FT : Corporate bond markets are shrugging off the global worries

Corporate bond markets are shrugging off the global worries
Credit investors are still largely betting recession risk remains low

Financial markets are full of convenient adages that work some of the time but not always, or that are broadly true but flawed when applied to a specific situation.

One is that stock pickers are optimists and bond investors are pessimists, making the bond market a better predictor of future distress.

When you buy a company’s stock, you are (to oversimplify somewhat) betting on positive outcomes for the company that will result in its value rising. Ergo, optimism.

When you lend a company money, you are typically betting on just one outcome; that the company will pay you back. The main thing that threatens you getting your money back is a company doing very poorly. That becomes the focus for bond investors. Ergo, pessimism.

Such pessimism can be useful for the rest of us. The bond market, and in particular the high-yield bond market where money is lent to riskier companies, is typically one of the first to flinch should economic conditions sour to the point of threatening corporate balance sheets.

Given everything worrying investors right now — from Russia’s invasion of Ukraine to rampant inflation and a hawkish Federal Reserve pulling the punch bowl away from investors by tightening monetary policy — they should be keeping a close eye on the high-yield bond market. But in recent periods of stress, it really hasn’t budged. Instead, the stock market has been most responsive.

Take this year. In January, the S&P 500 slipped into correction territory — defined as a move of more than 10 per cent lower from its recent peak. Meanwhile, high-yield bonds performed much better. The difference in yield on high-yield bonds and US Treasuries, a measure of the risk of lending to private companies versus the government, rose a little but remained well below any signal of distress. Why were credit investors not more concerned? Why aren’t they still?

It’s arguably because the stock volatility this year has not been about fundamental weakness in the economy but rather about resetting expectations over the Fed raising interest rates. If this is correct, credit has been flashing the right signal: that all is still fundamentally fine.

However, concerns about economic growth are emerging. The US yield curve inverted this week, with interest rates on long-dated bonds falling below shorter-dated debt. This is seen as a classic indicator of recession because it implies longer-term rates will need to be cut to fend off an economic downturn. Interest rate markets are also forecasting that the Fed will have to cut rates in a little over a year after aggressively raising them, pointing to fears that attempts to stamp out high inflation will choke economic growth.

Still, the high-yield bond market is broadly nonplussed.

There are explanations. Analysts note an array of measures suggesting the high-yield bond market is less risky than it used to be. For example, low rates have allowed companies to lock in cheap borrowing, increasing the likelihood that they will continue servicing their debts. Perhaps the market simply isn’t as recession sensitive as it once was.

“Most companies have a large buffer between current economic conditions and something that might significantly impair their ability to pay credit — so equities almost have to move first,” said Peter Tchir, global macro strategist at Academy Securities.

Matt Mish, a credit analyst at UBS, suggests that there will be stress in the loan market, which has been used by private equity firms to finance aggressive corporate buyouts. Data from S&P Global shows that the proportion of low-rated, single B and below corporate bonds has shrunk from around 80 per cent of the high-yield bond market in 2000 to just less than 50 per cent today. In contrast, that same proportion in the loan market has swelled from 50 per cent to nearly 80 per cent.

Yet, even here stress is unlikely to show up early given the vast majority of syndicated loans are held by structured investment vehicles called collateralised loan obligations, which lock up investors’ money and are less pressured to sell loans.

Are these changes in financial markets obfuscating once tried and true indicators of future turmoil? Possibly. Yet the most obvious conclusion remains that the risk of recession is simply still low for now.

Consumer balance sheets, in aggregate, remain strong. Labour markets are tight. If companies can weather inflation — and the Fed’s response to it — then maybe all will be well. S&P increased its default forecast to 3 per cent by the end of the year. That is still very low. For now, it seems the high-yield bond market is willing to shrug off current macro worries. Maybe there are some optimists in the bond market after all.

>>> US Close Dow +0.40% S&P +0.34% Nasdaq +0.29% Russell +1.01% VIX 19.63 -4.52%

Closing Stock Market Summary

The S&P 500 increased 0.3% on Friday, starting the second quarter on a positive note despite a more inverted Treasury yield curve. The Nasdaq Composite (+0.3%) and Dow Jones Industrial Average (+0.4%) also rose modestly while the Russell 2000 outperformed with a 1.0% gain.

