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Weekly Market Up-Date; March goes out like a Lamb
diverged this week as investors concentrated on vertical phenomena rather than
cross-market influences.
In Asia, the prospect of stimulus to support Abenomics
and the slowing Chinese market sent Hong Kong and Japan equities broadly higher,
although Shanghai was flat.
In Europe, another round of decent economic reports
reinforced hopes the continent was starting to pull itself out of the hole,
epitomized by France’s preliminary March PMI manufacturing data, which moved
into expansion for the first time in more than two years.
In the US, the
S&P500 and DJIA traded sideways as traders continued to reposition after
Yellen rearranged assumptions last week. The Conference Board’s March Consumer
Confidence survey unexpectedly jumped to 82.3 from February’s upwardly-revised
78.3 reading, marking the highest level since January 2008. The advance durable
goods report for February was mixed but on balance somewhat weaker than
expected, showing the persistent impact of weather issues. Meanwhile the Nasdaq
had its worst week since October 2012, dropping 2.8%, as many high-flying tech
stocks saw stiff losses.
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– The Federal Reserve released the second component – capital plan reviews – of
its Comprehensive Capital Analysis and Review (CCAR) this week.
Twenty five of
thirty large bank capital plans were approved. The Fed objected to capital
plans from Citigroup, HSBC North America, RBS Citizens, Santander Holdings USA
and Zions. Note that three of these are US branches of European banks, while
Zions failed the earlier stress test. Citigroup shares took the biggest hit
after the Fed rejected its request for a $6.4 billion stock buyback program and
an increase of the quarterly dividend to $0.05. Bank of America and Goldman
Sachs were forced to adjust their initial capital plan submissions to gain
approval.
– Facebook announced another big acquisition, paying $2 billion in cash and
stock for virtual reality gaming technology company Oculus VR. The company’s
immersive virtual reality technology headset, the Oculus Rift, has been lauded
as a major breakthrough by the tech press. Facebook CEO Zuckerberg explained
that he is looking ahead of Mobile to the next major computing platform
interface, noting Oculus can be used as more than just platform for gaming,
potentially becoming the “most social platform ever.”
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– Popular “momentum stocks” cratered this week in unison. Stocks of
Facebook and Twitter tracked each other through the week, with the two names
down more than 12% on the week by Thursday morning, although they retook some
losses into the end of the week. Netflix gave up 12% on the week. Biotechs that
set off the Nasdaq tumble last Friday saw additional losses this week, with
Biogen leading the way down.
IPOs showed signs of oversaturation for the second straight week. King Digital
Entertainment, the designer of the highly addictive Candy Crush mobile
videogame, launched its IPO on the NYSE this week, opening for trading at 10%
below the IPO price. Shares lost another 10% of their value through the end of
the week, as investors worried the company is a one-hit-wonder.
– US Treasury markets spent the week consolidating after the post-FOMC
recalibration. The long bond was the best performer with the yield briefly
dipping back below 3.5% on Thursday. For the week the 10-year has traded up
modestly, putting the benchmark rate back toward 2.7%. In the belly, yields
barely budged after the recent cheapening helped demand easily gobble up this
week’s new supply in 5- and 7-year paper. Despite a raft of Fed speak emphasizing
that last week’s commentary did not signal any change to policy, 2015 fed fund
futures contracts were little changed and continue to project the rate will
rise by at least 50 basis points beginning sometime next summer.
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– EUR/USD continued to back away from the ominous 1.40 area, helped along by
plenty of verbal intervention. ECB President Draghi put a new spin on his same
old positions by saying the ECB’s forward guidance implies short-term real
rates will fall in the future. ECB’s Liikanen said a negative deposit rate was
no longer a “controversial subject.” But perhaps the biggest verbal
bomb came from the Bundesbank’s Weidmann, who surprised many observers by
seeming to reverse Germany’s longstanding opposition to ECB QE by saying the
bank might consider purchasing euro zone government bonds or top-rated private
sector assets. The ECB meets next week and some analysts believe the bank needs
to do something more than talk to show it’s dealing with ever-sharpening
disinflation.
– China’s March flash manufacturing PMI slid to an eight-month low and saw its
third consecutive month in contraction territory. The March reading could not
be shrugged off as easily as weak February data that was blamed on seasonal
distortions caused by the Lunar New Year. Asia markets moved higher on Monday
in the wake of the data as it seemed to further cement the case for government
stimulus, however later in the week respected former PBoC adviser Li Daokui
cautioned that the State Council would probably not undertake more stimulus
spending.
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– After widening its currency trading band earlier this month, the PBoC kept
markets guessing on the yuan this week. Early on, the central bank’s yuan
midpoint fixing was stronger, taking USD/CNY back below the key 6.20 level on
Tuesday. However the midpoint was weaker in the back half of the week,
reversing the some of the gains. USD/CNY closed out the week around 6.21.
– Starting April 1st with the beginning of the new fiscal year, Japan’s sales
tax will rise from 5% to 8%. The hike is part of Prime Minister Abe’s broad
reform program, specifically to help fulfil his promise to achieve a budget
surplus by 2020. Data out on Friday suggested that Abenomics saw a mixed
performance in February: nationwide inflation accelerated to 1.5% from 1.4% in
January, however overall household spending saw a 2.5% decline, its first slip
in six months. While the government clearly wants the central bank to take
action to help cushion the blow to growth from the tax hike, there were reports
this week that BoJ Governor Kuroda does not share its pessimistic sentiment as
of yet. USD/JPY was pretty tepid until Friday, when the currency ramped up to
close the week just shy of 103.
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