Citi's two new buy-rated banks

Charts and Caffeine

Livewire Markets

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.

MARKETS WRAP

  • S&P 500 - 3,873 (-0.72%)
  • NASDAQ - 11,861 (-0.55%)
  • CBOE VIX - 26.30
  • USD INDEX - 109.64
  • US 10YR - 3.455%
  • FTSE 100 - 7,237 (-0.62%)
  • STOXX 600 - 408.24 (-1.58%)
  • UK 10YR - 3.157%
  • GOLD - US$1675/oz
  • WTI CRUDE - US$85.40/bbl
  • DALIAN IRON ORE - US$99.26/T

THE TWEET

Cramer's done it again!

In case you didn't hear, FedEx shares fell like a stone late last week after its CEO missed its Q1 revenues and earnings estimates. It also withdrew full-year guidance and management says they now expect a worldwide recession. In the release, they also revealed they would be deferring all future hiring decisions, closing depots, and canceling any planned increases to worker capacity.

Conclusion? Oh dear.

THE CHARTS

This week sees the return of two (three, if you count. the Bank of Japan) very important central bank meetings. The US Federal Reserve hands down its decision early Thursday morning while the Bank of England, the Bank of Japan, and the Swiss National Bank all meet Thursday afternoon into the evening. 

Now before you all go throwing in the towel before the week's even started, consider the following:

This is the difference between inflation targets and actual core inflation - and you'll also now see why I highlighted the Bank of Japan separately. Japanese inflation is high by relative standards but it's a huge struggle against its global peers.

In stark contrast, the Federal Reserve and the Bank of England have a long way to go. And don't even get me started on the Central Bank of Turkey. And speaking of the Fed, here's one more chart that won't be a big deal for this Thursday but you may want to keep in the back of your mind for some time down the line - even 12 months from now. 

On the left of this chart, you'll find the scale for the 2s/10s curve (that's why it only runs from -300 bps to 300 bps). On the right of this chart, you'll see the Federal Reserve's key interest rate. What do we learn from this chart? Well. Every time that red line dips below zero, the rate hikes have generally stopped with rate cuts coming sooner rather than later. Then again, we've not often had inflation stay this stubborn, this hot, while in the midst of a hiking cycle.

Here are JP Morgan's thoughts:

Although the market is now pricing around 1-in-3 odds for the Fed to hike 100bp next week, we see a smaller chance of such a move given that PCE inflation as well as GDP growth are tracking below the FOMC’s June projections.

Oh - that reminds me. Thursday's Federal Reserve meeting also comes with a side order of dot plots. More on that later this week.

TODAY'S TOP READ

The housing dream that became a nightmare - and isn’t over yet (SMH): Housing bulls, look away! Ross Gittins says rising house prices have affected the Australian economy permanently for the worse.

STOCKS TO WATCH

Enough bearishness, I hear you cry! Let's hear something positive! And today's stocks to watch have two of them... two upgrades to buy at Citi in the banking space. It's the second set of bank re-rates in a week, following Morgan Stanley's effort which we covered here:

Daily Report
The Big Bank "priced for a soft landing": Morgan Stanley

For its part, Citi believes FY23 marks a "distinct shift in the tide". Banks are now sitting on excess liquidity, just as central banks embark or are already on their quickest and largest tightening seen in over 30 years. 

So what does that all do for margins? As much as a 30 basis points boost if Citi gets its way. That's well ahead of consensus, but then again, they're assuming that all this spare cash and reserves will get them through this period. Asset quality, analysts say, should also benefit from strong provisions above the base case.

With all this in mind, Citi has upgraded FY23 earnings by ~2% and FY24 by ~4%. 

Finally, and most importantly, NAB is now a buy instead of Neutral given the recent pullback while Bendigo Bank (ASX: BEN) is now also a buy on what analysts call "unwarranted" concerns around its margins.

Hans Lee wrote today's report.


GET THE WRAP

If you've enjoyed this edition, hit follow on this profile to know when we post new content, and click the like button so we know what you enjoy reading.

If you have a chart and/or a stat that you would like to see featured in a future edition of the newsletter, drop us a note at content@livewiremarkets.com.

........
Livewire gives readers access to information and educational content provided by financial services professionals and companies (“Livewire Contributors”). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

1 contributor mentioned

Charts and Caffeine
Markets Wrap
Livewire Markets

Charts and Caffeine is Livewire's daily pre-market wrap. We get you across the overnight markets and share the best in global finance so you can start your day on the front foot. Written by Hans Lee (Mondays - Thursdays) and Chris Conway (Fridays).

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.

trending on livewire
Get the best of Livewire by signing up to our popular daily newsletter