From the Financial Times:

HSBC fired investment bankers on the day they were due to learn their bonus figures and gave no bonuses to many it let go, in a sign of how the bank is taking a more ruthless approach to costs under new chief executive Georges Elhedery.  .  .

“It’s very unlike HSBC,” one of the people said, adding that the bank had “a reputation for looking after [its] people.” The bank declined to comment.

Apparently, some trees do grow to the sky: the artificial intelligence boom shows no signs of slowing down in one key corner, as OpenAI is closing in on a mind-bending $40 billion funding round led by SoftBank Group Corp., Bloomberg reports today.  

That deal, which would represent the largest such transaction on record by PitchBook’s count, will likely value the ChatGPT architect at $300 billion, up 91% from its most recent, $6.6 billion capital raise just under six months ago. In-house OpenAI projections point to $12.7 billion in revenues this year, Bloomberg relays, nearly triple the $3.7 billion logged in 2024.

Considering those gaudy figures, it is little surprise that the buildup of AI-related infrastructure proceeds at a rapid clip. This morning, New York property developer Related Cos. – self-styled as the “most prominent privately-owned real estate firm in the United States” – unveiled its data center development and investment platform known as Related Digital, laying out plans to raise some $8 billion beginning later this year to help finance a $45 billion, near-term pipeline.

“Digital infrastructure is one of the most remarkable growth categories and asset classes that I have seen in my more than 35 years of real estate development, driven by the unprecedented demand for data centers with reliable access to significant energy sources,” Related CEO Jeff Blau stated. Newly-added data center capacity across North American primary markets reached 6.9 gigawatts as of Dec. 31 per data from CBRE, up 34% year-over-year following a 23% increase in 2023.  A further 6.3 GW were under construction as of year-end, more than double the 3.08 GW seen 12 months prior.

Recent developments in the world’s second-largest economy cast some doubt on the wisdom of that turbocharged buildout. Citing a pair of local media outlets, the MIT Technology Review warns today that “up to 80% of China’s newly-built computing resources remain unused.”  Over 500 new data center projects were announced in the People’s Republic during 2023 and 2024 by KZ Consulting’s count, with 150 newly-built facilities up and running by the end of last year according to state-affiliated researchers.

The rapid ascent of low-cost player DeepSeek, alongside truncated graphics-processing-units release cycles from incumbent Nvidia (with accompanying swift depreciation of older models), have crimped businesses centered on purchasing and renting out GPUs to hyperscalers and other firms training AI models.  “The growing pain China’s AI industry is going through is largely a result of inexperienced players – corporations and local governments – jumping on the hype train, building facilities that aren’t optimal for today’s needs,” Jimmy Goodrich, senior advisor for technology to the RAND Corporation, tells MIT Technology Review.

Meanwhile, a prominent stateside player scales back its own ambitions prior to its planned Friday star-turn. Cloud computing concern CoreWeave will sell $1.5 billion of stock in tomorrow’s IPO, Bloomberg relays, rather than a prior $2.7 billion target, itself downsized from an initial $4 billion bogey. Recent market wobbles color that downshift, as does an eye-catching concentration of its revenue (Microsoft chipped in 62% of 2024 sales) and a tangled relationship with Nvidia, which sports a 6% stake in CoreWeave and rents its own chips back from the former crypto miner.

Notably, Jensen Huang’s outfit is taking more than a passing interest in its business partner’s capital markets foray: CNBC reports that Nvidia will pony up $250 million to help shore up the CoreWeave offering as an anchor investor.

See the brand-new edition of Grant’s Interest Rate Observer dated March 28 for a skeptical look at CoreWeave, along with the bear case on a large-cap, data center provider that may find itself over its skis if the AI revolution falls short of its proponents’ lofty projections.

Reserve Bank credit declined by $8.7 billion over the past week, leaving the Fed’s portfolio of interest-bearing assets at $6.7 trillion. That’s down $29 billion from this time last month and 24.9% from the March 2022 peak (though 59% above its mid-March 2020 reading).  Beginning next week, the monthly pace of Treasury run-off will ebb to $5 billion from $25 billion.

