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“Optimism Is Being Shaken”: US Futures, Global Markets Slide Ahead Of $1.8 Trillion OpEx

"Optimism Is Being Shaken": US Futures, Global Markets Slide Ahead Of $1.8 Trillion OpEx

US futures and global equities extended Thursday’s…



"Optimism Is Being Shaken": US Futures, Global Markets Slide Ahead Of $1.8 Trillion OpEx

US futures and global equities extended Thursday's selloff as a global wave of risk aversion swept across the markets after two of the Fed's most hawkish (nonvoting) policymakers - Loretta Mester and James Bullard - signaled they may favor returning to bigger, 50bps rate hikes in the future, while European Central Bank Executive Board member Isabel Schnabel also warned that markets may be underestimating inflation, and the risk that the ECB “may have to act more forcefully” against it. S&P 500 futures fell 0.7% as of 7:30 a.m. in New York as the risk-off tone continues with MegaCap Tech underperforming, Nasdaq 100 contracts slide 0.9%. The Bloomberg Dollar Spot Index traded near the day’s highs, pressuring all Group-of-10 currencies. Treasury yields climbed across the curve, mirroring moves in Europe and the UK. Commodities are mixed with base metals rallying, energy and ags weaker; oil and gold fall while Bitcoin slides for the first time in four days, retreating from the key $25,000 level. Otherwise, it's a quiet end to the week with just import prices and leading indicators on deck; we also get two Fed speakers: Barkin abd Bowman.

Ahead of the 3-day weekend, today we also get a relatively modest $1.8 trillion option expiration (full preview here) in the form of $740bn SPX am, $600bn of ETF + SPX pm, and $380bn of single stock, and which will see dealers would lose a significant portion of their left tail “long gamma” positioning and which could present an opportunity for vol to go bid, i.e., VIX may spike from its recent subdued range.

In premarket trading, DoorDash advanced 6.7% after the food delivery company published results that showed resilient consumer appetite, with order growth exceeding expectations despite the cost-of-living squeeze. Moderna shares fall 6.5% after mixed results for its mRNA-1010 flu vaccine candidate. Analysts note the drug missed on the B-strains in the study and now all eyes will turn to upcoming efficacy data to give an indication on the approvability of the drug. Here are other notable premarket movers:

  • Tesla shares slip in US premarket trading, leaving them set to extend Thursday’s losses after the electric-vehicle maker recalled hundreds of thousands of cars over a crash risk in its automated-driving software.
  • DoorDash jumps 6.7% after the food delivery company published results that showed resilient consumer appetite, with order growth exceeding expectations despite the cost-of-living squeeze.
  • Applied Materials shares edge 0.6% higher after the biggest maker of semiconductor- manufacturing equipment’s current quarter sales forecast beat expectations.
  • Cryptocurrency-exposed stocks fall, as the price of Bitcoin declines amid jitters over a regulatory clampdown and hawkish comments from Fed officials. Coinbase (COIN US) -1.8%, Stronghold Digital (SDIG US) -5.8%, Bit Digital (BTBT US) -3.4%, Block (SQ US) -1.5%
  • DraftKings shares rise 7.8% after the sports-betting company reported better-than-expected fourth- quarter revenue. Analysts responded positively to the beat, with many highlighting the structural improvements and strong customer trends as the main drivers.
  • Watch Nvidia’s stock as its price target was raised to $280 from $220 at KeyBanc Capital Markets, which cited long-term growth opportunity in artificial intelligence and machine learning.

Risk assets were hammered after two of the Fed’s most hawkish policymakers signaled they may favor returning to bigger interest-rate hikes in the future. Their comments followed data that showed US producer prices rebounded in January by more than expected, following consumer price data earlier this week that didn’t slow by as much as forecast. The double whammy of higher prices and hawkish Fed speakers jolted markets that have been rebounding from 2022’s selloff. After leading the rally in 2023, US tech stocks led Thursday’s losses as bond yields advanced. On a longterm horizon, the relative level of US tech stocks still looks elevated even after last year’s brutal selloff. The Nasdaq 100 Index isn’t far off historic highs versus the S&P 500 Index and is still trading near the peak that marked the implosion of the dot-com bubble.

“We still think that interest rates will peak at a higher level than 5%. It’s going to be very data-dependent,” Frederique Carrier, head of investment strategy at RBC Wealth Management, said on Bloomberg TV. “We dont want to be victims to changes in sentiment, so we are positioned in a neutral way.”

The delayed arrival of a US recession will weigh on stocks in the second half of the year, according to Bank of America's Michael Hartnett who says a resilient economy thus far means interest rates will stay higher for longer. Hartnett is predicting a scenario known as “no landing” in the first half of the year, where economic growth will stay robust and central banks will likely remain hawkish for longer. That will probably be followed by a “hard landing” in the latter part of 2023, they wrote in a note dated Feb. 16. Meanwhile, investors continued to shun US equities in the week through Feb. 15, with outflows totaling $2.2 billion, Hartnett said in the note, citing EPFR data. On the flip side, Europe saw inflows of $1.5 billion, while emerging-market stocks attracted $100 million.

“It’s taken a lot but it would appear investors’ eternal optimism is being shaken, with the latest PPI figures finally driving the message home that bringing the economy in for a soft landing will be extraordinarily challenging and there’ll likely be plenty of turbulence along the way,” said Craig Erlam, senior market analyst at Oanda Europe.

European stocks snapped a four-day winning streak, and retreated after rising to the highest level in a year yesterday, amid renewed concerns about bigger interest-rate hikes from the Federal Reserve. The Stoxx Europe 600 Index was 0.6% lower with technology and energy underperforming. Among prominent stock moves, NatWest Group Plc slumped after issuing 2023 guidance that disappointed, while Mercedes-Benz Group AG climbed as a share buyback and strong fourth-quarter earnings helped offset its outlook that earnings will decline slightly this year. Here are some other notable European movers:

  • NatWest slides as much as 9.5% after the British lender reported higher costs and guided for profit below what some analysts had expected.
  • Allianz falls as much as 3.6% with Citi noting the lack of a new buyback and saying that the new guidance from the German insurer is about in line with consensus.
  • Hermes International slips as much as 2.1% from near-record levels, as Citi flags the group’s expensive valuation and a lack of special dividend despite a record cash position.
  • GTT falls as much as 9.8% after the French engineering company’s forecast for profit this year missed the average estimate.
  • Eutelsat shares fall as much as 7.1% to a record low after the satellite operator trimmed its revenue outlook, citing impact from sanctions against Russian and Iranian channels.
  • NCAB falls as much as 21%, the most since its 2018 IPO, after the Swedish printed circuit- board maker reported a 5% drop in order intake year-on- year.
  • Mercedes gains as much as 3.2%, the best performer on the Stoxx 600 Automobiles and Parts Index, after reporting strong fourth-quarter results that beat estimates.
  • Air France-KLM advances as much as 9.8% after delivering a 4Q beat to consensus with a strong top-line boosting operating income and solid performance in unit revenue
  • Kingspan rises as much as 7.4% in early trading after the Irish insulation and building-products maker reported full-year revenue in line with estimates.
  • Segro gains as much as 4.7% after results, as analysts say the group remains well-positioned and will continue to deliver good rental growth, with its operational performance robust.

Earlier in the session, Asian stocks also dropped following a slump on Wall Street, as comments from two Federal Reserve officials weigh on the region’s tech shares. The MSCI Asia Pacific Index fell as much as 1.3%, set for a three-week decline that would be its longest losing streak since October. Hong Kong and South Korea were the region’s worst performers, with benchmarks for mainland China, Australia and India also falling.  Tech shares including TSMC and Tencent slid after Fed Bank of Cleveland President Loretta Mester said she had seen a “compelling economic case” for rolling out another 50 basis-point hike. St. Louis President James Bullard said he would not rule out supporting a half-percentage-point increase in March. “Markets in general have been too sanguine year to date in terms of the prospect of imminent Fed pivot,” Helen Zhu, managing director and chief investment officer at NH Trinity, said in an interview with Bloomberg TV.  Asia’s benchmark has fallen nearly 5% from a late-January peak, as concerns over higher rates and geopolitical tensions replaced optimism about China’s reopening. Speculation toward potential US rate cuts in the second half of this year was probably “overdone,” Zhu said, adding that Chinese equities may be worth buying on dips to build exposure for the rest of the year.  

Japanese stocks followed U.S. shares downwards after hawkish commentary from Federal Reserve officials.  The Topix Index fell 0.5% to 1,991.93 as of market close Tokyo time, while the Nikkei declined 0.7% to 27,513.13. Sony Group Corp. contributed the most to the Topix Index decline, decreasing 2.4%. Out of 2,163 stocks in the index, 715 rose and 1,331 fell, while 117 were unchanged. The Fed officials’ comments came after US producer prices rebounded in January by the most since June.  “Hawkish comments from Fed officials or economic indicators that concern the Fed would be negative for stock prices,” said Yasuhiro Kano, senior investment manager at Sompo Asset Management. 

Australian stocks posted  a second weekly loss amid bets for rate hikes; the S&P/ASX 200 index fell 0.9% to close at 7,346.80, weighed by losses in technology and mining shares. Australia’s labor market is “still very tight” and price pressures remain surprisingly strong, Reserve Bank Governor Philip Lowe said, making the case for further interest-rate increases. In New Zealand, the S&P/NZX 50 index fell 0.1% to 12,144.66.

In FX, the Dollar Index is up 0.6% leaving it poised for its third weekly advance; the greenback advanced against all of its Group-of-10 peers as traders rushed to add to the pricing of Fed hikes; the New Zealand dollar and Norwegian krone are the worst-performers among the G-10’s.

  • The euro fell to a six-week low of $1.0630 despite hawkish repricing of the ECB after Executive Board member Isabel Schnabel said she saw risks that markets will underestimate inflation. Investors rushed to offload German bonds and money markets amped up rate-hike wagers
  • The pound shrugged off data showing that UK retail sales unexpectedly rose 0.5% last month after post-Christmas discounting brought people into stores. Economists had expected a drop of 0.3%
  • The yen fell to 135.03, its weakest level in almost three months; the currency’s volatility term structure peaks on the three-week tenor that captures the next Bank of Japan meeting, yet one-week implieds turn bid Friday
  • Australian and New Zealand dollars traded fell to six-week lows on the back of a stronger greenback. Aussie yields rose both in sympathy with Treasury moves and after a hawkish senate testimony from Reserve Bank Governor Philip Lowe
  • Sweden’s krona extended declines in the European session even after data showed the adjusted unemployment rate fell back to 7.3% in January, from a revised 7.4% in December, increasing the likelihood that the country’s central bank will continue raising rates in response to soaring inflation. The median estimate in a Bloomberg survey of economists was 7.5%

In rates, treasuries extend losses with yields cheaper by 3bp-5bp across the curve vs Thursday’s closing levels. 10-year Treasury yields were around 3.88%, cheaper by ~3bp on the day but outperforming bunds and gilts by 0.5bp and 2bp in the sector; US front-end underperforms on the curve, flattening 2s10s spread by ~1bp. Bunds and gilts are firmly in the red, with 10-year yields in both countries rising 5bps. Core European rates lead the selloff following hawkish comments from ECB’s Schnabel and German PPI data.  Germany’s front-end lags as traders fully price a 3.75% ECB rate peak for the first time after Executive Board member Isabel Schnabel said she saw risks that markets will underestimate inflation.

In commodities, Crude futures decline with WTI down 2.4% to trade near $76.60. Qatar Energy set April-loading Al-Shaheen crude term price at a premium of USD 2.58/bbl above Dubai quotes, according to traders cited by Reuters. Russian President Putin says demand for natural gas will increase; half of the demand will come from APAC, mainly China. China's Dalian Commodity Exchange says price fluctuations of commodities, including iron ore, are relatively huge; alerts investors to participate rationally. Base metals are slumping on the USD's upside with spot gold down to a sub-1820/oz trough and LME Copper falling further below USD 9k/T..

In crypto, the SEC filed a securities fraud lawsuit against Terraform Labs and founder Do Hyeong Kwon which alleged that the defendants perpetrated a fraudulent scheme that led to at least USD 40bln of losses in market value, according to Reuters. Senior BoJ official Uchida said the BoJ decided to launch a pilot program this April on a CBDC which aims to test technical feasibility, as well as utilise skills and insights of private businesses.

Looking at the day ahead, data releases include Import price index and the Leading Index. Central bank speakers include the ECB’s Villeroy, and the Fed’s Barkin and Bowman.

