Tuesday was another day that had a distinctly circus-like character to it courtesy of everyone’s favorite orange clown, who kicked things off first thing in the morning with more unhinged Twitter rants about everything from media conspiracies to polling to immigrant “caravans” to Amazon.
I am right about Amazon costing the United States Post Office massive amounts of money for being their Delivery Boy. Amazon should pay these costs (plus) and not have them bourne by the American Taxpayer. Many billions of dollars. P.O. leaders don’t have a clue (or do they?)!
— Donald J. Trump (@realDonaldTrump) April 3, 2018
As you can see, Trump swears Jeff Bezos is fucking over the postman to the tune of “many billions.”
To be clear, everyone except Trump understands that the Amazon/Post Office conspiracy theory is ridiculous.
According to five people inside the White House who spoke to Bloomberg on condition of anonymity, there “are no ongoing discussions” about bringing the power of the U.S. government to bear on the company.
I guess that depends on your definition of “ongoing discussion.” Trump’s tweets are the very definition of “ongoing” and although one source told Bloomberg that the President’s staff has tried to “explain to [him] that the Postal Service is an independent organization and its mail rates are set by a commission,” it doesn’t seem that matters to him.
Whatever the case, the shares traded on Trump headlines (again) – because that’s definitely healthy:
This soap opera is dictating the direction of the entire market. Look at this crazy shit:
Baird was out warning that “any significant changes to Amazon’s USPS contract would result in volume reallocation to UPS and FedEx and pose obvious risks for margins.”
Tesla got some much needed respite on Tuesday from its Q1 delivery report which was (literally) described as “good enough” and “better than feared” by Wall Street. I’m not sure that’s a vote of confidence. Elon is making 2,020 Model 3 sedans per week. That’s lower than the 2,500 forecast, but really, why the fuck am I even talking about this? Tesla is a castle in the sky and everyone knows it. Eventually, Tony Stark may be able to backfill enough concrete to build a foundation under that castle, but no one knows for sure and in the meantime, it’s a crap shoot. The shares were up 7% today, which is hardly enough to erase last week’s egregious losses:
The bonds staged a feeble bounce:
In other “things I don’t give a shit about” news, Spotify opened at $165.90 and that didn’t last:
Side note (although not really, because you know… Tesla and tech and bubbles): David Einhorn’s letter is out and the news is of course bad:
GREENLIGHT LOST MONEY ON LONG AND SHORT POSITIONS, LETTER SAYS
— Walter White (@heisenbergrpt) April 3, 2018
GREENLIGHT’S 1Q 13.6% LOSS IS AMONG THE WORST IN ITS HISTORY
— Walter White (@heisenbergrpt) April 3, 2018
The Fed ushered in a new era on Tuesday:
Worst pun ever, but we’ll forgive her:
SOFR, so good?
— Tracy Alloway (@tracyalloway) April 3, 2018
This of course comes as LIBOR is still doing its best Monty Python impression (“I’m not dead yet!”). Here’s some color on how rising short-term funding costs are impacting equities (via Goldman):
The share prices of companies with high floating rate debt have recently mirrored the fluctuations in short-term borrowing costs. Exhibit 6 shows the performance of 50 S&P 500 companies with floating rate bond debt amounting to more than 5% of total debt. Our analysis does not take into account loans or swaps. We exclude Financials and Real Estate, and the screen captures stocks from every remaining sector except for Telecommunication Services. So far in 2018, as short-term rates have climbed, these stocks have lagged the S&P 500 by 320 bp (-4% vs. -1%). The group now trades at a 10% P/E multiple discount to the median S&P 500 stock (16.0x vs. 17.6x). These stocks should struggle if borrowing costs continue to climb, but may present a tactical value opportunity for investors who expect a reversion in spreads. The tightening in late March of the forward-looking FRA/OIS spread has been accompanied by a rebound of floating rate debt stocks and suggests investors expect some mean-reversion in borrowing costs.
It looks like the dollar got a boost from decent auto sales data in the U.S.:
Treasurys fell as risk appetite returned with 10Y yields bouncing off two-month lows:
In Europe, the data is looking like it wants to moderate a bit. We got final PMIs on Tuesday and here’s the verdict:
- Eurozone March manufacturing PMI 56.6, down from 58.6 in Feb.
- Germany March manufacturing PMI 58.2, down from 60.6 in Feb.
- France March manufacturing PMI 53.7, down from 55.9 in Feb.
Obviously, things are still going pretty well (and indeed bumping up against capacity constraints is probably a good problem to have), but there are some caveats. Here’s Chris Williamson, Chief Business Economist at IHS Markit:
March saw the biggest fall in the manufacturing PMI since June 2011 and the third successive slowing in the pace of expansion. We should not be too worried by the fall in the PMI as some moderation in the pace of growth from the surge seen at the turn of the year was inevitable, not least because short-term capacity constraints limit the economy’s ability to grow so quickly for long periods. This has been clearly evident in the recent lengthening of supply delivery times. Some of the slowdown has also been attributable to temporary factors such as bad weather. However, the fact that business optimism about the coming year has slipped to a 15-month low suggests there are other factors that are now hitting factory order books. Export growth has more than halved since late last year, linked in part to the appreciation of the euro, and in some cases demand is being stymied by higher prices.
Here’s hoping the ECB doesn’t miss its window to normalize – or I guess, depending on whether you’re convinced that the global economy cannot stay upright without the monetary training wheels, maybe bad news is good news to the extent it keeps Draghi cautious.
European shares were lower coming off the holiday but did manage to trim losses into the close – German stocks and tech shares were the laggards across the pond:
Finally, for your moment of zen, here’s Trump talking on Tuesday about “very stupid people”: