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank have jointly declared a coordinated effort to boost liquidity provisions through the existing U.S. dollar liquidity swap line arrangements.
To enhance the efficiency of these swap lines in delivering U.S. dollar financing, the involved central banks have consented to raise the frequency of 7-day maturity operations from a weekly to a daily basis. These daily operations will begin on Monday, March 20, 2023, and are set to persist at least until the conclusion of April.
Last Week's Top Events
CASE STUDY: Epsilon Energy Stock BuyBack
Epsilon Energy Ltd., a Houston-based company focusing on developing natural gas announced its full-year 2022 results and approval of a new share repurchase program. The announcement came late Tuesday night, alerting LevelFields users.
EPSN's Stock Buyback resulted in a +5.28% 1D Return.
By turning on alerts for the Stock Buyback scenario, users have seen a 70% win rate with an avg 1D return of +2.95%. For more than half of all events in the last 3 months, prices have jumped over +10.3%.
Key Earnings Announcements This Week
Monday
Notable Earnings:
- BioNTech (BNTX)
- Carnival (CCL)
- PVH (PVH)
Tuesday
- Micron Technology (MU)
- Lululemon (LULU)
Other Notable Earnings:
- Walgreens Boots Alliance (WBA)
- Dave & Buster's (PLAY)
- Lovesac (LOVE)
Wednesday
Notable Earnings:
- RH (RH)
- Bluebirdbio (BLUE)
- Paychex (PAYX)
Thursday
Notable Earnings:
- BlackBerry (BB)
- Lithium Americas (LAC)
Economic Reports:
Reports released this week include PCE, private spending, income, consumer confidence, Q4 GDP growth, as well as housing indicators.
Canada: Monthly GDP growth figures.
Mexico: Interest rate decisions.
Brazil: PPI.
Europe: Inflation and unemployment report for Eurozone, Germany, France, Italy, and Spain. Euro Area inflation to slow, while the labor market remains tight. UK Q4 GDP numbers.
Asia: China's March NBS PMI to reflect economic reopening impact. Japan: Retail sales, industrial production, unemployment rate, and housing starts. India: Q4 current account balance. South Korea: Consumer and business confidence.
The LevelFields Team