Market Snapshot

  • S&P 500 futures down 0.5% to 4,079.25
  • MXAP down 1.2% to 162.48
  • MXAPJ down 1.3% to 529.74
  • Nikkei down 0.7% to 27,513.13
  • Topix down 0.5% to 1,991.93
  • Hang Seng Index down 1.3% to 20,719.81
  • Shanghai Composite down 0.8% to 3,224.02
  • Sensex down 0.6% to 60,963.95
  • Australia S&P/ASX 200 down 0.9% to 7,346.77
  • Kospi down 1.0% to 2,451.21
  • STOXX Europe 600 down 0.6% to 462.23
  • German 10Y yield little changed at 2.55%
  • Euro down 0.1% to $1.0658
  • Brent Futures down 1.4% to $83.91/bbl
  • Gold spot down 0.7% to $1,823.73
  • U.S. Dollar Index up 0.45% to 104.32

Top Overnight News from Bloomberg

  1. China on Friday delivered the largest one-day cash injection into the economy since record keeping started in 2004 as it works to meet rising liquidity needs for the post-COVID economic rebound. SCMP
  2. China's top tech banker Bao Fan went missing, unnerving the finance industry. Bao's been out of contact with China Renaissance for about two days, a person familiar said. His family was told he's assisting an investigation. Shares plunged 28%. Meanwhile, China is said to be poised to name regulatory veterans known for strict campaigns against financial wrongdoing as new heads of the banking and securities watchdogs. BBG
  3. One of the ECB’s most senior officials said that investors risk underestimating the persistence of inflation, and the response needed to bring it under control. “We are still far away from claiming victory,” Executive Board member Isabel Schnabel said in an interview with Bloomberg, citing the strength of underlying price pressures and faster wage increases. The economy’s reaction to interest-rate increases may prove weaker than in prior episodes, and if that transpires, “we may have to act more forcefully.” BBG
  4. Germany’s PPI comes in above the St consensus for Jan (+17.8% vs. the St +16.4%), the latest hot inflation number out this week. RTRS
  5. UK retail sales rose unexpectedly last month after post-Christmas discounting brought people into stores. The volume of goods sold in stores and online rose 0.5% in January after a 1.2% decline in December, the Office for National Statistics said Friday. Economists had expected a drop of 0.3%. BBG
  6. The SEC accused crypto fugitive Do Kwon and his Terraform Labs of fraud. It alleged they offered and sold unregistered securities, including the failed TerraUSD stablecoin, and carried out a scheme that erased at least $40 billion of market value. In the Mt Gox bankruptcy, the top creditor opted for an early payout in Bitcoin rather than fiat currency, avoiding years of litigation, a person familiar said. BBG
  7. GIR is adding another 25bp in June to our fed baseline following firmer growth & inflation news: Yesterday’s PPI marked the 3rd beat in a string of strong US data prints this week (along with CPI, Retail Sales), which taken together have suggested that the Fed’s work is still not finished, and that the risks of a longer cycle are rising. Tuesday’s CPI report confirmed that underlying inflation remains elevated, and the retail sales report was strong evidence of robust US consumer demand. We had noted that a fading drag from Fed tightening on growth and tight labor market had left greater upside risks to our Fed path, and with comments from the Fed yesterday (Mester in particular, Bullard too) biased in the same way, our economists have added a further 25bp rate hike to their forecasts, now expecting 3 more 25bp hikes in March, May & June for a peak funds rate of 5.25-5.5. GIR
  8. Deere reported strong FQ1 results, and they raised the net income guidance for the year. EPS came in at 6.55 (a full $1 ahead of the St consensus) while the revenue beat was more modest ($11.4B vs. the St $11.22B). Results benefited from ongoing demand strength, coupled with improved operating/supply chain conditions. RTRS
  9. The United Arab Emirates’ national energy company plans to sell a stake of about 4% of its natural-gas business in an initial public offering that it hopes will raise $2 billion, as Middle East petrostates increase plans to supply Europe. WSJ
  10. Yen traders looking to navigate a smooth handover of power at the Bank of Japan face an added complication from fiscal year-end flows which traditionally weigh on the currency
  11. An economy Putin once wanted to make one of the world’s five biggest is on a path to lose $190 billion in gross domestic product by 2026 relative to its prewar trajectory, according to Bloomberg Economics, roughly the equivalent of the entire annual GDP of countries like Hungary or Kuwait

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded negatively as the regional bourses took their cues from the weak performance stateside after firmer-than-expected PPI data and hawkish Fed rhetoric. ASX 200 was dragged lower by weakness in tech following the underperformance of the Nasdaq in the US and with sentiment also dampened as the RBA Governor Lowe reiterated the view for higher rates. Nikkei 225 suffered from the tech rout and as earnings began to quieten, although Bridgestone was among the best performers after a jump in revenue and forecasts for a 12% increase in FY23 profits. Hang Seng and Shanghai Comp. declined with Hong Kong pressured by tech losses and with frictions stoked after China unveiled sanctions against US firms related to Taiwan arms sales, while the mainland initially bucked the trend after a substantial liquidity injection by the PBoC.

Top Asian News

  • PBoC injected CNY 835bln via 7-day reverse repos at 2.00% for a CNY 632bln net injection.
  • RBA Governor Lowe said high inflation is damaging and that they will do what is necessary to make sure inflation returns to the target range, while he noted the Board expects that further increases will be needed over the months ahead. Lowe also reiterated that they are not on a predetermined path on interest rates and have an open mind but their assessment is that they have to go up further on rates. Furthermore, he added that they will slow down on rates if needed and that rates could start to come down next year if they get on top of inflation but a few things would have to go right for that to happen.

European bourses & US futures are pressured amid a myriad of hawkish factors, Euro Stoxx 50 -1.0% & ES -0.8%, with more Fed officials scheduled. Sectors are predominantly in the red, with only Autos bucking the trend following earnings from Mercedes-Benz while Tech slumps on elevated yields. Stateside, futures are all in the red and given the session's action has been driven by hawkish developments, the NQ -1.0% is underperforming.

Top European News

  • ECB's Schnabel says it is not easy to say if policy is already restrictive, via Bloomberg. Wage growth is up strongly, may be more persistent; risk markets will underestimate inflation. QT could be sped up after June, nothing has been decided yet. The broad disinflation process has not even started yet. 50bp hike in March is needed under virtually all scenarios. Weaker transmission may require more forceful action.
  • Diplomats in Brussels suggest a deal on the Northern Ireland Protocol "isn't quite there, yet", according to BBC's Parker; Northern Ireland Alliance party leader says that after meeting UK PM Sunak, it seems that "things are gradually moving towards a protocol deal", though adds “We are not over the line yet - there is still heavy lifting to do,”
  • Allianz’s Muted Outlook Takes Shine Off Dividend, Record Profit
  • European Bonds Drop Sharply as ECB Peak Bets Close In on 3.75%
  • Ex-Warburg Banker’s Cum-Ex Suit Rejected by Top German Court
  • KBW More Bullish on Italian Banks, Upgrades Intesa, BAMI


