Closing Stock Market SummaryToday's price action occurred in a relatively tight trading range on below average volume. The main indices closed with modest declines after climbing off their worst levels in the afternoon trade. The Nasdaq trailed its peers again today, weighed down by lagging mega cap stocks.
In the early going, money flows looked somewhat similar to yesterday's trade with bank stocks leading the market higher. Sentiment seemed to shift, though, around the time that FDIC Chairman Michael Barr told the Senate Banking Committee that he anticipates having to increase capital and liquidity standards for firms over $100 billion, adding that more regulation is needed.
Still, there was some underlying strength in the market as evidenced by the 0.2% gain in the Invesco S&P 500 Equal Weight ETF (RSP) versus the 0.2% decline in the market-cap weighted S&P 500.
Roughly half of the 11 S&P 500 sectors closed in the green, but energy (+1.5%) was the only sector to gain more than 1.0%. On the flip side, the communication services sector (-1.0%) was the worst performer by a decent margin, feeling the weight of its mega cap components. The health care (-0.6%) and information technology (-0.5%) sectors were also notable laggards today.
Market breadth also reflected mixed action and a lack of conviction from both sellers and buyers. Advancers led decliners by a roughly 4-to-3 margin at the NYSE while decliners led advancers by the same margin at the Nasdaq.
Treasuries settled the session with losses. The 2-yr note yield rose six basis points to 4.06% and the 10-yr note yield rose four basis points to 3.56%.
- Nasdaq Composite: +11.9% YTD
- S&P 500: +3.4% YTD
- S&P Midcap 400: +0.1% YTD
- Russell 2000: -0.5% YTD
- Dow Jones Industrial Average: -2.3% YTD
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 3.0%)
- 10:00 ET: February Pending Home Sales (consensus -2.3%; prior 8.1%)
- 10:30 ET: Weekly crude oil inventories (prior +1.12 mln)
Reviewing today's economic data:
- The advanced report for international trade in goods showed a $91.6 billion deficit in February versus the prior revised $91.1 billion deficit in January (-$91.5billion). The advanced report for retail inventories reflected a 0.8% build in February following a 0.1% increase in January. The advanced report for wholesale inventories showed a 0.2% build in February after a revised 0.5% decline in January (from -0.4%).
- The FHFA Housing Price Index rose 0.2% in January following a 0.1% decline in December. The S&P Case-Shiller Home Price Index rose 2.5% in January ( consensus 2.5%) following a 4.6% increase in December.
- The Conference Board's Consumer Confidence Index for March hit 104.2 (consensus 101.5) versus an upwardly revised 103.4 (from 102.9) for February. In the same period a year ago, the index stood at 107.6.
- The key takeaway from the report is that consumer confidence held up well even though the survey period covered the week after Silicon Valley Bank collapsed. That said, the Expectations Index remained below 80.0 for the 12th month out of the last 13, which serves as a concerning signal about future growth.
Shale oil drillers left exposed after pulling back price hedges
Producer ‘optimistic we’ll see $100 a barrel’ shuns insurance despite market wobbles
US oil producers cut back on price hedges this year in a bet that energy markets would rally again, a move that has left them suddenly vulnerable after turmoil in the banking sector knocked down the price of crude.
The collapse of Silicon Valley Bank triggered a sell-off in US oil markets this month from recent highs of $80 a barrel. Prices have recovered to about $73 a barrel but remain at a level that could force producers to curtail plans to grow output or reduce payouts to shareholders, analysts say.
Many producers were left more exposed after they had rolled back hedges, a form of insurance against commodity market downturns. They were emboldened to do so after a surge in oil and natural gas prices gave them record profits last year.
“The fall in prices has been a wake-up call,” said Matt Bernstein, an analyst at Rystad Energy.
Top publicly listed shale producers have locked in prices for only about 27 per cent of their output for 2023 at an average of approximately $66 a barrel, down from the more than 40 per cent of output that they hedged last year, according to data from Rystad.
Some of the largest US producers, including Pioneer Natural Resources, EOG Resources and ConocoPhillips, have little to no price hedges in place for this year.
Scott Sheffield, chief executive of Pioneer, defended the positions, saying the recent dip in crude markets “had nothing to do with the lack of oil demand” and that he was still “optimistic that we’ll see $100 a barrel before the end of the year”.
“We’re not going to hedge,” he said in an interview.
Producers pulled back on hedges to avoid a repeat of last year, when they left billions of dollars on the table by locking in prices at an average of about $55 a barrel before Russia’s full-scale invasion of Ukraine sent crude soaring well above $100.
“It’s a very psychological thing when oil is at $90 and you think it’s on the way to $130 and you don’t want to miss out on all this upside,” said Alex Beeker, an analyst at Wood Mackenzie.
Oil producers hedge prices in futures and other derivatives markets to guard against price drops and ensure they have cash to fund drilling, debt payments and other expenses.
Hedging has become less attractive as the oil futures curve has slumped along with the spot price. Producers can currently execute contracts for delivery in September 2023 at approximately $72 barrel, compared to about $90 if they had entered into the contract last summer when markets were more worried about adequate supplies.
Analysts warn that current oil prices could start to put financial pressure on some producers, especially after oilfield services inflation raised their so-called “break-even” price, the level they need to cover expenses and shareholder payouts.