Eight of the 11 S&P 500 sectors closed higher, led by the real estate (+2.0%), utilities (+1.5%), consumer staples (+1.3%), and materials (+1.1%) sectors. Conversely, the information technology (-0.2%), financials (-0.2%), and industrials (-0.7%) sectors underperformed in negative territory.

The tech sector was pressured by valuation concerns, as the 10-yr yield rose five basis points to 2.38%; the financials sector was pressured by an inversion of the 2s10s spread, as the 2-yr yield rose 15 basis points to 2.43%; and the industrials sector was pressured by weakness in its transportation components. The Dow Jones Transportation Average dropped 4.7%. 

Treasury yields pushed higher in the wake of the March employment report, which showed decent jobs growth, a lower unemployment rate, and continued wage inflation -- a recipe for the Fed to hike rates by 50 basis points next month. 

More specifically, nonfarm payrolls increased by 431,000 (Briefing.com consensus 475,000) on top of an upwardly revised 750,000 (from 678,000) in February. The unemployment rate improved to 3.6% (Briefing.com consensus 3.7%) from 3.8% in February. Average hourly earnings rose 0.4%, as expected.

Transport stocks were weak, supposedly because the employment report also showed a decrease in transportation jobs (-1,000) following large gains in the prior two months. 

The 2s10s inversion once again turned the conversation to a potential recession caused by the Fed aggressively hiking rates into slower growth. On the latter, the March ISM Manufacturing Index decelerated to 57.1% (Briefing.com consensus 58.3%) from 58.6% in February.

Separately, oil prices ($99.54, -0.89, -0.9%) were pressured by news that other IEA nations like Europe, Canada, Mexico, Japan, and South Korea will join the U.S. in releasing oil from their reserves. WTI crude ended the week lower by 12.6%. The U.S. Dollar Index increased 0.3% to 98.56.

Reviewing Friday's economic data:

  • The Employment Situation report for March showed a smaller than expected increase in nonfarm and private payrolls, which masked big upward revisions to readings from the past two months. Average hourly earnings showed an increase that was in-line with expectations, though average workweek decreased slightly.
    • March nonfarm payrolls increased by 431,000 (consensus 475,000). The 3-month average for total nonfarm payrolls decreased to 562,000 from 614,000. February nonfarm payrolls revised to 750,000 from 678,000. January nonfarm payrolls revised to 504,000 from 481,000.
    • March private sector payrolls increased by 426,000 (consensus 450,000). February private sector payrolls revised to 739,000 from 654,000. January private sector payrolls revised to 492,000 from 448,000.
    • March unemployment rate was 3.6% ( consensus 3.7%) versus 3.8% in February.
    • March average hourly earnings increased by 0.4% (consensus 0.4%) after increasing a revised 0.1% (from 0.0%) in February. Over the last 12 months, average hourly earnings have risen 5.6%, versus 5.1% for the 12 months ending in January.
    • The average workweek in March was 34.6 hours (consensus 34.7) versus 34.7 hours in February.
    • The labor force participation rate ticked up to 62.4% from 62.3% in February. The employment-population ratio rose to 60.1% from 59.9% in February.
      • The key takeaway from the report is that while it showed a slowdown in hiring activity, wage growth continued and the unemployment rate returned to a pre-pandemic level, reflecting a tight job market. This combination is unlikely to deter the Fed from staying on what is expected to an aggressive rate hike path.
  • The March ISM Manufacturing Index decreased to 57.1% (consensus 58.3%) from 58.6% in February. A number above 50.0% is indicative of expansion. March marked the 22nd consecutive month of expansion in the manufacturing sector.
    • The key takeaway from the report is that activity slowed to its lowest pace since the end of 2020 while prices continued increasing, which suggests that inflation will continue running at a hot pace in the near term.
  • Total construction spending increased 0.5% month-over-month in February ( consensus 1.0%) while the January reading was revised up to 1.6% (from 1.3%).
    • The key takeaway from the report is that residential spending continued increasing, which was masked by a decrease in most public construction spending.

