Market noise gets louder. UBS takes over Credit Suisse - Gold claims safe haven status
Amid bank liquidity concerns picking up, lingering inflation, and the Fed meeting ahead, we’re seeing volatility and caution pick up as well in markets, which has pushed the safe-haven gold price to over $2,000 an ounce for the first in over 12 months. Gold also gained further wings after UBS agreed to takeover Credit Suisse for $3.3 Billion, with the transaction leaving $17 billion of risky bonds worthless. So, we think caution is warranted as some bonds will likely be de-rated. So, some investors are cushioning their portfolios, topping up gold, short-term government bonds, and buying the safe-haven Japanese Yen (JPY).
Reflecting on gold, ahead of the Fed meeting this week – we know a hike is expected. But if the Fed signals a pause in rates or maybe even a cut in rates, then that would be supportive for gold to move higher. The last three times the Fed paused hikes, gold rallied. In 2019 gold rallied over 60% to a new high when the Fed paused rate hikes. It’s also worth noting buying of gold via ETFs rose for the first week this year.
Mega-caps shine, with Alphabet and Microsoft shares lifting 12% in a week, as a testament to their monopolistic markets
Some Mega-cap tech stocks have somewhat been looked at, as a quasi-haven play, as a testament to their cash flow strength, job cuts leading to savings, and customer books. The Nasdaq 100 is now 17% up from its December low. Last week alone, Alphabet (GOOG) and Microsoft (MSFT) shares rose over 12% each, Amazon (AMZN) and Meta (META) gained 9%, and Apple (AAPL) followed. It is worth considering some investors and traders are using protective puts on such positions as these, to cushion their portfolios should markets turn lower.
The KBW Bank Index fell over 14% last week with hedge funds short selling banks with loan portfolios that tend to suffer in a recession or credit contraction, that includes shorting commercial real estate bank lenders.
Moving to growth proxies; oil and copper. The oil price fell sharply last week, down 13% with the banking crisis weighing on sentiment. Focus in the week for oil will be the Fed meeting, and for oil support at around $62.
What’s on the economic horizon for the rest of the week
It seems the penny is dropping, most central banks hiked interest rates too late and then rose rates too fast. And now the world is reeling with a banking crisis.
The Fed meets Wednesday and expected to hike by 0.25%, UK’s Bank of England is also expected to hike by 0.25%. On Thursday the Swiss National Bank is expected to hike by 0.5% with Norges Bank to hike by 0.25%. The focus will be on their outlooks and the banking sector risks, with the market looking for evidence of a rate hike pause.
And if we do see a pause or hints of a cut, that would theoretically be positive for growth stocks, commodities including oil and copper, and risk-on FX rates, such as the Australian dollar (AUD), the Kiwi (NZD), and Canadian dollar (CAD), Norwegian Krone (NOK), Swedish krona (SEK).
Company news to be across that could move sectors
Nike’s (NKE) shares have run up about 18% in the the six-month ahead of the retail giant announcing quarterly results on Tuesday, which are expected to be buoyed by strength across all regions, except China. Revenue is expected to rise by about 6% to $11.5 billion. Nike has increased EPS estimates in 8 consecutive quarters, and only missed revenue expectations twice in that span. We see its sales outlook being upgraded in 2023, given that its most profitable region, China, has reopened and that should allow excess inventory in 2023 to reduce quicker than expected.
GameStop (GME) earnings are also out on Tuesday.
China’s Tencent (00700), reports Wednesday, and Meituan (3690) on Friday, with both to be watched as indicators for what we can expect from the Chinese reopening trade consumer spending behavior. Tencent is reporter higher income with growth from gaming and advertising, offsetting weakness in cloud growth.
The world’s largest wheat company, General Mills (GIS) reports on Thursday. And we have Chinese energy giants, China Petroleum (386), and China’s coal giant, China Shenhua Energy (1088) reporting Friday
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