Daan Struyven, an analyst at Goldman Sachs, said in a note that the “cost of US shale projects is now significantly higher than five years ago” and that rig counts, a proxy for drilling activity, were already falling.
Current prices are unsustainable “in a market that still needs shale to grow”, he added.
Analysts at Energy Aspects, a consultancy, said there was “downside risk to US production if current prices last” after the sector “entered 2023 with record-low levels of production hedged”.
Cheap FTX crypto tokens were offered to Genesis executives
Major lender was able to invest at a discounted rate before tokens were issued to public
Executives at a major lender to Sam Bankman-Fried’s defunct hedge fund had privileged early access to issuances of new tokens backed by the disgraced entrepreneur’s crypto exchange FTX, the Financial Times has learned.
Genesis, a leading crypto lender that collapsed in January, was long a key source of funding for Alameda Research, the trading firm at the heart of Bankman-Fried’s alleged theft of customer assets from FTX.
The close relationship included opportunities for some Genesis executives to invest in cryptocurrencies Bankman-Fried helped launch, at a discounted rate before the tokens were issued to the public, according to people familiar with the matter.
The access highlights the past closeness of the groups, both now in bankruptcy, and the broader intertwined nature of the crypto industry, which is dominated by a small number of companies with various overlapping investments and interests.
Genesis’s lending unit failed earlier this year after suffering losses from the failure of Bankman-Fried’s crypto empire and another collapsed crypto hedge fund, Three Arrows Capital. Genesis is FTX and Alameda’s biggest creditor and is owed $226mn, according to US bankruptcy court records.
Former Genesis employees said Bankman-Fried gave some executives at the lender the opportunity to invest in “presale” tokens of FTT, the FTX native token that launched in 2019, and Serum, which launched in 2020 with backing from FTX and Alameda.
The presale access to FTT and Serum, also offered to others outside Genesis within Bankman-Fried’s network of industry contacts, gave the Genesis executives an opportunity to profit after retail investors bought in.
It is unclear how widespread the access was within Genesis. One former executive told the FT they were unaware of any such offers from FTX.
Crypto token offerings to retail investors in recent years typically followed early funding rounds involving venture capital and other investors. In return for a discounted price, the early investors often agreed not to sell the tokens for a period that could range from a few months to years.
On launching FTT, FTX offered some Genesis executives presale access through a “very standard” one-page offering, a second former Genesis executive said.
They decided not to invest in FTT, but later rued their decision when the price of the token surged, the former executive added. “That was a big miss,” the person said.
Further opportunities followed, including Serum, a project launched on the Solana blockchain network with backing from FTX and Alameda. Solana itself was also championed by Bankman-Fried.
“The only reason we invested in Serum is we missed FTT,” the former Genesis executive said. At launch in August 2020, Serum’s price spiked 1,500 per cent.
Thomas Braziel, co-founder of 507 Capital, which has bought claims in several crypto bankruptcies including Genesis and FTX, said the revelations raised questions about Genesis’s lending and whether there had been a “weird quid pro quo” with Alameda.
Braziel added the practice was consistent with his understanding of how Bankman-Fried operated. “He really took care of people who he thought were important to him . . . He was doing a good job of keeping everybody’s bread buttered.”
FTX and Alameda, now under new joint management in bankruptcy, did not respond to a request for comment. Genesis did not respond to requests for comment. A spokesperson for Bankman-Fried declined to comment.
US-based Genesis launched in 2013 and is part of SoftBank-backed Digital Currency Group, one of the oldest investors in crypto companies. Genesis’s lending arm launched in 2018 and became a major source of credit for crypto ventures, originating $131bn worth of loans in 2021.
Genesis’s $226mn exposure to Bankman-Fried’s ventures when they collapsed had previously been much larger, but in the summer of 2022 Alameda repaid loans to Genesis and other lenders as crypto markets faltered. US authorities have accused Bankman-Fried of repaying Alameda’s creditors in 2022 with funds from FTX without telling them the true source of the money.
Bankman-Fried has denied any wrongdoing.
A Genesis entity, GGC International Ltd, is on the official committee of unsecured creditors in the FTX and Alameda joint-bankruptcy process.
The FTT and Serum tokens, along with Solana, were also accepted by Genesis as collateral pledged by Alameda to secure its borrowings, according to people familiar with the relationship.
Alameda was more than just a source of direct loan demand for Genesis, according to a former Genesis employee who said the hedge fund referred clients to the lender. “It was a tremendous pipeline for us,” they said.
>>> Up
* Carnival Raised to Equal-Weight at Wells Fargo; PT $9
* IAG Raised to Buy at Redburn (+)
* Novartis Raised to Hold at Deutsche Bank; PT 80 Swiss francs
* QT Group Raised to Accumulate at Inderes; PT 72 euros (+)
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* Verbund Raised to Outperform at Oddo BHF; PT 100 euros
* Zalando Raised to Buy at HSBC; PT 45 euros
>>> Down
* Antin Cut to Neutral at JPMorgan; PT 19.30 euros
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* Kainos Cut to Hold at Goodbody (+)
* Orsted Cut to Underperform at Oddo BHF; PT 580 kroner
* Peach Property Cut to Reduce at Baader Helvea
>>> Initiation
* Blink Charging Rated New Equal-Weight at Barclays; PT $11
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* Siltronic Rated New Sell at Hauck & Aufhaeuser; PT 53 euros (+)
>>> Call
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