July 30, 2023

Regulators Unveil ‘Basel III Endgame’ Rules For Big Banks

📰 News Organizations

  • Regulators Unveil Sweeping ‘Basel III Endgame’ Rules For Big Banks. The FDIC Board voted to issue a proposed rule that would impose higher capital standards on the biggest U.S. banks. The proposal would increase common equity tier one capital requirements by 16% for bank holding companies and 9% for other insured depository institutions. This could make it more difficult for affected banks to lend to businesses and consumers.

  • BOJ Sends Yields Soaring With Surprise Change to Rate Limit. The Bank of Japan jolted financial markets by loosening its grip on bond yields. The BOJ kept its target for 10-year yields at around 0% but said its 0.5% ceiling was now a reference point, as it sought to make its ultra-loose monetary policy program more flexible.

  • Exxon and Chevron Eye More Shale Deals Amid Profit Dip. Despite a dip in profits, Exxon and Chevron reported substantial earnings for the second quarter. The oil giants have recently engaged in multibillion-dollar deals and expressed intentions to continue their acquisition spree.

  • Ford Raises Full-Year Guidance Following Strong Earnings Beat. Ford surpassed Wall Street expectations in the second quarter, attributing the success to robust pricing and demand for its traditional vehicles, amid EV losses. Consequently, the company increased its full-year adjusted earnings forecast.

  • Biotech Stocks Join AI-Fueled Rally. The surge in enthusiasm has given a major boost to shares of smaller biotech companies, a sector where investors give greater weight to growth opportunities. Shares of Recursion Pharmaceuticals, Schrodinger, and others that are implementing AI are surging. These stocks now command premium valuations despite not earning consistent profits from AI-related businesses.

🐦 Twitter

  • So far, Q2 profits from S&P 500 companies are down about 8% from a year ago, according to a blend of reported results and consensus estimates. But 80% of companies have so far topped Wall Street profit expectations, a slightly higher rate than average. Source.

  • Annualized US interest expense has gotten completely out of control. US interest expense is about to hit $1 trillion for the first time in history. It’s now rising exponentially. Source.

  • The core inflation trend is going to look very very good 2-3 months from now. You shouldn’t fight it. The question is what happens after we chew through the soft used autos data and the shelter trend is more appreciated. Source.

  • With deposit rates still near zero, the mega banks continue to fund themselves at near zero. While those savings are not being passed on to the banks’ borrowers, it could be another reason why the inverted yield curve has only had limited impact so far. Source.

  • The bond market is on the verge of a major breakdown. Not only will this raise the cost of financing the $32.7 trillion National Debt, but it'll crush the loan portfolios of already insolvent banks. That means a return to QE to bail them out. Fixed-rate mortgage will soon hit 8%. Source.

The median price of a starter home in the US is 46% higher than 2019 levels. The monthly mortgage payment needed to purchase these homes has more than doubled over that time period.

Charlie Bilello

📓 Online Publications

  • Intel Returns to Profit on the Back of PC Rebound and Chip Demand. After experiencing two quarters of record losses, Intel saw a resurgence in revenue, reaching $12.9 billion in the second quarter, driven by increased demand from the artificial intelligence boom and a recovering personal-computer market.

  • Mortgage Delinquency Hits Record Low in May: Core Logic. Data released Thursday showed that Mortgage delinquency in the US reached an all-time low of 2.6% in May, with a decrease of 0.1% compared to the previous year and a 0.2% decline from April. The implementation of anti-foreclosure protections prevented many Americans from losing their homes.

  • Qualcomm and Meta Collaborate on Advancing On-Device AI. Qualcomm's latest advancements in on-device AI include showcasing the first-ever operation of generative AI service Stable Diffusion. The company plans to introduce Meta's Llama 2 generative AI to flagship Android devices in 2024 as part of its partnership.

  • PCE Measure of Shelter Inflation Moderates to 8.0% YoY in June. The CPI Shelter recorded an 8.0% year-over-year increase in June, down from 8.2% in March 2023. Similarly, Housing (PCE) rose 8.0% YoY in June, showing a decline from its peak in April 2023, and this trend is expected to continue due to relatively unchanged year-over-year asking rents.

🎧 Podcasts

  • Strong Back Half Relies on Weaker Dollar. JC Parets thinks that a weaker dollar is crucial for a strong performance in the second half, particularly for value-oriented and commodity-based stocks. However, if the dollar remains strong due to rising interest rates and acts as a safe haven, it could impact stock performance, and the bond market's traditional role as a safe haven may be challenged. Source(33:00)

  • Meta's Stock Rise is Getting Hard to Ignore. Meta's stock surged after Metro shares jumped over 4% following a strong Q2 performance and positive Q3 forecast, driven by an 11% revenue gain in digital advertising and successful growth of Reels. Meta's positive might stem from its ongoing experimentations, new product roadmaps, and the forthcoming launch of Quest Three in the fall. Source(12:05)

  • Earnings Updates Ended Epic Runs for Chipotle and Spotify. Chipotle shares slide as sales fall short of Wall Street’s expectations as it struggles to compete with other fast food chains like Mcdonalds'. Meanwhile, Spotify shares fell after the company released second-quarter results that offered weaker-than-expected guidance and missed analysts’ estimates for revenue. Source(6:26)

  • AI Effect is Making Money Moves For Big Tech. Scott Galloway says that while growth decelerated across big tech, they are having one of their most profitable quarter in history because they are finally reaping the benefits of the cost-cutting they did in previous quarters, which they haven't done in the past decade. Growth is being driven by cost-savings, AI, and cloud. Source(17:41)