The US Treasury publishes daily data for tax refunds, and the level of tax refunds to households tells us something about how much support there is to consumer spending, and the chart below shows that tax refunds in recent weeks have been running at a lower rate in 2023 than in previous years. Adjusting for inflation would lower the 2023 numbers even further.
The rally in the S&P500 since the beginning of the year has been driven by 20 stocks, the market cap of the remaining 480 stocks has basically not gone up, see chart below.
The implication for investors is that this market is not driven by broad-based higher growth expectations but instead by what has happened with rates, in particular after SVB went under.
European inflation is likely to move sharply lower over the coming months, see chart below.
We are carefully watching for signs of an increasing slowdown against the backdrop of interest rate hikes and the recent banking crisis. One metric we’re closely tracking is jobless claims. However, that data may be underestimating the slowdown in the labor market because only 14% of unemployed workers receive unemployment insurance benefits. In other words, with a strong service sector and a weakening tech sector, jobless claims alone may not be a good reflection of what is happening in the labor market. Friday’s employment report release will help shed additional light on the situation. The consensus is anticipating that 240,000 jobs were created in March. The unemployment rate is expected to hold steady at 3.6%.
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Our weekly banking sector chart book is available here, key charts below:
1.) Since the Fed started hiking rates, deposits in banks have declined by $800bn, and assets in money market accounts have increased by $600bn, see the first two charts below.
2.) The share of households using mobile banking or online banking increased from 39% in 2013 to 66% in 2021, which has made it possible to move money in and out of bank accounts more quickly, see the third chart.
3.) Capital markets, including IG issuance and HY issuance, have, over the past week, started to slowly come back, see the fourth and fifth charts, but stresses remain in bank funding markets with the FRA-OIS spread still elevated, see the sixth chart.
The interest rate-sensitive components of GDP, such as business spending, have been slowing down because of Fed hikes, and adding a banking crisis with tighter bank lending standards is magnifying the downside risks, see chart below. Remember, there was already a debate in markets about a recession coming even before the banking crisis started.