Stocks were unable to bounce from yesterday’s selloff, edging lower by a further 0.3% on the S&P 500 in relatively low-wattage trading, while long-dated Treasurys likewise remained under pressure with 10- and 30-year yields rising three and four basis points, respectively, to 4.38% and 4.73%. WTI crude edged towards $70 a barrel, gold rose more than 1% to $3,057 per ounce, bitcoin stayed near $87,000 and the VIX settled just below 19.

- Philip Grant

Some synergies add more value than others, via Reuters:

Massachusetts’ top securities regulator has launched an investigation into trading platform Robinhood’s decision to launch a prediction-markets hub that allows users to bet on the outcomes of a range of events, including March Madness college basketball tournaments.

Massachusetts Secretary of State Bill Galvin, in an interview with Reuters on Monday, said he was concerned that Robinhood was “linking a gambling event on a popular sports event that’s especially popular to young people to a brokerage account.”

“This is just another gimmick from a company that’s very good at gimmicks to lure investors away from sound investing,” said Galvin, a Democrat known as one of the country’s most aggressive state-level securities regulators.

Take a bow, Ben Bernanke. Today’s bulled-up response to reports that the Trump administration will stand down from some tariffs previously planned for next week itself represents good news for the economy, shining a new light on the wealth effect.

Thus, the wealthiest 10% of American households saw their net worth reach $36.3 trillion as of Sept. 30, a February analysis from The Institute for New Economic Thinking showed, up more than 50% from the first quarter of 2020.  For context, headline CPI growth registered at 22% during that period.  

Rampaging share prices and housing values have underpinned the tone at the top, with the Case-Shiller U.S. National Home Price Index and S&P appreciating by 17% and 31%, respectively, in real terms over the four years through 2024.  As a whole, American workers largely ran in place over that stretch, managing a measly 0.4% growth in real weekly earnings.

The flush upper crust has duly spurred a secular shift in spending habits. Moody’s Analytics finds that the top 10% of American households account for 49.7% of total consumer outlays over the 12 months through September, the highest such reading on record dating to 1989 and up from a 36% share in the mid-1990s.

A renewed rally in asset prices would prove no small boon for that lynchpin, well-to-do category. Signs of spending fatigue have emerged from that cohort of late, coinciding with the Federal Reserve trimming its median, full-year GDP growth projection to 1.7% last week from 2.1% in December.

Citing data from Citigroup, Bloomberg relays today credit card spending on luxury products ebbed 5% year-over-year in February, while the share of consumers drawing annual salaries of at least $150,000 who are 60 to 89 days delinquent on their debts doubled in January relative to 2023 according to VantageScore. That compares to a 30% uptick in such slow-payments from lower income consumers over that period.

“If you start seeing that this [higher-income] group is coming under more pressure, that may well [paint] a concerning picture for how consumer spending is going to evolve,” VantageScore chief economist Rikard Bandebo tells Bloomberg.

As the course of Western asset prices increasingly drives economic activity, well-heeled shoppers in the far east tap the brakes. The Financial Times relays that the tally of new Rolls-Royce, Ferrari, Bentley and Jaguar sales  in Singapore sank nearly 75% year-over-year in 2024, as buyers retrenched in response to tax hikes and enhanced scrutiny in the wake of a money-laundering scandal, which saw police confiscate dozens of the high-end autos.

“Most of the luxury cars bought in recent years were by Chinese customers,” Anson Lee, managing director of dealership Euro Performance Asia, told the pink paper. “I still have Chinese customers, but they want to keep a low profile, so the whole market has slowed down.”

Treasurys came under pronounced pressure across the curve, with 2- and 30-year yields jumping 10 and 7 basis points, respectively, to 4.04% and 4.66%, while stocks managed to build on their early gap higher with the S&P 500 settling 1.8% in the green. WTI crude advanced above $69 a barrel, gold slipped to $3,011 per ounce, bitcoin topped $88,000 and the VIX settled below 18 for the first time in more than a month.

- Philip Grant

In for a penny, in for a quarter-pounder: food delivery giant DoorDash announced a deal Thursday with buy-now, pay-later outfit Klarna, offering hungry consumers “the added convenience of Klarna’s seamlessly integrated, flexible payment options while shopping.” Cash-strapped diners can pay in four equal interest-free installments, or even defer payments altogether, perhaps to a date that lines up with their next scheduled paycheck.