  • The USD is bolstered with multiple hawkish factors in play, DXY holding just under 104.50 within 104.15-104.51 parameters.
  • As such, peers are lower across the board with Antipodeans lagging given the double-whammy of USD and commodities weighing; AUD/USD near 0.68 and NZD/USD sub 0.62.
  • Additionally, the comparatively lower-yielding nation's FX are towards the bottom of the pile with CHF and JPY above 0.93 and 135.0 respectively vs the USD.
  • Next up, and despite domestic hawkish factors, EUR and GBP are lower though faring much better than their aforementioned peers given some of the USD's upside has been offset by ECB's Schnabel/German PPI and UK Retail Sales.
  • PBoC set USD/CNY mid-point at 6.8659 vs exp. 6.8674 (prev. 6.8519)

Fixed Income

  • Core benchmarks are under marked pressure as Bullard, German PPI and Schnabel weigh ahead of Fed's Bowman and Barkin.
  • Specifically, Bunds down to a 133.67 trough post-Schnabel while Gilts slipped and pricing for a 25bp BoE hike in March lifted slightly on Retail Sales.
  • Similarly, the EGB periphery is downbeat and interestingly the action has seen the BTP-Bund spread widen to near 190bp, the widest for several weeks given Schnabel's overt hawkishness.
  • Stateside, USTs slump as Bullard and GS' latest FFR call continue to weigh, yields elevated across the curve which is slightly flatter given the short-term implications of the referenced drivers; Bowman & Barkin ahead.


  • The commodity complex is under pressure given the above risk tone and as the USD picks up.
  • WTI and Brent are subdued with the benchmarks at the lower end of circa. USD 2/bbl parameters and Nat Gas contracts are lower both side of the pond.
  • Qatar Energy set April-loading Al-Shaheen crude term price at a premium of USD 2.58/bbl above Dubai quotes, according to traders cited by Reuters.
  • Russian President Putin says demand for natural gas will increase; half of the demand will come from APAC, mainly China.
  • China's Dalian Commodity Exchange says price fluctuations of commodities, including iron ore, are relatively huge; alerts investors to participate rationally.
  • Similarly, metals are slumping on the USD's upside with spot gold down to a sub-1820/oz trough and LME Copper falling further below USD 9k/T.


  • Pentagon's top China official Michael Chase will visit Taiwan in the coming days, according to FT sources; subsequently, clarified that Chase has arrived in Taiwan.
  • Ukrainian President Zelensky has ruled out giving up any of Ukraine's territory in a potential peace deal with Russia, according to the BBC.
  • North Korea said planned US-South Korean military drills will lead to increased tensions in the region and warned that the US and South Korea will face an unprecedently strong response if they go ahead with planned military drills, while it will also consider additional military action in protest against US pressure at the UN Security Council, according to KCNA.
  • Chinese Foreign Ministry, on President Biden suggesting he will speak to his Chinese counterpart Xi, says the US cannot ask for communications and dialogue while escalating the crisis.
  • Japan, US, Australia, and India are to hold a foreign ministers' meeting in March, according to Japanese press Sankei.

US Event Calendar

  • 08:30: Jan. Import Price Index ex Petroleum, est. -0.2%, prior 0.8%
  • 08:30: Jan. Import Price Index MoM, est. -0.1%, prior 0.4%
  • 08:30: Jan. Import Price Index YoY, est. 1.4%, prior 3.5%
  • 08:30: Jan. Export Price Index YoY, est. 2.8%, prior 5.0%
  • 08:30: Jan. Export Price Index MoM, est. -0.2%, prior -2.6%
  • 10:00: Jan. Leading Index, est. -0.3%, prior -0.8%

Fed Speakers

  • 08:30: Fed’s Barkin Discusses the US Labor Market
  • 08:45: Fed’s Bowman Speaks at Banking Conference

DB's Jim Reid concludes the overnight wrap

Markets took a knock over the last 24 hours, with rates rising and equities selling off thanks to strong inflation data and hawkish central bank rhetoric, as some Fed officials even floated the prospect they might resume 50bp hikes. That saw the S&P 500 shed -1.38%, with sharp losses into the close, whilst the 10yr Treasury yield rose another +5.6bps to 3.86%, which is its highest level so far in 2023. Indeed, the 10yr yield is now up by +46.8bps over the last 10 trading sessions, marking the fastest increase over two weeks since September. All these moves show how we’ve seen a significant change in the market narrative since the jobs report, with much stronger-than-expected numbers on inflation and the economy raising the prospect that the Fed will keep hiking rates for some time yet.

This narrative got a fresh boost from the latest data on US producer prices in January, which surprised well on the upside of expectations. For instance, the monthly headline number came in at a 7-month high of +0.7% (vs. +0.4% expected), which meant that the year-on-year total only declined to +6.0% (vs. +5.4% expected). The core numbers didn’t look promising either, with the total excluding food and energy and trade services up by a 10-month high of +0.6% (vs. +0.3% expected). So purely based on the January numbers, we’ve now seen inflation accelerate on both the CPI and PPI measures relative to where things stood in Q4.

Time will tell how this plays out, but in the meantime we got another round of hawkish commentary from Fed officials yesterday. In fact, Cleveland Fed President Mester said that she even “saw a compelling economic case for a 50 basis-point increase” at the most recent meeting, when they opted to downshift hikes back to 25bps. Furthermore, she said that 25bps were not inevitable and that “we can move faster, and we can do bigger at any particular meeting.” That was then followed up by St Louis Fed President Bullard, who said he wouldn’t rule out supporting a 50bp hike in March as well, and said that his judgement was “it will be a long battle against inflation.”

On the back of those comments, investors moved to price in a growing probability that the Fed might choose to move by more than 25bps at the next meeting in March. Indeed, looking at Fed funds futures, a +28.2bps hike is now priced in for the next meeting, which is the highest to date, and means at least a small chance is priced that they might opt for a bigger move. On top of that, expectations of the terminal rate now stand at their highest to date, at 5.29% in July. That said, we’ve still got plenty of data coming out before that next decision, including the jobs report and CPI print for February, so all eyes will be on those releases.

Against this backdrop, Treasuries struggled once again, with the 10yr yield up +5.6bps to 3.86%, which has been followed up by a further +2.3bps increase overnight to 3.88%. Higher inflation breakevens have been the driver over the last couple of sessions, with the 10yr breakeven up +3.2bps yesterday to 2.38%, whilst the 2yr breakeven was up another +0.4bps to 2.87%. The 2yr breakeven had closed as low as 2.04% as recently as January 18, so it’s clear that investors are moving to reappraise the near-term inflation profile in light of the recent data.

