The Boock Report

It was about 4:45am est when the Saudi National Bank said ‘no more’ to more investment in its already 10% holding in Credit Suisse. While CS Chairman Axel Lehmann today said that help from the Swiss government “isn’t a topic”, how can it not be at this point notwithstanding the “strong capital ratios, a strong balance sheet” that Lehmann reiterated today? The Qatar Investment Authority owns 7% of Credit Suisse and we’ll see what they say next, if anything. With the global bank psychology already fragile, the Euro STOXX bank stock index is down by 6% as of this writing.

Credit Suisse has been a slowing moving car crash for years it seems but now today’s news of course is happening in the vortex of SVB. I think the problem European banks face, all of which have had to manage NIRP and massive QE for almost 10 yrs and managed to survive, is similar to many US banks in that they own too much duration with I’m sure plenty of negative yielding bonds on their balance sheets which are guaranteed to lose them money if held to maturity. But at least they’ll get back most of their principal but the marks look terrible. I don’t think depositors have to worry but lending growth will slow, as it will in the US, and now equity holders run the risk of equity raises and dilution. 

Now with respect to the ECB this week, maybe they split the middle and hike 25 bps tomorrow instead of 50 bps, trying to satisfy both the doves and hawks. And the Fed will hike 25 bps next week again. The message from both will signal a wait and see thereafter while they both still try to flex their inflation muscles but acknowledge that accidents are now happening. Either way, the rate hikes are just about done but I’ll repeat again, the persistence of inflation, albeit at a slowing pace, will make it much more difficult for central banks to all of a sudden start slashing rates and reverse on QT but at some point they’ll at least try but not go as far as they have in the past. 

That said, The State Bank of Vietnam is now mostly focused on financial stability and they slashed its overnight lending rate and its discount rate by 100 bps to 3.5% overnight. Their last CPI report was 4.3% in February, which was a slight moderation from January. 

Back to the Fed for a second, last night Fed Governor Michelle Bowman said “The US banking system remains resilient and on a solid foundation, with strong capital and liquidity throughout the system.” Well, if the case and they strongly believe it, it will be why they will hike next week whether it’s the right thing to do or not. She did though also acknowledge what’s transpired this week, “The board continues to carefully monitor developments in financial markets and across the financial system.” 

In case you didn’t see on Monday, the MOVE index, the bond version of the VIX, spiked to its highest level since 2009.

MOVE

Cass Freight said its February shipments index was down .3% m/o/m seasonally adjusted and down by the same amount y/o/y. They said “Soft real retail sales trends and ongoing destocking remain the primary headwinds to freight volumes, and sharp import declines suggest this type of environment will persist for several more months.” 

With respect to freight costs, the inferred rate fell 5.5% m/o/m and down by 9.4% y/o/y. Cass Freight said “We estimate about 1% was due to lower fuel costs, and the cumulative decline in diesel prices over the 3 months through February has lowered freight bills by about 6%. There was also mix pressure in February as truckload gained a little more share from LTL m/o/m.” 

More on transportation, JB Hunt spoke at the JPM conference yesterday and said “we’ve talked about being in a freight recession, really in the fourth quarter and even into the first quarter.” This was an interesting take on things as an executive highlighted the difference between what their customers are saying and what they believe. “I will say I think our customers haven’t really changed their tune much. They still have a more optimistic view on the 2nd half. They feel like they’re working through some of their inventory that we really called out. I would say as we progress through the quarter, I’m slightly less optimistic than our customers. It doesn’t mean I’m pessimistic, but I’m really trying to discover how much our customers really know.” 

With respect to housing, not surprising, each zig and zag in mortgage rates is tilting activity in one direction or the other. Lennar in their release yesterday said “In December, interest rates and sticker shock continued to constrain sales activity, while in January and early February, lower interest rates energized sales. In late February, a spike in interest rates impacted website and community traffic and had a slight impact on sales.” 

Speaking of which, with the drop in the average 30 yr mortgage rate by 8 bps for the week ended March 10th, refi’s rose 7.3% w/o/w but still lower by 38% y/o/y. Refi’s were down by 4.8% w/o/w and are still down 74% y/o/y.