Though technology’s growing economic foothold continues apace via the proliferation of app-based consumer finance, some things never change (hat tip: Jim Chanos):

There can be no assurance. Further progress on the inflation front could be hard to come by, as the Fed’s freshly-released summary of economic projections points to a 2.8% increase in the Core Personal Consumption Expenditures gauge this year, a material uptick from the 2.1% guesstimate furnished six months ago.

Of course, President Trump’s expansive (and expensive) tariff regime directly informs the adverse shift.  For his part, Fed chair Jerome Powell argued that a one-time upwards “reset” to the price level would not necessarily require a commensurate policy response via an eye-catching term: “it can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away without action by us, if it’s transitory.”

Powell’s evocation of the Fed’s infamous post-pandemic watchword, which accompanied its ultra-easy stance into the most potent inflationary impulse in 40 years, could certainly be characterized as curious.

Yet Wednesday’s outcome, in which the FOMC maintained its forecast for a further half percentage-point of rate cuts in 2025, struck some observers as logical in the face of political sea change: “He’s walking on eggshells,” Derek Tang, co-founder of monetary policy analytics firm LH Meyer, told Bloomberg. “He doesn’t want the Fed to be in the crosshairs of the White House. This is sort of a sensitive moment.”

Sure enough, Powell’s boss made his opinion known hours later: “The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy,” Trump bellowed on Truth Social.

Though transatlantic rancor blots today’s economic landscape, Trump finds a kindred spirit in his E-Z money aspirations from one of the Old Continent’s great-and-good.  “I’m not worried about inflation in Europe,” ECB Governing Council member Francois Villeroy de Galhau told Paris conferencegoers Thursday, expressing his inclination towards a seventh cut to the benchmark deposit rate of the cycle at the central bank’s April gathering.  Headline CPI grew at a 2.3% annual clip in April, down from the 10.6% peak logged in mid-2022 but still above the ECB’s 2% target.

A freshly-released bulletin from the Organization for Economic Co-operation and Development puts the West’s overarching low-rate desires into relief. Thus, debt service costs among the 38 developed nations within the OECD’s purview reached 3.3% of GDP on average last year, accelerating nearly one percentage point from 2021 to comfortably outpace the 2.4% of output spent on defense.

Bianco Research, meanwhile, relays that the quartet of France, Spain, Great Britain and the U.S. each face debt maturities of more than 15% of GDP by 2027, with average yields-to maturity among debt issued last year topping the maturing obligation by upwards of 1.5 percentage points. Refinancing those borrowings could tack another 0.4 points of GDP to their existing interest burdens.

No time like the present!

Reserve Bank credit stands at $6.71 trillion after barely budging during the past week. The sum total of interest-bearing assets on the Fed balance sheet remains some 24% below its March 2022 highs.

Beginning on April Fool’s Day, the Fed will slow the monthly rate of Treasurys roll-off to $5 billion from the current $25 billion, with the $35 billion pace of mortgage-backed securities remaining unchanged.

Continued momentum in short-dated Treasurys headlined today’s action, with two-year yields reaching 3.95% from 4.04% Tuesday, while stocks settled slightly lower on the S&P 500 in a choppy session featuring several swings across the unchanged line. WTI crude lifted above $68 a barrel, gold edged higher at $3,045 per ounce, bitcoin pulled back to $84,000 and change and the VIX remained just below 20.

- Philip Grant

Last one out turns off the lights: Meta Platforms sank into negative territory on the year-to-date Tuesday afternoon, marking a remarkable sea change after Mark Zuckerberg’s corporate progeny rode a mind-boggling 20 session winning streak to a 26% rally spanning New Year’s to Valentine’s Day.

Each of the so-called Magnificent Seven components now sits lower in 2025, with a Roundhill-sponsored ETF tracking that cohort down 15%.  That compares to a 4% drop for the S&P 500 and a 12% dollar-denominated return for the iShares MSCI EAFE ETF (ticker: EFA), which tracks developed market stocks outside of the U.S. and Canada. Over the eight years through Dec. 31, the domestic blue-chip gauge returned 201% after accounting for reinvested dividends, blowing away the EFA’s 65% figure.