Elsewhere, US equities had a rough session of their own yesterday, although the S&P 500 was initially down as much as -1.36%, before recovering to only be down -0.27%, before then falling sharply following the Bullard comments to close -1.40%. The declines were pretty broad-based, with every sector group in the S&P losing ground. Other indices also struggled too, including the NASDAQ (-1.78%) and the Dow Jones (-1.26%).

Those equity declines followed a bunch of data that painted a more downbeat view on the rest of the US economy. For instance, housing starts fell by more than expected to an annualised rate of 1.309m in January (vs. 1.356m expected). That takes them to their lowest since June 2020, when the economy was still recovering from the initial Covid-19 wave, and means that housing starts have fallen for 5 consecutive months for the first time since 2009. Elsewhere, we also had the Philadelphia Fed’s business outlook, which fell down to -24.3 (vs. -7.5 expected). Bear in mind as well that in available data back to 1968, the index has never been this low without a recession following within months.

Over in Europe however, the picture has remained comparatively upbeat. In fact the STOXX 600 (+0.19%) closed at a one-year high yesterday, with its YTD gains now standing at +9.50%, albeit that was before the Bullard comments. It was a similar story for some of the other indices, with the DAX (+0.18%) and the CAC 40 (+0.89%) also closing at one-year highs of their own, whilst the UK’s FTSE 100 (+0.18%) reached an all-time high as it closed above the 8,000 mark for the first time.

Whilst European equities put in a decent performance, sovereign bonds lost a bit of ground like in the US. For instance, yields on 10yr bunds saw a modest +0.3bps increase to close at their highest level of 2023 so far, at 2.47%, and yields on 2yr German debt hit a post-2008 high. That followed a collection of ECB speakers across the hawk-dove spectrum. For instance, the Executive Board’s Panetta (a dove) said that “we now need to take into account the risk of overtightening alongside the risk of doing too little”, and also that “we face so much uncertainty in both directions, I would consider it unwise to move very fast”. But on the other hand, Bundesbank President Nagel said that “I can’t see that we’re in restrictive territory right now”. As in the US though, there was evidence that inflation expectations were creeping higher, since the 5y5y forward inflation swap for the Euro Area (which looks at inflation over the 5 years starting in 5 years’ time) hit its joint highest closing level since May yesterday, at 2.41%.

Staying on Europe, next week DB Research’s CEEMEA team will be hosting a webinar on the war in Ukraine next week. They’ll be joined by Michael Kofman, the Research Director of the Russia Studies Program at the CAN, and will be discussing the latest developments in the conflict, the likely next steps in the war effort, the implications of recent sanctions, the prospects of a peace agreement, and the risks of escalation. That’s taking place on Tuesday at 1pm London time, and the link to sign up is here.

Overnight in Asia, equity markets are under pressure this morning, following up those overnight losses on Wall Street. As we go to press, the KOSPI (-0.77%), the Nikkei (-0.64%), the Hang Seng (-0.58%), the CSI (-0.48%) and the Shanghai Composite (-0.16%) have all lost ground. And on the FX side, the Japanese Yen has weakened to 134.71 per US Dollar, its weakest level since the BoJ’s surprise move to adjust their yield curve control policy in December. That comes amidst firming expectations the Fed will stick to their hawkish stance, and the broader dollar index is also at its strongest since early January. Elsewhere, the S&P/ASX 200 (-0.78%) is trading lower after the Reserve Bank of Australia’s Governor Lowe reiterated warnings of inflation risks while pointing to further rate hikes in coming months. This negative sentiment is being seen elsewhere too, with US stock futures indicating further losses today, including those for the S&P 500 (-0.50%) and NASDAQ 100 (-0.68%).

To the day ahead now, and data releases include UK retail sales and German PPI for January, whilst in the US there’s also the Conference Board’s leading index for January. Otherwise, central bank speakers include the ECB’s Villeroy, and the Fed’s Barkin and Bowman.

Tyler Durden Fri, 02/17/2023 - 08:12

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Beer bankruptcy apocalypse claims another fan-favorite brand



Before the covid pandemic, craft breweries had a moment. Beer snobs ruled the day, creating a market for local brewers to expand their businesses into regional distribution.

The demand for interesting beers was clear: Younger drinkers drove a movement that pushed local brewers to challenge the established brands. But that movement was wiped out once covid hit because craft brewers relied on people visiting their breweries.

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Even brands that had good distribution in grocery and liquor stores suffered during the period where people could not visit their brewery/bar locations. It was a financial drain that pushed a number of these popular brands to the edge of ruin.

And after the pandemic ended, many of these beer brands suffered as younger consumers moved away from drinking beer, Some embraced the alcohol-free mocktail movement while others simply swapped cocktails, hard seltzers or other alcohol for beer.

Now, the craft beer industry is facing an apocalypse. Most famously, Anchor Brewing, the San Francisco icon that had national distribution, shut down last summer. A wave of bankruptcies followed, including regional favorites like Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks and Cleveland’s Terrestrial Brewing.

It has been a devastating run for the craft-beer industry, and the bleeding has not stopped.

It has been a rough period for craft breweries.

Image source: Shutterstock

Another brewery files Chapter 11 bankruptcy

A brewery that touts being at an 8,530-foot elevation, Guanella Pass, also has the distinction of being the first brewery in Georgetown, Colo., since Prohibition. The company described its two locations on its website,   

“At the foot of the Guanella Pass Scenic Byway in Historic Georgetown, CO, sits the original Brewery, and at the foot of Berthoud Pass in downtown Empire sits our second tap room and kitchen. A true mountain brewery,” the company says. 

“We believe that where you drink beer is as important as what beer you drink. So leave the grind behind, sit for a bit, and share a story or two. Because here, all you need is what you have and a good beer.”

The brewery also distributes its beers regionally at a number of locations in Colorado.

Guanella Pass continues to operate after its late-December Chapter 11 filing and the brewery has an upcoming big event scheduled for Feb. 17.

“Pass it along, there’s a Pig Roast in town! Join us at Guanella Pass for our piggy throw down! We’ll be smokin’ this bad boy starting late Friday night to get ready for our grand meat cutting at 3pm. Feel free to swing by and say hi to our BBQ crew. It’s $15 per plate, come and grab some before we run out,” the company said on its website. 

Guanella Pass has a lot of debt

In its bankruptcy filing, Guanella Pass disclosed that it had $2.3 million of debt while bringing in only $860,000 of revenue in the previous year. The company showed $72,000 in assets at the time of the filing. 

