Welcome back,

Jerome Powell has outdone himself again, folks. This morning’s inflation print wasn’t the headline, and the Fed Chair still dominated the conversation.

Let’s keep it concise.

Market Headlines 👀

• US CPI, excluding food and energy, increased 0.5% in February.

• US headline CPI increased 0.4% in February to 6% year-over-year (exp. 6%).

• Apollo (APO) eyes SVB assets as suitors circle its $73.6B loan book.

• Meta (META) to wind down NFTs on platforms amid crypto bust.

• Apple (AAPL) delays bonuses for some divisions as it scrutinizes costs.

• Volkswagen (VWAPY) ramps up investments in electric car transition with €180B injection.

• Fitch downgrades and withdraws Signature Bank's (SBNY.O) ratings.

  • Signature Bank was seized after leaders caused “crisis of confidence.”

• Moody’s puts First Republic (FRC) and five US banks on downgrade watch.

• US opens investigation into SVB collapse.

• Credit Suisse (CS) finds “material” control lapses after SEC prompt.

• Novo Nordisk, a large insulin maker, plans to cut the prices of its products up to 75%.

• Amazon (AMZN) and Rivian (RIVN) in talks to end the exclusivity part of their delivery-van pact.

• Boeing (BA) expected to sell nearly 80 787 planes to Saudi airlines.

• Global financial stocks lose $465B in market value on SVB impact worry.

Earnings 💸

• Lennar (LEN) (Q1)

  • EPS: $2.12 beats (exp. $1.55)

  • Revenue: $6.49B beats (exp. $5.99B)

• SentinelOne (S)

  • EPS: -$0.13 beats (exp. -$0.16)

  • Revenue: $126.1M beats (exp. $124.66M)

Recap Around the Street 🧠

US inflation cooled to its lowest level since September 2021. Annual consumer price growth slowed to 6.0%, in-line with the 6.0% expected by economists.

Despite headline inflation cooling, core CPI was hotter than expected. It rose by 0.5% versus estimates of 0.4%. The big news was in CPI core services ex-shelter, which rose by 0.43% in February, faster than the 0.26% in January. That will likely keep the pressure on the Fed to continue raising rates.

The good news is that other parts of the CPI report are broadly as expected. This means the Fed won’t be forced into the panic hike, in the face of the current banking crisis.

But the Fed still needs to see inflation fall further, while also ensuring the stability of the financial system. The bank failures of the past week have pushed financial stability issues to center stage, but inflation remains in the spotlight and is part of its dual mandate along with maximum employment.

Yesterday, the 2-year note yield had its biggest one-day decline since October 1, 1982 (61 bps). The record was previously set after the first discount rate cut, following the September 1981 all-time peak in yields.

When this yield drops, it typically signals that the market expects the Fed to lower short-term interest rates. That’s a sign the economy may be slowing down.

To emphasize, yesterday’s decline in the 2-year was larger than any one day seen during the 2007-2009 financial crisis, following 9/11, or the 1987 stock market crash.

Despite it being their biggest drop since the Volcker era in the early 1980s, Treasury two-year yields steadied slightly today. The yield advanced 20 basis points to 4.17%, after falling over 100 basis points in the previous three sessions.

Traders have since pivoted to US inflation data for clues on the future of interest rates, due to the recent bank failures that have complicated the outlook of the Fed’s policy plan.

The events that led to this past week’s market sell-off reminded investors of the lagged effects from restrictive monetary policy. In other words, central bank rate hikes and the reduction of bank reserves don’t take effect immediately. In the span of 48 hours, a top 15 U.S. bank was shut down and taken over by regulatory authorities.

Remember: “He who has the gold, makes the rules.” For a full analysis on takeaways from SVB and Signature Banks’ collapses, check out Ben Lavine’s article for 3D Capital Management.

Market Preview 🎞️

• Wednesday: US Retail Sales, PPI, NAHB Housing Market Index, MBA Mortgage Applications, UK annual budget, EIA Crude Oil Inventories

• Wednesday earnings: Adobe (ADBE) earnings

• Thursday: US Initial Jobless Claims, ECB Rate Decision, BOE releases inflation survey, Japan Trade Balance

• Thursday earnings: FedEx (FDX) & Dollar General (DG) earnings

• Friday: US Industrial Production, University of Michigan Sentiment, Eurozone CPI, OECD Publishes Interim Economic Outlook, Russia central bank (CBR) rate decision

• Friday earnings: Xpeng (XPEV) earnings

That’s all for today, folks! We’ll be back around the same time tomorrow with a curated list of important news, economic data and market highlights. 

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