The stark stateside turn in fortunes – underscored by Silicon Valley’s pronounced recent struggles – has duly confounded large swaths of the investment industry. As The Wall Street Journal’s Spencer Jakab noted Monday, 58% of attendees at Goldman Sachs’ January investment conference predicted the U.S. would be the world’s best-performing equity region in 2025. From 2017 to 2024, that share of American exceptionalists never topped 32%.   

Memo to those seeking diversification beyond the 50 states: see the Feb. 28 and March 14 editions of Grant’s Interest Rate Observer for a half-dozen picks-to-click domiciled in Europe and emerging markets, respectively.

The Federal Open Market Committee faces multi-front pressure ahead of tomorrow afternoon’s rate decision, via the prospect of faltering economic growth alongside resurgent inflationary pressures.

Thus, last week’s poll of 49 economists by the Financial Times and Chicago Booth School of Business identified a 1.6% median estimate for 2025 GDP growth, down sharply from the 2.3% seen in the prior December survey.  

Yet as Bloomberg notes today, derivatives markets reflect “a drop in expectations for rate cuts this year,” with interest rate futures now pointing to a 3.74% funds rate, up 16 basis points from the market-derived guesstimate a week ago. “If the Fed does cut interest rates now, it’s only because the economy is getting much worse,” Dario Perkins, economist at TS Lombard, told The Wall Street Journal’s Nick Timiraos today.

Of course, the 47^th president’s planned levies on an array of trading partners figures within that divergent dynamic, with newly-minted Treasury Secretary Scott Bessent recently encouraging the Fed to look through revived price pressures via a pointed reference to the post-pandemic policy error: “I would hope that the failed ‘team transitory’ could get back together and think that nothing is more transitory than tariffs.”

The Fed’s inflation-fighting bona fides may return to center stage if the FT-polled economists prove prescient, as that cohort now anticipates a median 2.8% increase in core Personal Consumption Expenditures this year, up from 2.3% in December. Indeed, Bloomberg chief economist Tom Orlik predicts that Jerome Powell et al. will “sharply” increase their in-house 2025 core PCE estimate tomorrow, perhaps to 2.9% from the current 2.5%.  “We see a risk that the Fed will be late to cut if a downturn hits,” Orlik writes.

Stocks came under renewed pressure, declining 1% and change on the S&P 500 to erase half the broad average’s trough-to-peak rebound from Friday to Monday. Treasurys caught a modest bid ahead of Powell’s Wednesday press conference, with 2- and 30-year yields each dropping two basis points to 4.04% and 4.58%, respectively, while WTI crude pulled back to $66.5 a barrel and gold notched another round of fresh highs at $3,034 per ounce. Bitcoin slipped below $82,000 and the VIX rebounded towards 22.

- Philip Grant

Penny pinching is in. Consumers are slumming it en masse these days, as Dollar General CEO Todd J. Vasos relayed on Thursday’s earnings call that “trade-down” among both middle- and upper-income consumers “appears to be accelerating.”  Commenting on the discount retailer’s half-completed fiscal first quarter (which began Feb. 1), the executive added that “I would tell you nothing that we've seen so far would show that that trade-down has slowed down.”

A trio of recent data points similarly suggest a tough slog is at hand in the retail realm. Average household credit card spending at Bank of America rose 0.3% on a sequential, seasonally-adjusted basis last month, well below the 0.7% economist consensus guesstimate for February retail sales.  Bloomberg’s in-house consumer spending metric, compiled from data tracking upwards of 20 million shoppers, in turn suffered “a sharp pullback” during that period.  Analysts at Jefferies, meanwhile, relayed on March 4 that mass beauty sales declined by 3.9% year-over-year during the four weeks through Feb. 28, even as average selling prices rose 3.7% from the same period in 2024.

Recent developments in the trucking industry likewise indicate less-than-firm economic footings. The Outbound Tender Rejection Index, which measures supply versus demand via the frequency with which truck loaders decline to haul their customers’ goods, turned down markedly over the past week, a “highly concerning” development per FreightWaves CEO Craig Fuller.

“A lot of the bullishness post-election among supply chain executives has turned into confusion and dismay,” he added. President Trump’s headline-hogging, multi-front tariff tiffs are “causing businesses to pull back investment sharply. Watching the freight charts in recent days has me highly concerned.”