The brewer, which hopes to restructure its debt and keep operating, has a significant number of creditors,

“It owes $573,000 to First Savings Bank, which loaned it money in 2021, and $256,000 to the Clear Creek Economic Development Corp., a nonprofit that loaned it money in 2019. Both loans are collateralized by the property at 501 Rose St. in Georgetown,” the Denver Post reported.

The brewer also owes its majority shareholders, Steven and Stacey Skalski, $700,000. In addition, the company has an unpaid $135,000 loan with the U.S, Small Business Administration and owes the Colorado Department of Revenue $100,000 along with $32,000 to its food vendor, $22,000 to its bookkeeper and $10,000 to its power company, the newspaper reported.

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Public Health from the People



There are many ways to privately improve public health. Such responses make use of local knowledge, entrepreneurship, and civil society and pursue standard goals of public health like controlling the spread of infectious diseases. Moreover, private responses improve overall welfare by lowering the total costs of a disease and limiting externalities. If private responses can produce similar outcomes as standard, governmental public health programs—and more—perhaps we should reconsider when and where we call upon governments to improve public health.

Two Kinds of Private Responses

Following Vernon Smith and his distinction between constructivist and ecological rationality, private actors can engage in two general kinds of public health improvements. They can engage in concerted efforts to improve public health, and they can engage in emergent responses through myriad interactions.1 Three stories below—about William Walsh, Martha Claghorn, and Edwin Gould—indicate concerted efforts to improve public health.

Walsh, a Catholic priest and President of the Father Matthew Society in Memphis, Tennessee, used the society to organize a refugee camp outside of the city and helped hundreds of people avoid yellow fever during the 1878 epidemic—one of the worst yellow fever epidemics in the country.2 Shortly after learning mosquitos carried diseases prior to 1901, Claghorn chaired the Civics committee of the Twentieth Century Club in the Richmond Hill area of Long Island and led a community-wide anti-mosquito campaign, which rid the area of potentially infectious mosquitos.3 After realizing that many of his employees were sick with malaria, Gould—president of the St. Louis Southwestern Railway—used his wealth and business firm to finance and develop an anti-mosquito campaign throughout Texas.4

These stories show how individuals recognize a public health problem given their circumstances and use their knowledge and available resources to resolve the problem. More recently, we might all be familiar with private, constructivist responses to Covid-19. We all made plans to avoid others and produce our desired amount of exposure. Many people made facemasks from old clothes or purchased them from facemask producers. Businesses, retailers, restaurants, and many others adapted in various ways to limit exposure for their workers and customers. My favorite example, albeit not relevant for most, is the so-called bubble that was implemented by the NBA, which housed teams, encouraged play, and limited infection. The NBA finished their season and crowned a 2020 champion only because of the privately designed and implemented bubble solution. The key is that the bubble pursued all of those objectives, not just one of them. All of these responses indicate how private interactions among people can minimize their exposure, through negotiation, discussion, and mutually beneficial means.

In addition to privately designed solutions, emergent public health responses are also important, perhaps even more so. Long-term migration and settlement patterns away from infectious diseases, consumption to improve nutrition, hygiene, sanitation, and the development of social norms to encourage preventative behavior are all different kinds of emergent public health responses. Each of these responses—developed through the actions of no one person—are substantial ways to improve public health.

First, consider how common migration operates as a means of lowering prevalence rates. As soon as people realized that living near stagnant bodies of water increased the probability of acquiring diseases like malaria, they were more likely to leave those areas and subsequently avoid them. Places with such features became known as places to avoid; people also developed myths to dissuade visitors and inhabitants.5 Such myths and associations left places like the Roman Campagna desolate for centuries. These kinds of cultural associations are also widespread; for example, many people in North and South Carolina moved to areas with higher elevation and took summer vacations to avoid diseases like malaria. East End and West End, in London, also developed because of the opportunities people had to migrate away from (and towards) several diseases.6

While these migration patterns might develop over decades, movement and migration also help in more acute public health crises. During the 1878 yellow fever epidemic throughout the southern United States, for example, thousands of people fled their cities to avoid infection. They took any means of transportation they could find. While some fled to other, more northern cities, many acquired temporary housing in suburbs, and many formed campsites and refugee camps outside of their city. The refugee camps outside of Memphis—like the one formed by William Walsh—helped hundreds and thousands of people avoid infection throughout the Fall of 1878.

Second, more mundane public health improvements—like improvements in nutrition, hygiene, and sanitation—are also emergent. These improvements arise from the actions of individuals and entrepreneurs, often closely associated with voluntary consumption and markets. According to renowned medical scientist Thomas McKeown, that is, rising incomes encouraged voluntary changes in consumption, which helped improve nutrition, sanitation, and lowered mortality rates.7 These effects were especially pertinent for women and mothers as they often selected more nutritious food and altered household sanitation practices. With advancing ideas about germs, moreover, historian Nancy Tomes argues that private interests advanced the campaign to improve house-hold sanitation and nutrition—full of advice and advertisements in newspapers, magazines, manuals, and books.8 Following Tomes, economic historians Rebecca Stein and Joel Mokyr substantiate these ideas and show that people changed their hygiene, sanitation, house-hold cleaning habits, and diets as they learned more about germs.9 Such developments helped people to provide their desired exposure to germs according to their values.

Obviously, there were concerted public health improvements during this time that also explain falling mortality rates. For example, waterworks were conscious efforts to improve public health and were provided publicly and privately, with similar, positive effects on health.10 The point is that while we might be quick to connect the health improvements associated with a public water system, we should also recognize emergent responses like gradual changes in voluntary consumption.

Finally, social norms or rules that encourage preventative behavior might also be relevant kinds of emergent public health responses. Such rules identify behavior that should or should not be allowed, they are enforced in a decentralized way, and if they follow from the values of individuals in a community.11 If such rules pertain to public health, they can raise the cost of infectious behavior or the benefits of preventative behavior. Covering one’s mouth when sneezing is not only beneficial from a public health perspective, it also helps avoid earning disapproval.

The condom code during the height of the HIV/AIDS epidemic is another example of an emergent public health rule that reduced infectiousness by encouraging safer behavior.12 People who adopted safer sexual practices were seen to be doing the right thing—akin to taking care of a brother. People who refrained from adopting safer sexual practices were admonished. No single person or entity announced the rule; rather, it emerged from the actions and interactions of individuals within various communities to pursue their goals regarding maintaining sexual activity and limiting the spread of disease. Indeed, such norms were more effective in communities where people used their social capital resources to determine which behaviors should be changed and where they can more easily monitor and enforce infractions. This seems like a relevant factor where many gay men and men who have sex with men live in dense urban areas like New York and Los Angeles that foster LGBTQ communities.

