Live Markets: Failed bank merger deals rise to record

MVB Financial

17/05/2023 18:19

* 
      Main U.S. stock indexes rise >1% on optimism over debt
ceiling
    

        * 
      Energy, financials lead S&P 500 sector gainers; staples
weakest
    

        * 
      KBW regional banking index surges ~7%
    

        * 
      Dollar up; crude gains >2.5%; gold, bitcoin slip
    

        * 
      U.S. 10-Year Treasury yield rises to ~3.58%
    

  
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    FAILED BANK MERGER DEALS RISE TO RECORD (1319 EDT/1719 GMT)
    The number of U.S. bank merger and acquisition agreements
that have been terminated has hit a record high, following the
collapse of the deal between Toronto-Dominion Bank  TD.TO  and
First Horizon Corp  FHN.N , according to S&P Global.
    Four bank deals with a total value of $13.79 billion have
been canceled so far since this year, with the TD-First Horizon
deal making up the bulk of that total. “The parties in three of
the four scrapped deals attributed their terminations to delays
in the regulatory approval process,” S&P noted.
    The most recently annulled agreement was MVB Financial
Corp.'s  MVBF.O  planned acquisition of Integrated Financial
Holdings Inc., which was an all stock deal valued at $98.6
million at its announcement on August 12. That plunged to $47.4
million on May 9, when the deal was terminated. 
    “Among other drivers of the termination of this deal were
‘changing market conditions that have pressured bank industry
stock prices,’ according to a news release,” S&P said.
    Regional banks have come under pressure as depositors pull
balances in the wake of the collapse of Silicon Valley Bank in
mid-March, which has added to concerns about further credit
tightening and a weaker economy. 
    (Karen Brettell)
     *****
    
    
    IS THE MARKET TOO BEARISH ON THE ECONOMY? (1226 EDT/1626
GMT)
    Is the market too bearish on the economic outlook? HSBC
thinks so. According to its model the market is underestimating
the likelihood of a soft landing and overestimating the
possibility of stagflation.
    HSBC said that it used new “logistic regression models” to
measure the probabilities the market is assigning to different
macro scenarios.
    This determined that the market underestimates a soft
landing, with a 35% equity implied probability, and overstates
the likelihood of stagflation, with a 45% probability. The
market has also fairly re-priced recession risks at 20%.
    While there are near-term risks related to raising the U.S.
debt ceiling and stress from recent regional bank failures,
stocks have room to gain, Alastair Pinder, Head EM and Global
Equity Strategist said in a report, noting that “looking at
'what's priced' implies that global equities have 5-10% upside.”
    “Given HSBC's view that the Fed is close to the end of its
hiking cycle and the US will avoid a recession this year, we
believe a higher probability assigned to a soft landing scenario
will support equities,” Pinder said. And “we favor the
growthiest (US and Asia) and most cyclical/high beta (LatAm and
EMEA) areas of the market.”

    (Karen Brettell)
     *****

    
    HOUSING MARKET DUET: STARTS/PERMITS, MORTGAGE DEMAND (1140
EDT/1540 GMT)
    A double-play of housing market data on Wednesday showed a
sector batting into the sun, blinded by low inventories and high
mortgage rates.    
    Ground-breaking on new U.S. homes  USHST=ECI  rose by 2.2%
in April to 1.401 million units at a seasonally adjusted
annualized rate (SAAR), landing just a rounding error to the
north of consensus.
    But before we pop the cork, the gain marks only a partial
recovery from March's downwardly revised 4.5% drop.
    Even so, as evidenced by yesterday's sunnier-than-expected
homebuilder sentiment print, the freshly-constructed side of the
housing coin is benefiting from a dearth of pre-owned homes on
the market.
    "U.S. total housing starts were in line with expectations in
April, with increases in both single and multi-family starts,"
writes Nancy Vanden Houten, U.S. lead economist at Oxford
Economics. "Building permits, the more forward-looking gauge of
housing activity, declined overall, but single-family permits
rose to their highest level since September."
    "This suggests some resilience in single-family construction
in the near-term, but we look for housing starts to slow as the
year progresses amid tighter lending standards and the emergence
of a recession," Houten adds.
    Building permits  USBPE=ECI  - among the more
forward-looking housing market indicators - surprised to the
downside, slipping by 1.5% to 1.416 million units SAAR, a
decline attributable a drop in multi-unit projects. Permits for
single-family homes actually rose 3.1%.
    
    
    Separately, mortgage rates grew somewhat less attractive
last week, driving home loan demand down 5.7%, according to the
Mortgage Bankers Association (MBA).
    The average 30-year fixed contract rate  USMG=ECI  heated up
by 9 basis points to 6.57%, resulting in a 4.8% drop in
applications for loans to buy homes  USMGPI=ECI  and a 7.7%
plunge in refi demand  USMGR=ECI .
    "Mortgage application activity slowed, as most mortgage
rates in the survey increased, with the 30-year fixed rate
jumping nine basis points to its highest level in two months,"
says Joel Kan, MBA's deputy chief economist. "Buyers remain wary
of this rate volatility, but also as for-sale inventory in many
parts of the country remains scarce."
    While home price growth has cooled to a pre-COVID normal,
and the cost of borrowing has backed away from its October high,
overall mortgage demand remains 32.7% below the same week last
year:
    