Downshifting asset prices make for an uncomfortable overlay with those signs of commercial slack, spurring some observers to anticipate a helping hand from Washington. Bank of America strategist Michael Hartnett predicted Friday that, as a full-fledged bear market could serve to tip the economy into recession, “fresh declines in stock prices will provoke [a] flip in trade and monetary policy” by the Trump administration and Fed head Jerome Powell, respectively.

In the meantime, one of corporate America’s most prominent constituents opts for plaintive entreaty. The Financial Times reports that Tesla, Inc. – the corporate pride-and-joy of DOGE architect Elon Musk – sent a Tuesday letter to U.S. trade representative Jamieson Greer warning the car-maker is “exposed” to retaliatory tariffs as Trump et al. prepare levies on various trading partners.

“Even with aggressive localization of the supply chain, certain parts and components are difficult or impossible to source in the U.S.,” the letter stated, urging Greer to “ensure that U.S. manufacturers are not unduly burdened by trade actions that could result in the imposition of cost-prohibitive tariffs on necessary components.”

"It’s a polite way of saying that the bipolar tariff regime is screwing over Tesla,” one insider told the pink paper. Notably, the electric vehicle mainstay issued a similar communique during the trade wars of Trump 1.0, but that was of course prior to Musk’s entry into the fold. This week’s missive, the insider pointed out, “is unsigned because nobody at the company wants to be fired for sending it.”

Stocks staged a vigorous bounce, gaining 2.1% on the S&P 500 with the broad average finishing near session highs to claw back one-third of its year-to-date declines, while Treasurys came under modest pressure to wrap up a mixed week with 2- and 30-year yields at 4.02% and 4.62%, respectively. WTI crude ticked above $67 a barrel to narrowly post its first winning week in nine tries, gold briefly scaled the $3,000 per ounce summit before retracing to $2,982, bitcoin rebounded to $84,000 and the VIX settled below 22.

- Philip Grant

All good things must come to an end, via The Wall Street Journal:

Southwest Airlines plans to start charging for checked bags, a seismic shift that will boost revenue but potentially give its fiercely loyal passengers a reason to shop around.

“Bags fly free” was a policy so sacrosanct that Southwest trademarked the phrase and devoted a section of a book celebrating its 50th anniversary to it.

For bookings made on or after May 28, only customers with the airline’s top loyalty status and those buying its priciest tickets will be allowed to check two bags free. Travelers with the airline’s next level of status or a Southwest credit card are allowed one free checked bag.

Others should prepare to pay. Southwest didn’t say how much travelers will pay to check bags.

Some animals were more equal than others.  Regulators have put the crimps on Nasdaq’s furtive, high-speed trading service, the Financial Times reports.  

The bourse had “covertly” offered some customers access to fast-moving, hollow-core fiber optic cables for a $10,000 monthly fee, financial services-focused telecom outfit McKay Brothers told the Securities and Exchange Commission last month. Accordingly, that favored cohort enjoyed a leg up in the speed-centric scrum that is high-frequency trading while, in turn, bolstering revenues for the publicly-traded exchange.

“Several market participants were as surprised as we were to learn” of the program, McKay Brothers CFO Jim Considine wrote to the SEC on Feb. 12. “The disconcerting aspect of Nasdaq’s alleged conduct is that it involves a failure to disclose. . . Disclosure is the very bedrock upon which federal securities laws are based,” he added.

Tuesday’s eye-catching bulletin comes days after America’s second-largest bourse announced plans to roll out 24-hour, five-days per week trading as soon as summer 2026, joining an industry migration from long-established 9:30AM ET to 4PM ET norm. Cboe Global Markets announced a similar initiative last month, while domestic top dog New York Stock Exchange proposed extending its own operations to 22 hours of weekday trading in October.

Then there’s Robinhood Global Markets, an early mover in around-the-clock trading as part of its self-described mission to “democratize finance for all.”   

The Gen-Z friendly, app-based brokerage, which saw fourth quarter revenues balloon 115% year-on-year to $1.01 billion on the strength of a 700% uptick in its cryptocurrency businesses, has attracted yet more unwanted attention from Federal supervisors.  On Friday, the firm agreed to pay $26 million to the Financial Industry Regulatory Authority (FINRA) in response to “numerous” violations, including failing to “detect, investigate or report suspicious [customer] activity” or “supervise and retain social media communications promoting the firm” by paid influencers.  Robinhood was likewise obliged to pay $3.75 million in customer restitution after improperly converting some market orders to limit orders, furnishing inferior execution prices as a result.

