Live Markets: U.S. consumer spending to retreat, says Raymond James in its call to exercise caution

Northwest Bancshares

02/10/2023 16:48

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    U.S. CONSUMER SPENDING TO RETREAT, SAYS RAYMOND JAMES IN ITS
CALL TO EXERCISE CAUTION (1148 EDT/1548 GMT)
    U.S. consumers' financial health looks poised to deteriorate
heading into the last quarter of the year as student loan
repayments resume and fuel costs rise, according to a note from
analysts at Raymond James.
    The brokerage called for investors to perform "enhanced due
diligence" when mulling investments in banks that have a high
exposure to consumer credit, as loan losses could rise in the
coming months.
    Ally Financial  ALLY.N , Northwest Bancshares  NWBI.O  and
Huntington Bancshares  HBAN.O  are among the lenders with the
biggest exposure to consumer loans, the analysts said. Preferred
Bank  PFBC.O  and Flushing Financial  FFIC.O  are best placed,
with minimal exposure to such loans.
    Student loan repayments resumed on Oct. 1 after a three-year
pause, increasing fears of a strain on consumers' expenses. A
surge in oil prices due to tight global supply has also
increased fuel costs. 
    Since last year, banks have cautioned that a jump in
borrowing costs could increase loan losses. The possibility of
higher for longer interest rates has only worsened that fear.

    (Niket Nishant)
     *****
        
    
    OCTOBER SURPRISE: ISM PMI HITS HIGHEST SINCE NOVEMBER,
CONSTRUCTION SPENDING STICKS THE LANDING (1107 EDT/1507 GMT)
    And then it was October. 
    Investors awoke to a new week, month and quarter, pumpkin
spice lattes in-hand, eager for any indication that the Federal
Reserve might yet pull off the soft landing trick - cooling down
inflation while avoiding recession.
    Monday's indicators supported the possibility, while also
potentially emboldening Powell & Co to keep its restrictive
policy rates in place for longer than many might prefer.     
    First, U.S. factory activity decreased at a
shallower-than-expected pace in September, according to the
Institute for Supply Management's (ISM) purchasing managers'
index (PMI)  USPMI=ECI .
    The index gained a hearty 1.4 points to 49 - the highest
it's been since November - just one point south of the magical
level of 50, the border between contraction and expansion.
    Even so, the upside surprise "wasn't enough to snap the 11
consecutive months below the neutral threshold, and we expect
continued headwinds will keep this from occurring," writes
Matthew Martin, U.S. economist at Oxford Economics. "However,
the improvement in the index over the prior three
months improves the odds of a soft landing."
    Digging into the data, employment and production returned to
expansion territory and the new orders component improved but
stayed below 50.
    The prices paid index - a closely watched inflation
predictor - plunged deeper into contraction, falling 4.6 points
to 43.8.
    The "i" word made frequent appearances in the survey
participants' commentary.
    Remarks along the lines of "continued inflation and wage
adjustments continue to drive prices up, although we should get
some relief from the markets stabilizing," "Everyone is holding
off on increasing inventories, hoping they can buy at lower
costs," and "Cost increases are now generally isolated to
specific commodities" a peppered throughout.
    
    
    Not to be outdone, S&P Global released its final take on
September manufacturing PMI  USMPMF=ECI , which landed at 49.8,
an improvement over the 48.9 originally reported last month and
missing the expansion barrier by the skin of its teeth.
    "Manufacturers' expectations of future output have jumped to
their highest for nearly one and a half years," says Chris
Williamson, S&P Global's chief business economist, who added
that "producers' costs rose at the fastest rate for five months,
largely on the back of higher oil prices."
    "These increased costs are already feeding through to higher
prices to customers, which will inevitably result in some
renewed upward pressure on inflation."
    This graphic shows how closely (or not) the dueling PMIs
agree:
    
