A daily market update from FS Insight — what you need to know ahead of opening bell

“Don’t ride the high horse unless you know how to back it up.” — Folk wisdom

Overnight

Tesla jumps 16% after passing key hurdle to roll out advanced driver-assistance tech in China (CNBC)

Boeing said to be tapping bond markets for $10 billion after burning through $3.93 billion in cash in Q1 amid declining production of its best-selling jet (RT)

California moves to cut medicine prices with novel deal on opioid overdose drugs (FT)

Paramount Global CEO Bob Bakish steps down (WSJ)

Humza Yousaf quits as Scotland’s first minister (FT)

Supreme Court gives SEC a win over Elon Musk (BI)

Apple stock rises on upgrade from Bernstein (YF)

Wall Street has spent billions buying homes; a crackdown looms (WSJ)

E.U. to probe Meta over handling of Russian disinformation (FT)

FT and OpenAI strike content licensing deal (FT)

Western banks in Russia paid €800mn in taxes to Kremlin last year (FT)

Eleven countries to breach EU deficit rules owing to high defense spending (FT)

Sticky German inflation curbs investors’ ECB rate cut expectations (FT)

Jupiter Merlin to retain £480m investment in Whitmore’s Global Value fund (IW)

Spanish beauty group Puig aims for top-of-range €14bn valuation at IPO (FT)

Silicon Valley’s General Catalyst closes in on $6bn fund for tech start-ups (FT)

Cravath joins Midtown exodus with move to Manhattan’s Hudson Yards (FT)

Calstrs reveals problems calculating carbon footprint of its $331bn portfolio (FT)

Ancora scores in Norfolk Southern proxy fight with Glass Lewis recommendation (RT)

WeWork agrees to restructuring deal that shuts out Adam Neumann’s comeback bid (FT)

Chinese regulators warn against Silicon Valley Bank-style meltdown (FT)

Oil producers flush with cash cut reliance on funding markets (BBG)

Rivian shows silver linings before earnings (SA)

U.S. buys 81 Soviet-era combat aircraft from Russia’s ally at yard-sale prices; can be used for spare parts or as decoys (BI)

In the Permian Basin, America’s largest oil field, the ground is swelling and buckling (WSJ)

Spinneys’ Dubai IPO Set to Price at Top and raise $375 Million in a rare private sector listing (YF)

How to book a rocket ride: advice from a space travel agent (BBG)

First news

• U.S. banks paying more in deposit costs than they’re earning in additional interest revenue
• The reverse carry trade is seeing dollar bets funded by EM currencies
• Driven in part by skyrocketing home insurance costs, a housing crisis is insurgent in America.

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

A total of 174 companies are reporting this week.

Of the 240 companies that have reported so far (48% of the S&P 500):

• Overall, 80% are beating estimates, and those that “beat” are beating by a median of 7%.
• Of the 20% missing, those are missing by a median of -5%.
• On the top line, overall results are beating estimates by a median of 3% and missing by a median of -3%, and 60% of those reporting are beating estimates.

Click HERE for more.

TECHNICAL

AAPL might hold the key for Technology and is up against initial resistance ahead of this week’s earnings.

AAPL has begun to show some constructive ability to push higher after its bottoming out and trend reversal off the lows last week.

It’s Monday intra-day gains hit $175 which is thought to be important to the stock’s trend, and thus far, this level has held.

However, weekly momentum has begun to get stronger, and any move back over $175, which is likely post-earnings, should serve as a tailwind for additional gains in Technology.

QQQ has a similarly important level at $435, which coincides with $175 in AAPL, and the act of getting above these would help to add confidence of a sharp rally into May, led by Technology.

Click HERE for more.

CRYPTO

As highlighted in Friday’s market update, Stripe has introduced stablecoin crypto payments across the Solana, Ethereum, and Polygon networks. In addition, Stripe and Avalanche have struck a partnership to enable the functionality of the Avalanche C-Chain and to directly integrate Stripe’s fiat-to-crypto on-ramp into popular Avalanche dapps through Avalanche’s Core Wallet. Avalanche users will be able to fund their wallets via the Stripe widget and purchase assets via ACH, debit, or credit cards. Stripe will handle all the KYC, payments, fraud, and compliance functionalities and should help Avalanche dapps avoid the “cold start problem” where users don’t have enough funds to complete on-chain transactions. Many of the leading ecosystem protocols are set to utilize the integration, including GoGoPool, The Arena, Shrapnel, and Avvy. A common complaint within crypto is the clunky experience of purchasing assets through a centralized exchange and sending them to another wallet or bridging across chains to access specific apps. The Avalanche and Stripe integration should help bridge the gap between web2 and web3 and provide better usability. 

Crypto social app Friend.tech is expected to launch its v2 platform this week as investors await the upcoming FRIEND airdrop. Friend.tech allows users to trade shares of different social media personalities, and shareholders get access to private chats with influencers. Friend.tech was extremely popular last summer but attention has since died down. The v2 launch and airdrop anticipation have helped revitalize the platform, and v2 will introduce new features like shared treasuries, NFT mints, a native DEX, and a new point system. Additionally, there will be UI updates like visual themes, GIFs, editing messages, and adding polls or raffles into chats. The friend.tech Twitter account announced that the snapshot for FRIEND has been taken, and the airdrop will take place on Thursday at 1:30 ET after a delay to add functionality for users to share FRIEND tokens with their key holders.