Last week’s settlement represents the latest of many for Robinhood, which forked over $45 million to the SEC in January for allegedly failing to keep proper records or report suspicious activity in a timely manner.  The firm also shelled out $70 million to FINRA in 2021 after the agency identified technological shortcomings related to the GameStop meme stonk episode, and $65 million to the SEC in late 2020 for purportedly keeping clients in the dark over its practice of selling order flow to high-frequency traders.

Those mounting reputational snafus aggravate an operating downshift, which took shape even before the asset price “detox” kicked into gear. Thus, assets under custody slipped 8% month-over-month in February to $187.4 billion, with crypto trading volumes sinking to $14.4 billion, down 29% from January. Robinhood shares have been virtually cut in half since Valentine’s Day, leaving them back near the 2021 IPO price via the scenic route.  

HOOD share price since 2021.  Source: The Bloomberg

No bounce this time, as the S&P 500 remained under pressure through most of the day, pushing briefly into the green after lunch before faltering into the bell to settle lower by 0.8%. Treasurys also came for sale with 2- and 30-year yields each rising five basis points to 3.94% and 4.59%, respectively, ahead of tomorrow’s February CPI print (consensus calls for a 2.9% year-over-year headline increase), while WTI crude rebounded towards $67 a barrel and gold climbed back above $2,900 per ounce. Bitcoin rose towards $83,000 and the VIX settled just below 27.

- Philip Grant

We’ve good news and bad news, hodlers. The White House formally announced the formation of a Strategic Bitcoin Reserve and Digital Assets Stockpile Thursday evening, fulfilling industry boosters’ ambitions for a national coin cache under the auspices of Donald Trump, the self-described first crypto President.

Yet those newly-minted vehicles will be capitalized with existing, Treasury-controlled cryptos which were forfeited under criminal or civil proceedings, rather than via open market purchases which would presumably serve to nudge prices higher or, perhaps, provide exit liquidity for those looking to cash out. See the Jan. 31 and Feb. 14 editions of Grant’s Interest Rate Observer for more on Trump’s gambit.

While Uncle Sam feathers his digital nest with ill-gotten tokens, authorities in the Far East opt for a different approach in dealing with malfeasance.  As CoinDesk reports, Singapore’s Minister of State for Home Affairs Sun Xueling proposed earlier this week that her government introduce the corporal punishment known as caning to deal with crypto scammers, adding that that cohort inflicted 25% of all fraud-related losses on the city state’s citizenry during the past year.

Regulators in Switzerland announced that they have imposed a CHF 500,000 ($568,000) fine on Citigroup this morning, wrapping up an investigation into a 2022 fat-finger trading error that spurred a brief, near 2% swoon in the local blue-chip gauge.

A Citi employee mistakenly inputted $444 billion in sell orders rather than the intended $58 million basket trade, executing roughly $1.4 billion of erroneous transactions before pulling the plug.  “We are pleased to resolve this matter from more than two years ago, which arose from an individual error that was identified and corrected within minutes,” a Citi spokesperson commented.

A pair of more recent foibles complicate the accident-prone institution’s efforts to turn the page. Bloomberg reported Wednesday that a Citi wealth-management staffer nearly transferred $6 billion to a customer account – more than 1,000 times the intended sum – last April, after mistakenly copying and pasting the client’s account number into the system’s dollar amount figure.

The snafu, which was detected the next business day, “provoked audible frustration” from newly-minted division head Andy Sieg per the Bloomberg bulletin. Citi “promptly identified and corrected this inputting error, which had no impact on the bank or our clients,” assured the bank’s publicists. “In addition, we have implemented enhanced preventative measures which are consistent with Citi’s continuing efforts to eliminate manual processes and automate controls.”

That same month, Citi credited a client account with $81 trillion (with a “t”) rather than the intended $280, the Financial Times revealed last Friday, briefly approving the payment before an employee detected a problem with the bank’s account balances some 90 minutes later.  

