Before I jump into the Succinct Summation, I include below a history lesson from my friend Jim Grant, with his permission, who discussed how the world of banking existed before FDIC deposit insurance was created in 1933 in his latest issue of Grant’s Interest Rate Observer. It’s very instructive as we debate the future outlook for it and to what extent uninsured deposits are covered or maybe all of them are now, or maybe not.
“In the absence of federal deposit insurance, a New Deal innovation, it was the owners of bank shares who got a capital call if the nationally chartered institution in which they held a fractional interest became impaired or insolvent. ‘Double liability’ was the name of this legal structure, and a 2021 scholarly appraisal of its record, posted on the website of the Office of the Comptroller of the Currency, gives it high marks.”
“‘The available data on OCC receiverships from 1865 to 1937,’ write Roger Tufts and Graham Tufts, ‘certainly indicate that double liability assessment played an important part in mitigating the losses borne by depositors and in the voluntary liquidation of still-solvent banks.'”
“The double liability approach met its match with the FDIC, the doctrine that some banks are too big to fail and the contemporary trial balloon that even small banks must not be allowed to succumb to their depositors’ panic or their management’s errors. We wonder how differently the equity-holding senior managements of Silicon Valley Bank and First Republic Bank might have steered their institutions in the knowledge that, if all went pear-shaped, they had more to lose than the value of their stock options.”
We all now need to wonder and thanks Jim for the historical education.
Succinct Summation of the Week’s Events:
Positives,
1)Initial claims totaled 191k, little changed with last week’s 192k but below the estimate of 197k and still very low. The 4 week average was 196k, also basically unchanged w/o/w. Continuing claims rose 14k w/o/w after falling by 33k in the week before and up 64k in the week before that. At 1.694mm, it’s not far from the highest since February 2022.
2)The March S&P Global manufacturing and services PMI rose to 53.3 from 50.1, and the 2nd straight month above 50 after a run below. Manufacturing though remains below 50 but a bit less so while services rose to 53.8 from 50.6. S&P Global said “The upturn is uneven, being driven largely by the service sector. Although manufacturing eked out a small production gain, this was mainly a reflection of improved supply chains allowing firms to fulfill backlogs of orders that had accumulated during the post-pandemic demand surge. Tellingly, new orders have now fallen for six straight months in manufacturing…In services, there’re more encouraging signs, with demand blossoming as we enter spring. It will be important to assess the resilience of this demand in the face of the recent tightening of interest rates and the uncertainty caused by the banking sector stress, which so far only seems to have had a modest impact on business growth expectations.” I’ll add, many businesses though likely haven’t heard from their banks just yet as things get digested.
3)With the average 30 yr mortgage rate dropping to 6.48% (even though Bankrate says it’s higher), purchase apps rose 2.2% w/o/w, though still down 36% y/o/y. Refi’s rose by 4.9% w/o/w but down 68% y/o/y.
4)Existing home sales in February totaled 4.58mm, almost 400k more than expected and up from 4mm in February. While inventories remain tight with months’ supply at just 2.6 vs 2.9 in the two prior months and vs 3.3 in the two months before that, homes are sitting on the market longer and that totaled 34 days in February vs 33 in January, 26 in December, 24 in November and 21 in October. One yr ago it was 18 days. Home prices were flat y/o/y. First time buyers made up just 27% of purchases vs 31% in the two months before and vs 28% in the two months before that. Cash buyers made up 28% of purchases vs 29% last month and vs 28% in the month before. The NAR said “Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines. Moreover, we’re seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs.”
5)At least in the KC region there was no contraction but there was no growth either as their manufacturing index for March printed at zero, the same as in February. The estimate was -2.
6)The BoE raised rates by 25 bps to 4.25%, still playing catch up. The SNB hiked rates by 50 bps and only got to 1.5%. Taiwan, Norway and the Philippines also raised.
7)UK retail sales in February were unexpectedly strong and January was revised up. A tight labor market and lower energy prices helped.
8)The March Eurozone PMI was better than expected at 54.1 from 52 in February and vs the estimate of no change. It was all services as manufacturing contracted further. S&P Global, similar to what they said about the US, said “Growth is also very unbalanced, driven almost solely by the service sector with manufacturing largely stalled and struggling to sustain production in the face of falling demand.”
9)Germany said its February PPI fell .3% m/o/m, not as much as the estimate of down 1.4% while the y/o/y increase was still 15.8% vs 17.6% in January.
10)Japan’s manufacturing and services PMI for March rose to 51.9 from 51.1. Manufacturing though remains below 50 at 48.6. The services side came in at 54.2 from 54.
Negatives,
1)My own opinion is that it was a mistake for the Fed to hike rates again. There is always another meeting to react to what’s going on. Jim Bullard is now back to being off the rails with his raising of where the fed funds rate should be. He’s not voting though.
2)New home sales in February totaled 640k, 10k less than expected and January was revised down by about 40k to 633k. Smoothing out this volatile data point has the 3 month average at 632k vs 603k over the past 6 months and 612k over the past yr. Months’ supply was little changed at 8.2, still elevated but off the peak last September of 10.1 and not all of those homes are complete or even started. Prices rose 2.5% y/o/y but doesn’t include the other incentives builders are providing like rate buydowns.
3)Core durable goods orders in February were a touch below expectations with no change m/o/m vs the up .2% estimate and January was revised down by 2 tenths. Weakness was seen for orders for vehicles/parts, machinery and computers/electronics. There was a nice increase in orders for electrical equipment and metals. Of note too, the inventory/shipments ratio rose to 1.80, the highest since last summer.
4)The UK saw a February 10.4% y/o/y CPI print, up from 10.1% in January and 5 tenths above the forecast. The core rate accelerated to 6.2% from 5.8%.
5)The UK PMI for March fell to 52.2 from 53.1 with both components lower.
6)The March German ZEW investor confidence index in the German economy fell to 13 from 28 and that was 2 pts below expectations. The current situation remained deeply negative, down by 1 pt m/o/m to 46.5. ZEW highlighted the recent financial turmoil. “The international financial markets are under strong pressure. The high level of uncertainty is also reflected in the ZEW Indicator of Economic Sentiment. The assessment of the earnings development of banks has deteriorated considerably, although it still remains slightly positive. The estimates for the insurance industry have also declined significantly.”
7)South Korea said its exports in the first 20 days of March fell 17.4% y/o/y and imports were lower by 5.7% y/o/y. The drop in exports was led by a 45% plunge in semi shipments and a drop in exports to China of 36%.
8)Taiwan said its February exports fell 18.3% y/o/y, a bit more than the expected drop of 17.5%. Exports to Hong Kong and Mainland fell a sharp 36% y/o/y and were down by 12.6% to the US and by 13% to Europe. Exports of electronic products were down by 22% y/o/y.
9)The Australian composite March PMI fell back under 50 at 48.1 from 50.6 with both manufacturing and services back below 50.
10)Japan’s February core/core CPI accelerated to 3.5% y/o/y from 3.2% and that was one tenth above the estimate. The headline figure was up 3.3% but would have been up 4.4% y/o/y if it wasn’t for energy subsidies.