Swiss Loan Shores Up CS but FRC In Need

On Wednesday, US markets opened significantly lower, following Europe, in the wake of news that troubled major bank CS would not get any more financial support from its largest holder (Saudi National Bank).  The SPY gapped 1.5% lower, the DIA gapped down 1.64%, and QQQ gapped 0.91% lower at the open.  The QQQ then rode a roller coaster sideways until 1 pm, when a strong rally started that recrossed the opening gap and took it to the highs of the day at 3 pm.  Meanwhile, the two large-cap indices then meandered above and below their opening level until just before 2 pm.  At that point, they followed the QQQ higher in a rally that lasted until 3 pm but never recrossed their opening gap lower.  From 3 pm into the close, all three major indices chopped sideways.  This action gave us gap-down, white-bodied, candles with large lower wicks and very little upper wick in the SPY, DIA, and QQQ.  QQQ also closed above its T-line after a morning retest.

On the day, nine of the 10 sectors were in the red with Energy (-5.04%) leading the way lower while Utilities (+0.63%) was the only green sector.  At the same time, the SPY lost 0.62%, the DIA lost 0.83%, and QQQ gained 0.52%.  VXX spiked 6.39% to 54.96 and T2122 fell back deep into the oversold territory at 4.20.  10-year bond yields plummeted again to 3.47% as traders sought shelter in bonds and Oil (WTI) plunged 4.23% to $68.31 per barrel (the lowest in more than a year).  So, Wednesday, saw a large gap lower on fear of bank contagion from CS in Europe.  However, the bulls finally got things going in the afternoon to rally back, led by the tech-heavy QQQ.  Once again, this happened on heavier-than-average volume, particularly in the SPY and DIA.

In economic news, the February PPI came in much better than expected at -0.1% (compared to a forecast of +0.3% and the January reading of +0.3%).  The Feb. Core PPI number also thumped expectations a 0.0% (versus the forecast of +0.4% and even better than the January value of +0.1%).  So, markets got good news in the “reasons the Fed might slow down hikes” front.  However, the NY Fed Empire State Mfg. Index was a bad miss, coming in at -24.60 (compared to a forecast of -8.00 and a January reading of -5.80).  February Retail Sales fared better but also missed coming in at -0.4% (versus a forecast of -0.3% and far worse than the January reading of +3.2%).  Later in the morning, January Business Inventories beat estimates by coming in at -0.1% (compared to a forecast of +0.1% and a December value of +0.3%).  This was the first fall in business inventories in almost two years.  January Retail Inventories also beat expectations at +0.1% (versus the forecast of +0.2% and the Dec. reading of +0.2%).  Finally, the EIA Weekly Crude Oil Inventories showed a build of 1.550 million barrels (versus a forecasted build of 1.188 million barrels and far worse than the previous week’s drawdown of 1.694 million barrels).

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In stock news, TMUS announced it has agreed to buy budget mobile service Mint Mobile (owned by celebrity Ryan Reynolds) for $1.35 billion.  Elsewhere, the FDIC has contracted with PIPR to relaunch an auction for failed lender SIVB.  (Rumored bidders include RY and PNC.)  Late in the day, Bloomberg reported that the Swiss government was in talks with CS on options to stabilize the bank.  At the same time, the Swiss National Bank had pledged financial support for the company (the second largest Swiss bank behind UBS).  At the same time, the US Senate Banking Committee said Wednesday it will hold hearings on banking sector risks which are likely to include questioning of C, JPM, BAC, WFC, USB, PNC, and perhaps some of the most volatile regional banks.  However, Republicans also want answers from regulators as to why SIVB was not caught before its collapse.  (However, SIVB was not subject to stress tests or other risk management rules since the 2018 regulation rollbacks.)  No reintroduction of old or introduction of new regulations is expected for political reasons.  Meanwhile, K announced it will change its name (of the remaining global snack unit) to “Kellanova” once its North American cereal unit is spun off.  Kellanova will continue to trade under ticker K.  Late in the afternoon, Reuters reported that XOM is strongly considering selling its majority stake in the Rovigo LNG terminal located offshore Italy.