Overall, Citi suffered a total of 10 such near misses, meaning funds processing errors that are ultimately reversed, of at least $1 billion in 2024, down from 13 in the prior year.  Such close shaves involving $1 billion and above are “unusual across the U.S. bank industry,” former regulators and industry risk managers told the pink paper. As for the $81 trillion incident, “detective controls promptly identified the inputting error between two Citi ledger accounts and we reversed the entry,” explained the overworked flacks, who likewise asserted that internal mechanisms “would have also stopped any funds [from] leaving the bank.”

Give those PR professionals a raise!

Stocks caught a mid-day bid to leave the S&P 500 higher by about half a percent, shaving the week’s losses to 3.3%, while Treasurys remained under pressure with 2- and 30-year yields rising to 3.99% and 4.62%, respectively, up three and four basis points on the session. WTI crude bounced back above $67 a barrel, gold edged lower at $2,911 per ounce, bitcoin slipped below $87,000 and the VIX settled at 23 and change.

- Philip Grant

As they say, 50% of success is just showing up. From the Financial Times:

Deloitte has told staff in its U.S. tax practice that it will now consider office attendance figures as part of their performance reviews, which are used by the Big Four firm to help determine bonuses. . .

Staff should ensure “in-person collaboration 2-3 days (50%) weekly”, added the email, which was sent by Katie Zinn, the tax practice’s chief talent officer. . .

The decision to evaluate U.S. office attendance marks a split with Deloitte’s U.K. arm, which has no minimum office attendance. 

Gaming, set, match: Business is booming at gambling outfit Flutter Entertainment, as the FanDuel parent reported fourth quarter earnings per share of $2.94, up 67% year-over-year to comfortably top the $1.73 analyst consensus.

So-called adjusted core profits will reach $3.2 billion this year if management forecasts are on the beam, up 34% from 2024’s level. Full-year revenue guidance, meanwhile, stands at $15.9 billion, up 13% from the prior annum.

“I've been really pleased with the strength and trajectory of the U.S. business,” CEO Peter Jackson crowed on Tuesday evening’s earnings call. “FanDuel has made a strong start to the year and we expect to materially expand our player base due to our market-leading products.”  Flutter shares have returned 26% and 149%, respectively, over the past one and five years, comfortably outpacing the S&P 500’s 17% and 109% over the same period.

The American instinct to wager is on ready display beyond the professional (and collegiate) athletic realm. Citing data from the Cboe Global Markets, Bloomberg relays that S&P 500 options contracts expiring within 24 hours comprised 56% of total trading volume tied to the blue-chip gauge last month, marking the highest such share since the exchange rolled out five-day-per-week settlement for those contraptions in 2022.  The trailing 10-day average turnover for SPX-tied 0DTE’s registered at $1.2 trillion as of last Friday, likewise a record sum and up 61% from the same time last year.

Of course, digital assets are hardly exempt from today’s speculative zeitgeist.  Thus, President Trump’s Sunday declaration that a strategic cryptocurrency reserve is in the works spurred frenzied activity, with bitcoin perpetual futures contracts logging record turnover across the Binance, Bybit, OKX and Bitget exchanges according to data from Coinglass. Binance, the largest digital bourse by revenue, saw its futures platform process some 17.3 million bitcoin trades over the 24 hours after Trump’s announcement, more than double its daily baseline.  Similarly, the iShares Bitcoin Trust ETF averaged just over 82 million shares of turnover Monday and Tuesday, compared to a daily average of less than 37 million shares dating to its January 2024 inception.

While Trump has been known to rifle off, uh, informal remarks on social media, that proposed national crypto cache will indeed go forward, Secretary of Commerce Howard Lutnick told journalist Ksenija Pavlovic today, with an announcement likely forthcoming at the upcoming White House crypto summit. “He spoke about it all during the campaign trail, and I think you’re going to see it executed on Friday,” Lutnick predicted. “So, bitcoin is one thing, and then the other crypto tokens, I think, will be treated differently – positively, but differently.”

Not all Wall Street veterans in Trump’s orbit are on board with the digital ducats.  Speaking at a Bloomberg hosted event this morning, former Goldman Sachs executive and Trump 1.0 Treasury Secretary Steve Mnuchin declared that he “personally” would not buy cryptocurrencies, citing the “illicit activity” oft associated with the asset class.