Looking ahead, investors will receive Factory Orders for February on Monday.

  • Dow Jones Industrial Average -4.2% YTD
  • S&P 500 -4.6% YTD
  • Russell 2000 -6.9% YTD
  • Nasdaq Composite -8.8% YTD

(ZH) Yield Curve Inverts Dramatically As Goldman Sees Recession Risks Soaring

Yield Curve Inverts Dramatically As Goldman Sees Recession Risks Soaring

Following this morning's stagflationary signals from a tumble in unemployment (opens window for Fed hawks), surge in earnings (inflationary pressure building), and slump in ISM Manufacturing (production & new orders down, prices paid spiking), the market has been quick to price in a more aggressive Fed this year (now expecting at least 9 more 2bps-rate-hikes by year-end)... but at the same time, pricing in a dramatic rate-cuts in the following year...
The message - loud and clear - is The Fed's anti-inflationary actions will guarantee a recession, and that will ensure rapid de-escalation from The Fed and a return to QE.
While few are mentioning it in public - and President Biden just told us just how awesome he is by gloating over the surge in job gains (which merely represents people being allowed by the government to get their old - pre-COVID-restrictions - jobs back) - but a recession is coming faster than the regular asset-gatherers and commission-rakers would care to admit.
BofA's Michael Hartnett was recently brave enough to state that he expects a recession to strike by H2 2022, and just this morning, no lesser Wall Street giant than Goldman Sachs raises its recession risk for the following year to 38% (with some far more ominous details under the surface of their model)...
On their own, various segments of the curve that have each been relatively reliable recession indicators historically are implying very different probabilities of recession within the next 24 months. This unusually sharp divergence in the probabilities implied by curve segment is another indicator of the unusual structure of the current yield curve: very steep at the front of the curve, but flat/inverted further out.
Combining indicators into a single model unsurprisingly improves the ability to predict recessions and implies that the market is currently pricing recession probabilities that are broadly consistent with the shape of the curve—close to no chance of recession in the next 12 months, but a higher risk of recession (38%) in the following year.
So what does the market say about all this? Nothing good.
The 2s10s spread has collapsed into inversion this morning...
And 5s30s spread is now dramatically inverted...
And 2s30s has inverted for the first time since 2007...
And for all those trying to distract by forcing your attention to the 3M2Y spread's steepness, here is what the yield curve looks like now... and in one year...
Which leaves the 2s10s curve inverted by 50bps in one year according to the forward curve...
Goldman hedges in its conclusion of course, unwilling to scare its AM clients, explaining that their US econ team has also noted that while they see the risk of a US recession this year as higher relative to an average year, a recession if it were to occur would probably be mild by historical standards as the economy lacks major financial imbalances that would exacerbate a slowdown.
Still - a recession is a recession, and you can't be half-pregnant... and even from Goldman's table above, the US equity market is completely decoupled from this risk of recession, blinkered in its desire to keep the dream alive (and offering all those talking heads the constant refrain of "well, how can we be on the verge of recession when stockjs are so closs to record highs?") Do we really need to show you where stocks were in 2000 (ahead of that recession), 2007 (ahead of that recession), and early 2020 (ahead of that recession).

NY Post : Jada’s hair is no joke — but her boyfriend is: Ricky Gervais goes off

Jada’s hair is no joke — but her boyfriend is: Ricky Gervais goes off during set

He would’ve gone for the jugular.

After Will Smith infamously smacked Chris Rock at the 2022 Oscars, Twitter debated whether the incident would’ve happened if Ricky Gervais had been in Rock’s shoes. Well, the British comic recently weighed in, claiming he wouldn’t have mocked Jada Pinkett Smith’s hair loss as Rock had done — but rather would’ve targeted her open relationship.

While performing in London, the 60-year-old “After Life” creator said, “I’ll get it out of the way. I have not got any Will Smith material,” per the Mirror.