Click HERE for more.

FIRST NEWS

Higher for Longer Indeed. Last quarter, for the first time since the Federal Reserve began raising interest rates two years ago, major U.S. banks paid more in deposit costs than they earned in additional interest revenue. The shift underscores how banks are now being forced to share more of the benefits of higher rates with savers demanding better returns.

At Wells Fargo, deposit costs surged by nearly $594 million in Q1 2024 compared to the prior quarter – far exceeding the mere $1 million increase in interest income from loans and investments over the same period. JPMorgan Chase and Citigroup paid out over $350 million more to depositors than they collected in additional interest income, a stark contrast from the $2.3 billion positive gap in Q4 2023. For Bank of America, rising deposit costs were two-thirds of its new interest revenue in Q1.

“Deposit costs are going to continue rising regardless of what happens to rates,” said Greg Hertrich, head of U.S. depository strategies at Nomura. “In today’s environment, deposit rates are advertised to a much wider audience than local markets.”

While these cost increases have slowed from recent quarters, interest income growth has stalled with rates seemingly peaking. The four major banks averaged just a 5% quarterly rise in deposit costs in Q1 2024 versus 13% in Q4 2023 – yet their interest revenue inched up only 0.5% quarter-over-quarter.

“Lending demand has not rebounded at the level they had hoped,” Hertrich noted. The banks still retain 74% of interest collected, paying an average 2.9% interest rate on deposits compared to the 5.5% Fed funds rate.

At JPMorgan, CFO Jeremy Barnum cited “migration from checking and savings to CDs” as the dominant trend. “We continue to capture that money-in-motion at a very high rate,” he said.

As savers demand higher deposit rates amid a potential peak in the rate cycle, major U.S. banks are facing mounting pressure to share more of their interest income gains. This dynamic could further squeeze lending profits if higher deposit costs continue outpacing interest revenue growth. FT

Divergent Trade Emergent. In not-altogether-unrelated news, the reverse carry trade is seeing dollar bets funded by EM currencies. For years, carry traders borrowed cheap US dollars to invest in higher-yielding emerging market currencies. Now that trade is reversing.

The Federal Reserve’s prolonged hawkish monetary policy has some EM economies struggling to keep yields competitive. This has led to a reverse carry trade, where investors borrow low-yielding emerging market currencies to buy the higher-yielding U.S. dollar. This reverse trade has generated returns as high as 9% in 2024 so far.

Currencies like the Chinese yuan, Thai baht, Malaysian ringgit, and even the Czech koruna are being used to fund these trades. The traditional carry trade of using the U.S. dollar to invest in high-yielders like the Mexican peso, Turkish lira, and Egyptian pound still exists, but is increasingly being funded by the Japanese yen, Swiss franc or other currencies instead of the U.S. dollar.

In the meantime, expectations for U.S. rate cuts have been pushed back from March to December, making monetary easing by some developing nations look premature. This has hurt traditional carry traders using the U.S. dollar, leaving them holding riskier currencies with smaller or even negative yield differentials compared to the U.S. The U.S. dollar, resilient amid economic strength, has caused 29 of 32 major EM currencies to decline in 2024. Meanwhile, benchmark rates in at least 11 frontier/EM nations are below U.S. rates, dragging their yield advantage negative.

It’s not just speculators – exporters are also favoring the higher-yielding US dollar, parking revenues in dollar deposits rather than converting back to home currencies. BNN Bloomberg

Not (In)Sure about That. Driven in part by skyrocketing home insurance costs, a housing crisis is insurgent in America. In just over a year from January 2023 to February 2024, the average cost of homeowner’s insurance premiums surged 23% nationwide. In high-risk areas, such as hurricane-prone Louisiana, premiums jumped a staggering 63%. Some states like Florida are becoming essentially uninsurable, as major providers pull out entirely.

The primary culprit is climate change, which increases the risks of severe weather events like floods, fires, windstorms and tornadoes damaging properties. Other factors are also at play, including the insurance industry’s slow adoption of risk-mitigation technologies and lack of coordinated cost sharing between insurers, banks and officials, resulting in a hugely opaque market lacking transparency for consumers.

Those shopping for new insurers, often in the wake of arbitrary double-digit price increases, find an inefficient, bifurcated market. Luxury insurers only offer overly expensive policies far exceeding necessary coverage levels, while basic insurers provide insufficient coverage paying out just a fraction of rebuild costs in case of total loss. Lacking better options, many settle for inexpensive but inadequate policies.

The arbitrary pricing and lack of transparency can be maddening. Neighboring homes with identical insurers may face wildly different premiums, with brokers blaming state regulators’ fears of making the state uninsurable by pushing back too hard on rate hikes. High-tech risk assessment tools exist, but have seen limited adoption.

According to Lloyd’s of London CEO John Neal, the U.S. home insurance market, especially coastal areas, has “reached a tipping point.” While technologies like flood detection are emerging, they remain limited to the wealthy. More critically, the private and public sectors have not aligned on sharing risk responsibilities as the costs of climate change escalate.

Solutions may ultimately come from innovative new insurers, but coastal states, backed up by reinsurers, will likely need to invest in protective infrastructure like flood walls and drainage systems funded by higher taxes. Until then, individual homeowners must brace for exorbitant premiums or risk potential total losses. FT