Last week, government bonds showed a notable recovery, spearheading a risk-off approach in global markets during what marked the second-largest bank failure in U.S. history on Friday.
* All SVB depositors will be safeguarded, state U.S. regulators
* U.S. regulators shut down Signature Bank amidst systemic risk
* Wall Street evaluates the potential spread of the banking crisis
* U.S. banks hold $620 billion in unrealized losses, heightening contagion fears
* North Korea launches submarine missiles ahead of U.S.-South Korea military exercises
* Biden prohibits oil drilling across nearly 3 million acres in Alaska
* Goldman Sachs withdraws expectations for a Fed rate hike in March
* The demand for cash is predicted to increase in the coming years, according to the co-CIO at Bridgewater
* New jobs in the U.S. exceeded expectations in February
* The yield on the U.S. 10-year Treasury fell sharply amid the SVB bank failure:
Liz Hoffman
Summary via publisher (Crown/Penguin Random House)
In Crash Landing, acclaimed business journalist Liz Hoffman illustrates how the pandemic ignited a crisis in the economy—yet the groundwork was already laid. Following the 2008 financial crisis, corporate leaders opted for cheap debt and relentless growth strategies. Wages stagnated. Millions entered the gig economy. Companies crowded employees into offices and airlines did similarly with their planes. Wall Street blindly supported this push for efficiency, neglecting the accompanying damages and risks.
ETF Dividend Cycles
Pekka Honkanen (University of Georgia), et al.
February 2023
Exchange-traded funds (ETFs) capture about 7% of all U.S. corporate dividends, which they must redistribute to shareholders. How do these funds manage dividend flows, and what implications does this management have on other financial markets? This paper presents a new stylized perspective on the ‘ETF dividend cycle:’ ETFs typically invest in money market funds (MMFs) as they accrue dividends and subsequently withdraw from MMFs when distributing dividends. This cyclical behavior generates periodic liquidity shocks to MMFs, consequently affecting Treasury markets, as affected MMFs liquidate some of their short-term Treasury holdings to meet ETFs’ withdrawal needs. Thus, ETF dividend cycles can elucidate flows to MMFs and fluctuations in Treasury yields.
* Xi Jinping of China secures an unprecedented third presidential term
* The sale of bank shares intensifies as difficulties for tech lender SVB worsen
* The UK announces a stronger-than-anticipated growth rate for January GDP
* OPEC is once again a significant factor in global oil supply
* The U.S. credit card debt hits a new record, placing consumers at a pivotal point
* Jobless claims in the U.S. climb to a 2023 high but remain historically low
* The U.S. stock market drops to its lowest level since late January:
While numerous indicators signal a potential recession for the United States, the average forecast for economic activity in the first quarter indicates a degree of uncertainty regarding the timing of any downturn. This is suggested by the median of GDP nowcasts compiled by CapitalSpectator.com.
* The White House is preparing to present a budget proposal aimed at reducing deficits
* The Netherlands joins the U.S. in restricting vital microchip exports to China
* Markets cautiously await the upcoming payrolls report for February
* After Fed Chair Powell’s hawkish statements, markets perceive increased recession risks
* The U.S. housing market remains short by around 6.5 million units, according to realty estimates here
* Consumer inflation in China slows to its lowest rate in a year for February
* Crypto bank Silvergate is closing down amid the continuing fallout from FTX
* U.S. firms added more jobs than anticipated in February, as per the ADP report
* While U.S. job openings decreased in January, they remain relatively high historically:
The risk of a U.S. recession remains significant, yet there is uncertainty regarding its timing. After months of conflicting signals from various business-cycle indicators, the debate surrounding the likelihood of an economic downturn has intensified. In this context, the importance of cohesive forecasting cannot be overstated.
* Fed Chair Powell indicates possible higher rate increases than previously projected
* The 2yr/10yr Treasury yield spread deepens into negative territory
* Workers across France protest against proposed pension reforms
* China announces a restructuring of government oversight for its financial system
* Eurozone GDP change for Q4 revised down to zero
* The U.S. shale-oil boom appears to be nearing its peak
* Warren Buffett’s Berkshire Hathaway expands its stake in Occidental Petroleum
* The yield on the U.S. 2-year Treasury (a gauge for rate expectations) increases to 5%, marking a 16-year high:
Currently, a plethora of threats looms large, including inflation, surging interest rates, and various geopolitical challenges. Yet, recent market sentiment has improved, gradually climbing over these worries, suggesting that investors may believe that the worst is behind us for the global economy, as evidenced by various ETF pairs through yesterday’s close (March 6).