Of course, Gervais was referring to the incident that occurred at Sunday’s Academy Awards, when the 53-year-old Best Actor winner smacked Rock, 57, after the comedian made a bald joke about Jada, who’s been open about her ongoing struggle with alopecia.

“I trended when that happened and I was not even there,” added the original “The Office” mastermind, who has hosted the Golden Globes five times but never the Oscars. “People were going, ‘What would have happened if Ricky Gervais had been doing it [hosting the Oscars]?'”

“Well, nothing,” said Gervais, “as I would not have made a joke about his wife’s hair. I would have made a joke about her boyfriend.”

The comedian was likely referring to 50-year-old Jada’s “entanglement” with much younger R&B singer August Alsina, 29, who claimed he had had an intense affair with the actress. After years of rumors flying around about what had actually gone down, Will admitted last September that he and his wife were in an open relationship.

However, Gervais did seem to poke fun at the hair joke following the Academy Award smack when he retweeted an old bit on alopecia from “The Office.”

Many social media users seemed to agree with Gervais, wondering why the “Hancock” actor would strike a comedian over a joke — and not the man who was bedding his partner.

“You can f–k my wife, but keep her name out yo mouth,” mocked one Twitter user.

“Will Smith’s marriage is open to EVERYTHING except jokes,” jeered conservative commentator CJ Pearson on Twitter.

This isn’t the first time Gervais has teased what he’d say if he were to host the Academy Awards. Earlier this week, the Emmy winner posted a scathing mock-Oscars speech on Twitter.

“I’d start with ‘Hello. I hope this show helps cheer up the ordinary people watching at home,'” the comedian sniped. “‘If you’re unemployed for example, take some comfort in the fact that even if you had a job, your salary probably wouldn’t be as much as the goody bag all the actors have just been given.'”

>>> US Research Calls



From: update@briefing.com At: 04/01/22 13:26:27 UTC+2:00
To: Laurent Chekroun (MAKOR CAPITAL MARKET )
Subject: Briefing; CALLS; Research Calls

