U.S. Market Indexes Lacked Direction and Investors Awaited Inflation Reports

Barry Adams
08 May, 2023
New York City

Stocks seesawed and investors debated rate path, looming economic slowdown and regional banking crisis. 

Benchmark indexes traded in a tight trading range and investors awaited the consumer inflation report on Wednesday and producer price inflation report on Thursday. 

Moreover, above 1,100 companies are scheduled to release earnings this week and investors are hoping that most companies will meet or exceed lowered expectations. 

Investors are divided over the future rate path and despite the current wave of rate hikes the jobs market remains resilient and economic growth has waned slightly. 

Some investors are hoping that the job market's resilience may help the Federal Reserve in navigating the economy to soft landing while tackling high inflation. 

But higher rates are also causing significant losses in Treasury securities held by banks of all sizes and making some banks more vulnerable to deposit outflows. 

Moreover, higher rates are also expected to negatively impact commercial real estate and slowdown lending to small and medium-sized businesses which could further slowdown economic growth.  

 

U.S. Indexes & Yields 

The S&P 500 index increased 3.73 points to 4,140.16 and the Nasdaq Composite increased 0.2% to 12,260.19. 

The yield on 2-year Treasury notes hovered at 3.98%, 10-year Treasury notes edged up to 3.49% and 30-year Treasury bonds held at 3.81%. 

Crude oil rose $1.87 to $73.21 a barrel and natural gas prices rose 10 cents to $2.21 a thermal unit. 

 

U.S. Stock Movers 

Berkshire Hathaway Inc class A share increased 0.5% to $491,840 and Class B share increased  1.3% to $323.88 after the insurance to utilities conglomerate reported its latest quarterly results. 

The rebound in the insurance business lifted its operating earnings by 12%. 

Regional banks extended gains for the third day in a row. 

PacWest soared about 33.8% to $7.71 following a 81% increase Friday's trading after the regional bank trimmed its dividend to 1 cent a share to shareholders on record on May 15 payable on May 31. 

The company also declared a quarterly cash dividend of 48.45 cents per depositary share on its 7.75% Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A. 

The dividend will be payable June 1, 2023 to stockholders of record as of May 15, 2023.

Zions Bancorp increased 8.3% to $25.69 and Western Alliance jumped 14.1% to $30.99.  

AMC Entertainment Holdings Inc declined 3.2% to $5.70 after the company said it reached a settlement in a shareholder class action lawsuit against its plan to convert Preferred Equity Units to common stocks.  

The plan was previously approved by shareholders in March. 

Viatris Inc increased 3.4% to $9.60 after the pharmaceutical company reiterated its full-year outlook. 

Total net sales in the first quarter declined 11% to $3.7 billion from $4.2 billion and net income plunged 44% to $224.7 million from $399.2 million and diluted earnings per share decreased to  19 cents from 33 cents a year ago. 

 

European market indexes traded sideways after a week of volatile trading and rate hikes. 

Market indexes lacked direction and digested latest rate hikes of 25 basis points by the European Central Bank and the U.S. Federal Reserve. 

The Bank of England is set to announce its interest rate decision on Thursday. 

The larger-than-expected increase in U.S. jobs in April showed the labor market's resilience but investors worried how the economy and the labor market will adjust to elevated rates and slowing aggregate demand. 

Moreover, investors across the Atlantic worried how the commercial real estate sector and regional banks will deal with interest rate shocks.  

Decade-long negative nominal interest rates in the Euro Area and in the U.S. has fueled a surge in debt and investors chasing yields in riskier assets. 

With ten rate hikes in a row the U.S. and seven in the European Central Bank, has narrowed the negative rates but rates are still not positive and restrictive enough.  

To put the scope of the problem in perspective, assets of the central banks of G7 nations exploded to $23.5 trillion in 2020 from $5.7 trillion in 2008, reflecting the central banks' abusing their reserve currency status and unprecedented money printing. 

 

German Industrial Production Declined 

German industrial production adjusted for seasonal and calendar factors declined 3.4% in March from the previous month and rose 1.8% from a year ago, the Federal Statistics Office or DeStatis reported Monday. 

Industrial production in February was upwardly revised 2.1% from the previous month and rose 0.7% from a year ago in February. 

In the first quarter, production increased 2.5% from the fourth quarter of 2022.

Manufacturing of motor vehicles and parts decreased 6.5% in March after rising 6.9% in February, machinery and equipment fell 3.4% and construction equipment dropped 6.4%.  

 

Europe Indexes & Yields 

The DAX index increased 8.19 points to 15,952.83 and  the CAC-40 index added 7.98 points to 7,440.91. Markets in the U.K. were closed for a holiday. 

The yield on 10-year German Bunds inched up to 2.31%, French bonds traded slightly higher to 2.90%, the UK gilts inched higher to 3.78% and Italian bonds advanced to 4.22%.

The euro edged higher to $1.104, the British pound to $1.265 and the Swiss franc to 88.86 cents.

Brent crude rose $1.49 to $76.79 a barrel and the Dutch TTF natural gas increased €0.30 to €36.37 per MWh.

 

Europe Stock Movers 

Novo Nordisk AS increased 5.4% to DKK 1,152.40 and extended Friday's gains after the company said it may have to restrict adding new patients in order to support the supply for its existing patients for its weight loss drug Wegovy.  

PostNL LV jumped 7.5% to €1.63 after the Dutch government controlled postal company issued an upbeat quarterly report. 

Revenue in the first quarter declined 3% to €783 million from €806 million a year ago after total parcel volume fell 6.5%. 

Total comprehensive income in the first quarter declined to €4 million from €32 million a year ago. 

The company said normalized EBIT plunged 78% to 7 million from 33 million and forecasted 2023 normalized EBIT between €70 million and €100 million and free cash flow between €10 million and €40 million.