Mr. Powell Goes To Washington

The S&P earnings yield, corporate bonds and treasury bills are all offering the same yield of 5.3%.

So a medium risk, low risk and no risk asset is offering the exact same yield… 

What a time to be alive!

Market

Prices as of 4 pm EST, 6/20/23

Macro

Fed Chair Jerome Powell heads to Capitol Hill this morning for his semi-annual report on monetary policy and the economy.

• He’ll spend the next 2 days giving his testimony to the House Financial Services Committee.

• On the one hand, he’ll need to convince Republicans the central bank is steadfast in its mission to bring down inflation via tight monetary policy

• On the other, he’ll need to assure Democrats the economy is resilient enough to handle said monetary policy.

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Student loan repayments are set to resume in October.

• The announcement from the Department of Education comes after a 3-year pause on payments.

• Still unknown are the amounts borrowers will owe.

• That will be answered this month once the Supreme Court decides on the validity of President Biden’s plan to cancel up to $20k in student debt for borrowers.

• According to Barclays, the restart of payments could lead to a monthly decrease of $15.8 billion in household spending (or $190 billion per year).

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Last week, Powell noted the housing market was showing signs of stabilizing, and new homebuilder data this week confirms that message.

• Construction of new homes (blue) in the US jumped 21.7% in May—the largest monthly increase since October 2016—and is now at its highest level since April 2022.

• Applications to build (orange) also jumped to the highest since October 2022, rising 5.2% in May.

• Meanwhile, homebuilder confidence is at its strongest since July 2022 thanks to strong demand and a lack of existing inventory.

@lizannsonders

Stocks

A handful of Wall Street giants—including Fidelity, Charles Schwab, Citadel, Virtu, and Sequoia—are wading deeper into crypto.

• After 9 months of building, the group has launched its new cryptocurrency exchange, EDX Markets.

• Unlike other crypto platforms, EDX will limit its role to that of exchange only.

• That means it won’t take on custodian or broker duties–a distinction that sets it apart from firms like Binance and Coinbase.

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FOMO is alive and well among investors across US equities markets.

• Last week, call option volume for both the S&P 500 and Russell 2000 hit new record highs.

• Skew tied to those S&P 500 options is at its lowest (most bullish) levels since at least 2019.

• Aggregate equity positioning is moving deeper into overweight territory as both discretionary and systematic strategies increase exposure.

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But does that FOMO warrant caution?

• Risk appetite for stocks is at its highest since 2021.

• Net positioning in the S&P, according to Citi, is at its “most extended ever”.

• According to Goldman Sachs’ Equity Sentiment Indicator, positioning is at its most stretched since April 2021.

Goldman Sachs

Energy

Revenge travel ain’t what it used to be.

• With more efficient planes, China’s slower-than-expected recovery, and pilot shortages in the EU, jet fuel use is still lagging pre-pandemic levels.

• In 2023, airlines are expected to use 700k barrels per day less than they did in 2019.

• In fact, global jet demand is expected to remain weak relative to 2019 until 2024.

Earnings

Yesterday’s highlights:

FedEx FDX: $4.94 EPS (vs. $4.85 expected), $21.9 billion (vs. $22.55B expected).

• Revenue fell for the 3rd straight quarter and missed expectations for the 5th consecutive quarter

• Express daily package volumes and average daily freight pounds shipped dropped 10% and 14% YoY, respectively.

• Guidance for FY24 paints an improving picture but fell short of expectations.

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What we’re watching today:

• KB Home KBH

• Patterson Companies PDCO

• Winnebago Industries WGO

• Enerpac Tool Group EPAC

• Avid Bioservices CDMO

Top Headlines

• UK inflation: The BOE is under pressure as inflation in the UK came in hotter than expected in May with prices rising 8.7% YoY.

• Corporate borrowing: The slowdown in the market for junk-rated loans is forcing companies to pay higher rates or abandon borrowing altogether.

• Ad-tech monopolization: News publisher Gannett has sued Google for monopolization of ad-tech markets and deceptive commercial practices.

• Worker safety: Bernie Sanders is leading a Senate probe into dangerous and illegal work conditions at Amazon warehouses.

• NACS: Rivian will join Ford and GM in adopting Tesla’s EV charging standard.

• Bonus suit: Twitter employees have filed a lawsuit against the company alleging that promised 2022 bonuses were never paid out.

• Hedging failure: Private equity firms that failed to hedge against rising interest rates are facing significant losses and potential defaults.

• Hunter Biden: Hunter Biden will likely avoid prison time after pleading guilty to misdemeanor tax charges and striking a deal on a felony gun charge.

Crypto

Prices as of 4 pm EST, 6/20/23

• USDT: Tether USDT/USD is launching its USDT stablecoin on the Kava blockchain, furthering its multi-chain presence.

• Crackdown targets: Berenberg Bank thinks stablecoins and DeFi will be the next targets of the SEC’s crackdown on crypto.

• Flash pump: Traders on Binance.US saw the price of Bitcoin BTC/USD reach over $138,000 in a “flash pump”.

• Surveillance sharing: Here’s what sets BlackRock’s proposed spot Bitcoin ETF apart from others like Bitwise’s.

• New ETF filings: WisdomTree and Invesco have followed BlackRock’s lead and submitted new filings for spot Bitcoin ETFs in the US.

Deals

• Biopharma: Eli Lilly will acquire Dice Therapeutics for $2.4 billion to expand its portfolio of treatments for autoimmune diseases.

• Shale M&A: Earthstone Energy plans to acquire Novo Oil & Gas in a $1.5 billion deal.

• AI mining: AI-powered mining startup KoBold Metals has reached unicorn status after a $200 million funding round.

• Separate sale: Bed Bath & Beyond is planning a separate auction for its Buy Buy Baby assets.

• M&A blitz: Middle Eastern state firms are aggressively seeking global acquisitions totaling close to $20 billion.

Meme Of The Day