In stock legal and regulatory news, the US Consumer Financial Protection Bureau has opened an investigation into data broker companies that collect and track personal data.  No specific targets were mentioned, but among the largest brokers of that data are EFX, ORCL, and EXPGY (as well as several unlisted companies).  Meanwhile, Medicare announced Wednesday that it will impose “inflation fines” on 27 drugs for having had their prices raised faster than the inflation rate.  These include drugs from ABBV, GILD, PFE, KMDA, JNJ, and SGEN.  The fines vary from $2 to $390 per dose.  In the auto industry, TSLA has been hit with a class action lawsuit over the company preventing TSLA car owners from exercising “the right to repair.”  In legal news BUD lost its case, in which BUD had accused STZ of violating a US distribution agreement related to selling hard seltzers.  Elsewhere, the COP Willow project has been hit with a lawsuit filed by a coalition of environmental groups hoping to reverse President Biden’s recent approval of the project.  (COP is not the defendant as the suit is against the Bureau of Land Management, but they are the one impacted by the suit.)  After the close, a federal appeals court upheld the $5.6 billion antitrust class-action settlement against V and MC (filed on behalf of 12 million retailers).

After the close, ADBE, ZTO, and FIVE reported beats on both the revenue and the earnings line.  Meanwhile, AE and TPC missed on revenue while reporting in-line on earnings (although both were losses).  It is worth noting that TPC reduced its forward guidance.

Overnight, Asian markets leaned heavily to the red side, with only New Zealand (+0.70%) and India (+0.08%) managing to stay green.  Meanwhile, Hong Kong (-1.72%), Shenzhen (-1.54%), and Australia (-1.46%) led the region lower.  In Europe, we see the opposite picture taking shape at midday.  Only Denmark (-0.53%) and Russia (-0.05%) are in the red, while the FTSE (+0.77%), DAX (+0.35%), and CAC (+0.56%) are leading the region higher in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a mixed but generally down start to the day.  The DIA implies a -0.48% open, the SPY is implying a -0.38% open, and the QQQ implies a +0.09% open at this hour.  At the same time, 10-year bond yields are lower again to 3.468% and Oil (WTI) is off fractionally to $67.38/barrel in early trading.  

The major economic news events scheduled for Thursday include February Building Permits, Feb. Housing Starts, Feb. Export Price Index, Feb. Import Price Index, Weekly Initial Jobless Claims, and Philly Fed Mfg. Index (all at 8:30 am).  The major earnings reports scheduled for the day include ASO, DG, GIII, MOMO, JBL, BEKE, LE, SIG, TITN, and WSM before the opening bell.  Then after the close, FDX reports.

In economic news later this week, on Friday, Feb. Industrial Production, and Michigan Consumer Sentiment are reported.  Meanwhile, in earnings later this week, on Friday, AQN and XPEV report.

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So far this morning, SIG, BEKE, MOMO, OEZVY, and PLCE all reported beats on the revenue and earnings lines.  Meanwhile, DG and DBI missed on the revenue line while beating on earnings.  On the other side, GIII and LE both beat on revenue while missing on the earnings line.  (JBL, WSM, and ASO report later in the morning.)  It is worth noting that BEKE raised its forward guidance while DBI, GIII, MOMO, and PLCE lowered forward guidance.

In late-breaking bank news, CS soared overnight on more details.  The Swiss bank regulators announced that CS meets all capital and liquidity requirements and the Swiss National Bank said it has loaned CS $54 billion.  CS stock was up as much as 24% in the US premarket session before fading to up 5.5% after soaring 30% at the European open.  Meanwhile, regional bank FRC was cut to “junk credit status” by two rating agencies (S&P and Fitch) Wednesday and overnight announced it is seeking “strategic alternatives” including the sale of the company.  Elsewhere, it was announced last night that GS received $100 million for its part in trying to broker the sale of SIVB and for buying SIVB bonds as part of last-ditch efforts to save the bank.  (At least one US Senator is demanding investigation and potential clawbacks since GS was on both sides of the sale of those bonds.)  In other GS news, they raised their odds of a US recession to 35% based on the banking crisis.

With that background, premarkets have faded from early apparent moves higher (following Europe). Ahead of the morning data, it looks like we are in a flat, wait-and-see, mood. The most that can be said of the action this week might be that the large-cap indices are in a choppy consolidation for the last 4-5 days. Meanwhile, the QQQ is trying to pull the market a bit higher. Overextension is not an issue this morning. However, choosing a direction and getting some follow-through is an issue. Expect more volatility as the banking saga plays out with ever more shoes dropping and corresponding “all is well” signs. Be careful and either quick or slow and able to take short-term pressure in your trading.

As always, be deliberate and disciplined…but don’t be stubborn. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when the price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to keep the “Legend of the man in the green bathrobe” in mind. In a winning situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! There is absolutely no reason to keep raising your bet (risk) size just because you’ve had a win. Finally, remember that trading is not a hobby. It’s a job. The money is real and so is the risk. So, treat it that way. Do the work and follow the process. Stick to your trading rules, trade with the trend, and take those profits when you have them. Do the work!

See you in the trading room.


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