    
    Perhaps the most forward-looking housing market indicator is
the stock market, as it reflects where investors see the sector
six months to a year down the road.
    With that in mind, the Philadelphia SE Housing index  .HGX 
and the S&P 1500 Home Building index  .SPCOMHOME  have left the
broader S&P 500  .SPX  in the dust, when the indexes are rebased
to twelve months ago:
    
    
    (Stephen Culp)
     *****
    
    
    MAIN U.S. INDEXES EDGE UP AMID DEBT-CEILING DEAL HOPES (1005
EDT/1405 GMT)
    U.S. stock indexes are slightly green early on Wednesday
amid cautious optimism about a potential breakthrough in the
deadlock in Washington over the nation's debt limit.
    That said, strength in Western Alliance Bancorp  WAL.N 
shares is underpinning a regional bank bounce. WAL's deposit
growth exceeded $2 billion and brokerage Bank of America Global
Research resumed coverage of the bank with a "buy" rating.
    Indeed, banks are among the early outperformers with the S&P
500 banks index  .SPXBK  and the KBW regional banking index
 .KRX  both up 2% or more.
    With this, value  .IVX  is outperforming growth  .IGX 
    Here is a snapshot of where markets stood just shortly after
1000 EDT:
   
 
    (Terence Gabriel)
     *****
    
    
    DIVIDEND STOCKS FALL OUT OF FAVOR (0914 EDT/1314 GMT)
    Shares of dividend paying companies are lagging this year as
competitive yields of U.S. Treasuries and high payouts on bank
deposits diminished their appeal.
    The ProShares S&P Dividend Aristocrat ETF  NOBL.Z , which
invests in companies that have increased their dividends
annually for at least 25 years, has edged up 0.6% this year
versus a 7% gain for the S&P 500  .SPX .
    The fund witnessed net outflow every month of this year up
to April, according to Lipper data. U.S. dividend funds recorded
their biggest outflow in 2-1/2 years in the first quarter.
    "The 'defensive' trade that worked so well in 2022 has given
way to a 'growth-led' market in 2023," analysts at Bespoke
Investment Group write in a note.
    "This action can be attributed to the market forecasting the
end of the Fed tightening cycle, but it also coincides fairly
closely with the introduction of ChatGPT on November 30th,
2022."
    
    (Graphic source: Bespoke Investment Group)
    
    Investors are also rotating into growth stocks  .SPLRCT 
 .SPLRCL  after their underperformance in the prior year and
moving away from value areas such as energy  .SPNY  and
financials  .SPSY , which are major sources of dividends to U.S.
investors.
    Broadly, the S&P 500 index  .SPX  pays a dividend yield of
1.66% overall, compared to the 3.5% yield of the benchmark
10-year Treasury  US10YT=RR  as the Federal Reserve's fastest
monetary policy tightening campaign since the 1980s has pushed
yields on U.S. Treasuries higher.
                
    
    (Medha Singh) 
     *****
    
    
    U.S. 10-YEAR TREASURY YIELD HITS 200-DMA AMID DEBT-CEILING
DILEMMA (0904 EDT/1304 GMT)
    Democrat President Joe Biden and top congressional
Republican Kevin McCarthy on Tuesday made progress in talks to
determine whether to increase the U.S. debt limit. After an hour
of talks, however, McCarthy told reporters the two sides
remained far apart on an agreement.
    A White House spokesperson said Biden will continue to hold
talks with congressional leaders on the nation's debt limit
later this week.
    Indeed, recent anxiety over the debt ceiling has led to a
rise in yields, especially on the short-end.
    Meanwhile, the U.S. 10-Year Treasury yield  US10YT=RR  rose
for a third-straight day on Tuesday, and ended at about 3.55%.
However, the yield is now reaching some important resistance:  
    
    
    With its 3.5730% high on Tuesday, the yield probed its
rising 200-day moving average (DMA) which now resides around
3.5720%. Additionally, the descending 100-DMA now sits at about
3.60%. Since ending below the 100-DMA on March 10, the yield has
been unable to register a close back above it.
    Additionally, there are several weekly Gann Lines which are
also hurdles in the 3.58%-3.60% area, and the March 22 high was
at 3.6440%.
    Given these levels, the yield may now be poised to deflate
again. That said, since late last year, declines have proven to
be stubborn with numerous lows ranging from 3.4020% to 3.2530%.
    However, in the event of another downdraft, a weekly Gann
Line, which now comes in around 3.13%, may finally prove to be a
greater magnet.
    On a break above 3.6440%, the resistance line from the 2022
high is now around 3.93%, and the 23.6% Fibonacci retracement of
the 1981-2020 yield decline is at 3.9765%.

    (Terence Gabriel)
     *****
 
    FOR WEDNESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300
GMT - CLICK HERE

    
    
    
    
    
    
    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
US10YTY05172023    https://tmsnrt.rs/41JkjEI
NDX vs DVY    https://tmsnrt.rs/3WdIRoi
SPZ dividend and benchmark Treausury    https://tmsnrt.rs/3pLYh72
earlytrade05172023    https://tmsnrt.rs/45bXA7s
housing starts and building permits    https://tmsnrt.rs/3OlEUvN
MBA    https://tmsnrt.rs/3WdUvPP
Housing stocks    https://tmsnrt.rs/3Mxksa4
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)