Covid-19 provides additional examples where social norms encouraged the use of seemingly appropriate behavior, e.g., social distancing, the use of facemasks, and vaccination. Regardless of any formal rule in place, many people adapted their behavior because of social norms that encouraged social distancing, the use of facemasks, and vaccination. In communities that valued such behaviors, people that wore face masks and vaccinated were praised and were seen as doing the right thing; people that did not were viewed with scorn. Indeed, states and cities that have higher levels of social capital and higher values for public health tend to have higher Covid-19 vaccine uptakes.13

Improving Public Health and More

“Private approaches tend to lower the total costs of diseases and they limit externalities.”

While these private approaches can improve public health, can they do more than typical public health approaches cannot? Private approaches tend to lower the total costs of diseases and they limit externalities. Each aspect of private responses requires additional explanation.

Responding to infectious diseases and disease prevention is doubly challenging because not only do we have to worry about being sick, we also have to consider the costs imposed by our preventative behaviors and the rules we might impose. Thus, the total costs of an infectious disease include 1) the costs related to the disease—the pain and suffering of a disease and the opportunity costs of being sick—and 2) the costs associated with preventative and avoidance behavior. While disease costs are mostly self-explanatory, the costs of avoiding infection warrant more explanation. Self-isolation when you have a cold, for example, entails the loss of potentially valuable social activities; and wearing condoms to prevent sexually transmitted diseases forfeits the pleasures of unprotected sexual activity. Diseases for which vaccines and other medicines are available are less worrisome, perhaps, because these are diseases with lower prevention costs than diseases where those pharmaceutical interventions are not available. Governmental means of prevention also add relevant costs. Many readers might be familiar with the costs imposed by our private and public responses to Covid—from isolation to learning loss, and from sharp decreases in economic activity to increased rates of depression and spousal abuse.14 Long before Covid, moreover, people bemoaned wearing masks during the Great Flu,15 balked at quarantine against yellow fever,16 and protested bathhouse closings with the onset of HIV.17

Figure 1 shows the overall problem: diseases are harmful but our responses to those diseases might also be harmful.

Figure 1. The Excess Burden of Infectious Diseases

This figure follows Bhattacharya, Hyde, and Tu (2013) and Philipson (2000), who refer to the difference between total costs and disease costs as the excess burden of a disease. That is, excess burden depends on how severely we respond to a disease in private and in public. The excess burden associated with the common cold tends to be negligible as we bear the minor inconvenience of a fever, a sore throat perhaps, or a couple days off work; moreover, most people don’t go out of their way to avoid catching a cold. The excess burden of plague, however, is more complicated; not only are the symptoms much worse—and include death—people have more severe reactions. Note too that disease costs rise with prevalence and with worsening symptoms but eventually decline as more severe diseases tend to be less prevalent. Still, no one wants to be infected with a major disease, and severe precautions are likely. We might shun all social interactions, and we might use government to impose strict quarantine measures. As disease severity rises along the horizontal axis, it might be the case that the cure is worse than the disease.

The private responses indicated above all help to lower the total costs of a disease because people choose their responses and they use their local knowledge and available resources to select cheaper methods of prevention. Claghorn used her neighborhood connections and the social capital of her civics association to encourage homeowners to rid their yards of pools of water; as such she lowered the costs of producing mosquito control. Similarly, Gould used the organizational structure of his firm to hire experts in mosquito control and build a sanitation department. These are cheap methods to limit exposure to mosquitos.

Emergent responses also help to lower the total costs of a disease because such responses indicate the variety of choices people face and their ability to select cheaper options. People facing diseases like malaria might be able to move away and, for some, it is cheaper than alternative means of prevention. Many people now are able to limit their exposure to mosquitos with screens, improved dwellings, and air conditioning.18 Consider the variety of ways people can limit their exposure to sexually transmitted diseases like HIV. If some people would rather use condoms to limit HIV transmission, they are better off doing so than if they were to refrain from sexual activity altogether. Similarly, some people would be better off having relatively risky sexual activity if they were in monogamous relationships or if they knew about their partner’s sexual history. That people can choose their own preventative measures indicates lower total costs compared with blunt, one-rule-for-all, governmental public health responses.

Negative and positive externalities of spreadable diseases indicate too much infectious behavior and too little preventative behavior, respectively. Hosting a party is fun, but it also incurs the internal costs of the drinks and appetizers and, more importantly, perhaps the external costs of raising the probability that people get sick. Attending a local cafe can be relaxing, but you have to pay for a cup of coffee and you might also transmit a disease to other coffee drinkers. The same could be said for many other public and social activities that might spread diseases like attending a class or a basketball game, transporting goods and people, and sexual behaviors. Our preventative behaviors from taking a vaccine to covering your mouth and from isolation to engaging in safer sexual practices emits positive externalities. If left unchecked, negative and positive externalities lead to higher rates of infection.

Overall, we should continue to think more critically about delineating how private and public actors can improve public health and overall welfare. More importantly, we should recognize that private actors are more capable than we often realize, especially in light of conscious efforts to improve public health and those efforts that emerge from people’s actions and interactions. These private efforts might be better at advancing some public health goals than public actors do. Individuals, for example, have more access to local knowledge and can discover novel solutions that serve multiple ends—often ends they value—rather than the ends of distant officials. Such cases and possibilities indicate cheaper ways to improve public health.


[1] Smith (2009), Rationality in Economics: Constructivist and Ecological Forms, Cambridge University Press.

[2] For more on Walsh, see Carson (forthcoming), “Prevention Externalities: Private and Public Responses to the 1878 Yellow Fever Epidemic,” Public Choice.

[3] For more on Claghorn, see Carson (2020), “Privately Preventing Malaria in the United States, 1900-1925,” Essays in Economics and Business History.

[4] For more on Gould, see Carson (2016), “Firm-led Malaria Prevention in the United States, 1910-1920,” American Journal of Law and Medicine.

[5] On the connection between malarial diseases, dragons, and dragon-slaying saints, see Horden (1992), “Disease, Dragons, and Saints: the management of epidemics in the dark ages,” in Epidemics and Ideas by Ranger and Slack.

[6] For more on migration and prevalence rates, see Mesnard and Seabright (2016), “Migration and the equilibrium prevalence of infectious disease,” Journal of Demographic Economics.

[7] The American Journal of Public Health published several commentaries on McKeown in 2002:

[8] Tomes (1990), “The Private Side of Public Health: Sanitary Science, Domestic Hygiene, and the Germ Theory, 1870-1990,” Bulletin of the History of Medicine.

