Weekly Market Update: The Bank That Didn’t Fall (Yet)

Stock Market and Economy Roundup

This past week was again marred by increased turbulence in the stock markets, with Deutsche Bank (DB), Germany’s leading lender and one of the world’s 30 systemically important banks, coming under fire. Although the markets seem to have calmed down about DB, mainly thanks to the strong backing by the German officials, there’s certainly more volatility ahead, as confidence remains fragile. With this level of uncertainty, investors are advised to take precautions and base their decisions on trustworthy data and analysis.

Equities – Weekly Performance

Last week, at least up until Friday, was all about central banks and interest rate decisions, with economic reports and market events remaining backstage. The U.S. Federal Reserve, the European Central Bank and the Bank of England all raised rates as expected in the last week, but each of them signaled caution about their next move, citing “data dependency” – which gave the markets hope about a pause in monetary tightening.

Stocks initially tumbled after the Fed’s widely expected rate increase of 25 bps. It seemed, though, that they were negatively reacting mostly to Treasury Secretary Janet Yellen’s remarks about the Treasury not considering an economy-wide deposit guarantee. After that, markets parsed Powell’s remarks, reducing further rate-increase bets.

Another banking trouble – again a European one – upheld the outlook of a pause in rate increases. This time the victim of the market’s stress was Deutsche Bank, whose stock fell by the most in three years. Additionally, its CDS (cost of default insurance) surged on concerns about the health of the global financial system. As opposed to the crisis in Credit Suisse (CS), there was no deposit flight or other negative news about the German lender, but investors are so much on edge at the moment that a fear of more accidents itself can cause the feared accident in any banking stock. This time, though, the run on DB shares was initiated by hedge funds, which were looking to profit from the banking turmoil.

As the markets calmed down about Deutsche Bank, financial shares selloff reversed on Friday and spurred a general rebound in stocks, with all major indexes closing higher for the week. Markets were reassured by the U.S. regulators’ assessment that while some banks are under stress, the overall financial system is sound. All S&P 500 sectors apart from Utilities and Real Estate gained in the week.

The main reason for stocks’ robustness seems to be the view that the trouble in the banking system is itself disinflationary (through tightening of the credit conditions). That’s to an extent that would not only allow the Fed to stop increasing rates, but may permit rate cuts later this year, especially if the U.S. enters a recession. However, the rates aren’t the only monetary tool in the Fed’s box.

Indeed, the Fed can make use of its balance sheet, which has grown by more than $300 billion over the past few weeks. This is the money that the U.S. financial authorities had to pour into the banking sector, trying to avoid the collapse of regional banks. The Fed managed to temporarily plug the hole, but it’s not the end of the story. The U.S. central bank may need to inject hundreds of billions more to save the smaller banks, which would help the financial system and the economy as a whole – but would interfere with the Fed’s efforts to fight inflation. Indeed, “no rest for the wicked.”

Major Economic Events of the Past Week

U.S.

February’s Chicago Fed National Activity Index (CFNAI), a gauge of overall economic activity,fell to -0.19 from January’s +0.23.

February’s New Home Sales came in at 0.64 million, little changed from January’s 0.63 million; this level of sales is on par with pre-Covid 19 numbers.

February’s Durable Goods Orders dropped 1% from January’s -5%, versus the expected increase of 0.6%.

March’s Preliminary Manufacturing PMI jumped to 49.3 from February’s 43.7, versus 47 expected. This level still points to a contraction in the sector, however at a much slower rate than last month. Preliminary Services PMI surged to 53.8 from February’s 50.6, versus the expected decline to 50.5, showing faster expansion of the services sector.

Initial Jobless Claims for the week ending March 18^th came in at 191K versus the expected 201K; the data suggests that March could be another month of solid job growth. Continuing Jobless Claims for the week ending March 11^th were at 1.694M, a little higher than the expected 1.684M.

Eurozone

March’s ZEW Economic Sentiment tumbled to 10 from February’s level of 29.7. The survey measures the institutional investor sentiment towards the European economy.

March’s Preliminary Consumer Confidence declined to -19.2 from February’s -19.1, versus the expectations of an increase to -18.3.

March’s Preliminary Manufacturing PMI fell to 47.1 from February’s 48.5, versus the 49 expected. This level points to a faster rate of contraction in the sector. Preliminary Services PMI surged to 55.6 from February’s 52.7, versus the expected decline to 52.5, showing faster expansion of the services sector.

Japan

February’s National Consumer Price Index rose 3.3% year-on-year, slower than the expected increase of 4.1% and down from January’s 4.3%. The closely watched National CPI ex. Fresh Food (Core CPI) was up 3.1% year-on-year, in line with expectations, slowing sharply from a 41-year high of 4.2% seen in January. However, Core CPI ex. Energy hit a four-decade high of 3.5% versus January’s 3.2%, as the slowdown in the main Core indicator was due to the government’s subsidies of utility bills.

Stock Highlights of the Past Week

Nike (NKE) stock fell last week even though earnings fell less than expected and revenue rose more than analysts forecasted. The profit margins disappointed; NKE warned that they may come under further pressure from consumer weakness due to the difficult macro environment.

GameStop (GME) reported its first positive profit since January 2021, beating Wall Street expectations of a negative EPS. The earnings surprise sent the stock up 44% for the week. The stock is still down 57% since its January 2021 “Meme-trading” surge.

General Mills (GIS) stock jumped 6% for the week, after the food company posted better-than-expected earnings and released upbeat its forecast for fiscal 2023.

Our Star of the Week is Activision Blizzard (ATVI), which surged 6.6% in 5 trading days. The company is one of the world’s largest interactive entertainment firms, producing wildly popular games for mobile, PC and consoles. This past week, the stock surged on the news that the U.K. antitrust regulator softened its stand on Microsoft’s (MSFT) proposed acquisition of the company.

Upcoming Economic Calendar Events

This week we’ll see published a number of very important reports.

On Tuesday, there will be reports on January’s Housing Prices Indices and March’s Consumer Confidence. On Thursday, the US Bureau of Economic Analysis (BEA) will release the Q4 2022 GDP report. Finally, on Friday, we’ll receive readings of February’s Core PCE, Personal Income and Personal Spending, as well as March’s Chicago PMI and Michigan Consumer Sentiment Index.

Elsewhere, this week we’ll get a final reading on Eurozone’s March Consumer Confidence as well as Preliminary CPI and Preliminary Core CPI readings for the monetary bloc. Japan’s February Unemployment Rate, Retail Sales and Preliminary Industrial Production will be published on Thursday. On Friday, we’ll receive a reading on China’s Manufacturing and Services PMIs.

Current and scheduled economic reports, Fed statements, and other releases, as well as their level of impact on stock markets, can be found on the TipRanks Economic Calendar.

Upcoming Earnings and Dividend Announcements

Companies releasing earnings reports this week include Carnival (CCL), Lululemon (LULU), Jefferies (JEF), Micron (MU), and many more.

Companies’ reporting dates, consensus EPS forecasts and past data, together with their analyst ratings and price targets, can be found on the TipRanks Earnings Calendar.

This week’s Ex-Dividend dates are coming for the payouts of Conocophillips (COP), Neste (NTOIY), Amdocs (DOX), Encompass Health (EHC), and other dividend-paying firms.  

Companies’ Ex- and Payment dates, together with their analyst ratings and price targets, can be found on the TipRanks Dividend Calendar.