Briefing.com Logo
01-Apr-22 07:26 ET

TICKER ALERT: CALLS

Research Calls

  • Upgrades:
    • Banco Santander (SAN) upgraded to Outperform from Neutral at Credit Suisse
    • Caixabank (CAIXY) upgraded to Outperform from Neutral at Credit Suisse
    • Centennial Resource Development (CDEV) upgraded to Buy from Hold at Stifel; tgt raised to $11.20
    • Comerica (CMA) upgraded to Neutral from Sell at Goldman; tgt raised to $112
    • Comerica (CMA) upgraded to Overweight from Neutral at JP Morgan; tgt raised to $115
    • Evotec SE (EVO) upgraded to Buy from Neutral at Kempen; tgt $15
    • Tellurian (TELL) upgraded to Outperform from Neutral at Credit Suisse; tgt raised to $8
    • Vertiv (VRT) upgraded to Overweight from Neutral at JP Morgan; tgt lowered to $18
  • Downgrades:
    • Amylyx Pharmaceuticals (AMLX) downgraded to Neutral from Buy at Goldman; tgt lowered to $10
    • American Eagle (AEO) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $19
    • BankUnited (BKU) downgraded to Neutral from Overweight at JP Morgan; tgt $50
    • Blend Labs (BLND) downgraded to Equal Weight from Overweight at Wells Fargo; tgt lowered to $5
    • Blend Labs (BLND) downgraded to Hold from Buy at Canaccord Genuity; tgt lowered to $5
    • Blend Labs (BLND) downgraded to Neutral from Overweight at Piper Sandler; tgt lowered to $5.50
    • Commscope (COMM) downgraded to Neutral from Buy at Goldman; tgt lowered to $9
    • Dell (DELL) downgraded to Neutral from Conviction Buy at Goldman; tgt lowered to $61
    • Ellington Residential Mtg (EARN) downgraded to Mkt Perform from Mkt Outperform at JMP Securities
    • First American Financial (FAF) downgraded to Neutral from Outperform at Credit Suisse; tgt lowered to $74
    • Gap (GPS) downgraded to Underweight from Equal Weight at Barclays; tgt lowered to $13
    • NextDecade (NEXT) downgraded to Neutral from Outperform at Credit Suisse; tgt raised to $7.50
    • Poshmark (POSH) downgraded to Hold from Buy at Stifel; tgt lowered to $15
    • Qorvo (QRVO) downgraded to Neutral from Outperform at KGI Securities; tgt $140
    • Science Applications (SAIC) downgraded to Hold from Buy at Truist; tgt $105
    • Silverback Therapeutics (SBTX) downgraded to Hold from Buy at Stifel; tgt lowered to $6
    • Silverback Therapeutics (SBTX) downgraded to Neutral from Buy at H.C. Wainwright
    • UniFirst (UNF) downgraded to Underweight from Neutral at JP Morgan; tgt $178
    • Urban Outfitters (URBN) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $29
    • Walgreens Boots Alliance (WBA) downgraded to Neutral from Outperform at Robert W. Baird; tgt lowered to $51
    • Wayfair (W) downgraded to Underweight from Equal Weight at Barclays; tgt $103
    • Zimmer Biomet (ZBH) downgraded to Neutral from Buy at Citigroup; tgt raised to $135
  • Others:
    • 1Life Healthcare (ONEM) assumed with an Outperform at Credit Suisse; tgt $15
    • Accolade (ACCD) assumed with an Outperform at Credit Suisse; tgt $33
    • Agree Realty (ADC) initiated with an Overweight at Morgan Stanley; tgt $75
    • AmerisourceBergen (ABC) assumed with an Outperform at Credit Suisse; tgt $180
    • Amwell (AMWL) assumed with a Neutral at Credit Suisse; tgt $5
    • Cano Health (CANO) assumed with an Outperform at Credit Suisse; tgt $13
    • Cardinal Health (CAH) assumed with a Neutral at Credit Suisse; tgt $58
    • Change Healthcare (CHNG) assumed with a Neutral at Credit Suisse; tgt $25.75
    • Check Point Software (CHKP) initiated with a Buy at Summit Insights; tgt $160
    • Definitive Healthcare (DH) assumed with a Neutral at Credit Suisse; tgt $24
    • eHealth (EHTH) assumed with a Neutral at Credit Suisse; tgt $16
    • Edwards Lifesciences (EW) added to Focus List at Citigroup
    • GoHealth (GOCO) assumed with an Underperform at Credit Suisse; tgt $1.50
    • GoodRx (GDRX) assumed with a Neutral at Credit Suisse; tgt $22
    • Hims & Hers Health (HIMS) assumed with an Outperform at Credit Suisse; tgt $8
    • ImaRx Therapeutics (IMRX) initiated with an Outperform at Oppenheimer; tgt $25
    • McKesson (MCK) assumed with an Outperform at Credit Suisse; tgt $333
    • MSCI (MSCI) initiated with a Neutral at Goldman; tgt $553
    • Oracle (ORCL) initiated with a Neutral at Daiwa Securities; tgt $87
    • Owens & Minor (OMI) assumed with a Neutral at Credit Suisse; tgt $43
    • Premier (PINC) assumed with an Underperform at Credit Suisse; tgt $35
    • Privia Health (PRVA) assumed with an Outperform at Credit Suisse; tgt $43
    • Rain Therapeutics (RAIN) initiated with an Outperform at Oppenheimer; tgt $15
    • SelectQuote (SLQT) assumed with a Neutral at Credit Suisse; tgt $4
    • Snowflake (SNOW) initiated with a Neutral at SMBC Nikko; tgt $253
    • SOC Telemed (TLMD) assumed with a Neutral at Credit Suisse; tgt $3
    • Teladoc (TDOC) assumed with an Outperform at Credit Suisse; tgt $114
    • Tivity Health (TVTY) assumed with a Neutral at Credit Suisse; tgt $31
    • Upstart (UPST) initiated with an Equal-Weight at Stephens; tgt $124
    • Vectrus (VEC) initiated with a Buy at Truist; tgt $65