[9] Mokyr and Stein (1996), “Science, Health, and Household Technology: The Effect of the Pasteur Revolution on Consumer Demand,” in The Economics of New Goods, NBER.

[10] See Werner Troesken’s work on public and private waterworks in the U.S. around the turn of the 20th century. See Galiani, Gertler, and Shargrodsky (2005), “Water for Life,” Journal of Political Economy.

[11] Brennan et al., (2013), Explaining Norms, Oxford University Press.

[12] For more on the condom code, see Carson (2017), “The Informal Norms of HIV Prevention: The emergence and erosion of the condom code,” Journal of Law, Medicine and Ethics.

[13] Carilli, Carson, and Isaacs (2022), “Jabbing Together? The complementarity between social capital, formal public health rules, and covid-19 vaccine rates in the U.S.,” Vaccine.

[14] Leslie and Wilson, “Sheltering in Place and Domestic Violence: Evidence from Calls for Service During Covid-19.” Journal of Public Economics 189, 104241. Mulligan, “Deaths of Despair and the Incidence of Excess Mortality in 2020,” NBER, Betthauser, Bach-Mortensen, and Engzell, “A systematic review and meta-analysis of the evidence on learning during the Covid-19 Pandemic,” Nature Human Behavior,

[15] On the great influenza epidemic, see CBS News, “During the 1918 Flu pandemic, masks were controversial for ‘many of the same reasons they are today’.” Oct. 30, 2020.

[16] On yellow fever quarantine in Mississippi, see Deanne Nuwer (2009), Plague Among the Magnolias: The 1878 Yellow Fever Epidemic in Mississippi.

[17] On these closures, see Trout (2021), “The Bathhouse Battle of 1984.”

[18] Tusting et al. (2017), “Housing Improvement and Malaria Risk in Sub-Saharan Africa: a multi-country analysis of survey data.” PLOS Medicine.

*Byron Carson is an Associate Professor of Economics and Business at Hampden-Sydney College in Virginia, where he teaches courses on introductory economics, money and banking, health economics, and urban economics. Byron earned his Ph.D. in Economics from George Mason University in 2017, and his research interests include economic epidemiology, public choice, and Austrian economics.

This article was edited by Features Editor Ed Lopez.

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Analyst unveils new Lowe’s stock price target ahead of earnings



They are three letters that represent a multi-billion dollar industry: DIY.

Mention do-it-yourself home repairs, and some people will probably think of This Old House or the 1990s sitcom “Home Improvement,” where Tim Allen portrayed the host of the fictional “Tool Time” TV program. 

Others might think of HGTV, the Property Brothers Jonathan and Drew Scott, or Joanna and Chip Gaines of Magnolia Network. Whatever your particular cultural reference, rest assured that the DIY market is a revenue monster.

An estimated 75% of U.S. homeowners take on DIY projects, and 62% named saving money a top reason for their home improvement efforts. As a result, total U.S. home improvement sales amounted to $538 billion in 2021, according to Statista, and is projected to grow to $621 billion in 2025.

The number of do-it-yourselfers climbed during the COVID-19 outbreak as people had more time on their hands, interest rates were at rock bottom, and stimulus checks were flowing. 

That was good news for home improvement retailers like Lowe’s, which saw its stock price soar in 2021 thanks to higher demand. 

Unfortunately, rising interest rates, inflation, and job uncertainty have increased, denting demand and causing investors to wonder what could happen to Lowe’s shares next.

Lowe’s shares are facing headwinds as do-it-yourself demand slips. Photographer: Luke Sharrett/Bloomberg via Getty Images.

Bloomberg/Getty Images

Pullback in DIY spending

Young homeowners are more likely to attempt do-it-yourself projects because they tend to have less disposable income and believe that the DIY approach will be less costly than hiring a contractor.

The most common types of DIY projects are home interior projects, such as painting, flooring, and décor, which are taken on by 31% of homeowners surveyed.

Unfortunately, those younger DIYers are also most susceptible to tighter budgets, and as a result, Lowe’s  (LOW) – Get Free Report revenue has declined year-over-year for three straight quarters.

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Lowe’s, which reports quarterly earnings on Feb. 27, is the second-biggest name in the home improvement game, behind Home Depot  (HD) – Get Free Report, which is slated to release updated earnings results on Feb. 19.

Lowe’s posted better-than-expected third-quarter earnings in November but trimmed its full-year profit forecast, echoing Home Depot’s warning that consumers were spending less on big-ticket items- those worth more than $1,000- heading into the holidays.

“While we’ve seen a more cautious consumer for some time now, this quarter, we saw some of these consumers increasingly prioritizing experiences over goods, spending on travel and entertainment,” Chairman and CEO Marvin Ellison said during a conference call with analysts at the time.

Ellison reminded the analysts that DIY customers drive 75% of the company’s revenue while professionals only account for 25% of sales, as opposed to the broader market where the market is roughly fifty-fifty. “As a result, whenever the DIY customer becomes cautious, it disproportionately affects us.”

Given that backdrop, analysts surveyed by FactSet expect Lowe’s to report earnings of $1.68 per share on sales of $18.3 billion, down from earnings of $2.28 per share and revenue totaling $22.45 billion one year ago.

Lowe’s CEO ‘Bullish’ on home improvement

Ellison said that Lowe’s remained bullish on the home improvement industry’s medium- to long-term outlook.

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“We expect home prices to be supported by a persistent supply-demand imbalance of housing, while at the same time, 250,000 millennial household formations are expected per year through 2025, and their parents and grandparents, the baby boomers, increasingly prefer to age in place in their own homes,” he said.

Nevertheless, on Feb. 5, Truist lowered its price target on Lowe’s stock to $244 from $252.

Analyst Scot Ciccarelli told investors in a research note that he is reducing his margin assumptions for fiscal years 2024 and 2025 and cutting his earnings estimates to $12.80 and $14.20 a share from $13.35 and $14.75, respectively.

He did, however, keep his buy rating on the company.

“For the medium-term, we are becoming increasingly bullish on the home improvement sector given general spending resilience, home equity increases, easing comparisons, and the recent positive inflection in Private Residential Fixed Investment PFRI data,” he said.

Ciccarelli said that he believed consumer spending remains fairly steady due to healthy personal balance sheets and strong employment. 

In addition, while the tightening cycle should slow spending, it shouldn’t derail it, he said.

The analyst said that while Lowe’s comparable store sales have decelerated notably over the last two quarters—down roughly 7% to 8%– he believes the company will also get to compare against these easier results in the second half of the calendar year.

Ciccarelli added, “We remain buyers and think that LOW can move sharply higher if we are indeed at the early stages of an easing cycle.”

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