    
    Finally, expenditures on U.S. construction projects
 USTCNS=ECI  increased in August by 0.5%, sticking the consensus
landing, but standing on the shoulders of July's upwardly
revised 0.9% monthly growth.
    On a granular level, spending on homebuilding, accounting
for the lion's share of private sector construction, rose by a
healthy 0.6% as builders scrambled to make up for the dearth of
existing homes on the market due to climbing mortgage rates.
    And circling back to the stronger-than-expected PMI
readings, a 1.2% jump in manufacturing facilities bodes well for
the factory sector.
    "The latest data show solid gains in the residential and
ex-improvement components quarter-to-date, but slower momentum
in nonresidential and public spending," says Rubeela Farooqi,
chief U.S. economist at High Frequency Economics.
       
    
    (Stephen Culp)
     *****
    
    
    U.S. STOCKS MIXED AHEAD OF DATA, POWELL (0945 EDT/1345 GMT)
    Wall Street's main indexes are mixed early on Monday as
investors await more data to gauge the Federal Reserve's
interest-rate path, as well as remarks from Fed officials
including Chairman Powell. 
    At 10 a.m. EDT, August construction spending, expected at
0.5% vs 0.7% last month, is due to be released.
    Also at 10 a.m. EDT, September ISM manufacturing PMI is
expected to come in at 47.8 vs 47.6 last month. The Reuters Poll
for ISM prices paid is at 48.6 vs 48.4 last month.  
    Fed-Chair Powell and Philadelphia Fed President Patrick
Harker will speak at a roundtable discussion, due 11 a.m. EDT,
with local employers and small business owners on efforts to
grow the economy.
    And later in the day, Cleveland Fed President Loretta Mester
will speak on the outlook for the U.S. economy.
    Here is an early market snapshot:
    
    
    (Terence Gabriel)
     *****
   
    
    U.S. 10-YEAR TREASURY YIELD ON THE MARCH (0910
EDT/1310 GMT)
    The U.S. 10-Year Treasury yield  US10YT=RR  continued its
ascent in September, rising for a fifth straight month.
    Last week, the yield nearly tagged a wave-equality
projection, before backing away. 
    Traders will be focused on whether that marked a significant
high, especially amid lagging momentum, and whether the monthly
win streak suggests the market may be stretched to the upside:  
    
     
    Last Thursday,  the yield hit a high of 4.6880%, putting it
just shy of a wave-equality projection at 4.71% (Elliott Wave
basis). 
    The yield quickly reversed, hitting a low of 4.5080% on
Friday before mounting a recovery to end the month at 4.5710%.
On Monday, the yield is now back up to around 4.65%.
    With this, the weekly relative strength index (RSI) has
risen to around 81.00, or its highest level since the yield
peaked at lower levels in October 2023. Lagging momentum on both
a short and longer-term basis suggests the yield may be
vulnerable to a reversal.
    The RSI also faces a resistance line from its early 2021
high which now comes in around 82.0.
    The next levels above 4.71% are the upper monthly Bollinger
Band (BB), which now resides at 4.78%, and the upper yearly BB
which is around 5.13%. The 1993 low at 5.1514% also presents a
hurdle.
    A weekly and a monthly Gann Line provide support in the
4.42%-4.35% area. A reversal below this zone, as well as the
October 2022 high at 4.3380%, can suggest potential for a much
deeper retreat.
    Meanwhile, the yield's current five-month win streak is its
longest run of monthly gains since another five month stretch
from December 2021 to April 2022.
    The yield last rose six straight months from August 2016 to
January 2017.  
       
    (Terence Gabriel)
     *****
  
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
10YY1002023    https://tmsnrt.rs/3EY8Ism
earlytrade10022023    https://tmsnrt.rs/3tgnlVA
ISM manufacturing PMI    https://tmsnrt.rs/46yGNLG
Manufacturing PMI    https://tmsnrt.rs/45fhY6l
Construction spending    https://tmsnrt.rs/46zsmqm
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)