Place your bets. Or don’t.

The bulls got the better of another roller-coaster day with the S&P 500 reversing early losses to finish higher by 1.3%, while Treasurys remained under some pressure with 30-year yields rising another four basis points to 4.57%. WTI crude sank below $67 a barrel for the first time this year, gold edged higher towards $2,920 per ounce, bitcoin pushed back above $90,000 and the VIX retreated below 22.

- Philip Grant

From NBC:

In an exclusive interview with the Sunday edition of "NBC Nightly News," Chipotle CEO Scott Boatwright told anchor Hallie Jackson that, for now, the burrito purveyor intends to keep costs constant for consumers even as some of its cost of goods move higher.

“It is our intent as we sit here today to absorb those costs,” he said, though he cautioned pricing changes could eventually come if elevated costs become a “significant headwind.”

Call it the suprastate of nature: Deutsche Bank and the European Central Bank butted heads on several occasions last year over Deutche’s loan marks, the Financial Times reports today, with regulators suggesting that a €2.5 billion ($2.62 billion) provision for losses would be appropriate rather than DB’s planned €1.5 billion figure.

After arguing that such an elevated provision would dent corporate profits and, accordingly, tax remittances, DB ended up setting aside €1.8 billion, a 22% uptick from its 2023 allowance, adding in January that it anticipates only a partial “normalization” of loan losses this year.   

Separately, the ECB threatened to hike Deutsche’s bank-specific capital surcharge (known as Pillar Two) by “significantly more” than the 25-basis point increase to 2.9% which it ultimately levied, the pink paper relays, owing to “concerns over [its] risk management.”

While Germany’s largest lender spars with its government overseers, one stateside policymaker looks to loosen the regulatory reins for those operating at the other end of the size spectrum.  Federal Reserve governor Michelle Bowman argued in a Thursday speech that that community banks (defined as those sporting less than $10 billion in assets) “can operate safely and soundly, and in compliance with laws, without being subject to the same extensive guidance and . . . requirements as larger, more complex banks.”

For instance, “a community bank that has no out-of-market customers applying for new accounts likely does not need the same know-your-customer processes as a large or regional bank that opens accounts online and may be more vulnerable to fraud,” Bowman said. More broadly, “a number of onerous requirements imposed on community banks seem to reflect an assumption of an indirect and less personal banking relationship” belied by the group’s largely-localized focus, she added.

That generally provincial footprint has served the small fry’s well enough of late, with the post-Covid surge in borrowing costs and related onset of commercial real estate stress redounding more upon mid-size regional lenders. “When a community bank says, ‘we have an office loan,’” Strategic Value Bank Partners managing member Ben Mackovak told Grant’s Interest Rate Observer last spring, “it’s a two-story suburban office building where the owner has their small business on the second floor and maybe there’s a dentist on the first floor. It’s not the 40-story building that sells for 10% of its replacement cost.”  A trio of picks-to-click featured in the April 26, 2024, edition of GIRO have since returned 58%, 18% and 34%, compared to 16% for the S&P 500.

Yet large swaths of the banking system remain haunted by the ghosts of the ultra-low-rate era, with underwater Treasury and mortgage-backed securities continuing to clog industry balance sheets. The domestic sum of unrealized losses on investment securities registered at $482.4 billion as of Dec. 31 according to the Federal Deposit Insurance Commission, up 32.5% from three months earlier as 10-year Treasury yields pressed higher in the face of Fed rate cuts.

Meanwhile, an eye-catching regulatory retrenchment took shape last Tuesday, as the FDIC announced that it will no longer disclose the total assets of firms on its Problem Bank List as it has done for the past 35 years.  In rendering that decision, acting chair Travis Hill cited concerns of a bank run were such a stricken lender to be identified by the public, as well as “limited useful information” given “the subjective nature of ratings” along with “the time lag of disclosure.”  Following that move, the FDIC will merely disclose the number of troubled lenders on a quarterly basis, with that tally standing 66 at year-end compared to 52 and 39 in the fourth quarters of 2023 and 2022, respectively.

Unsurprisingly, perhaps, that move leaves some observers cold.  “Forced disclosures of sins, and fears of the consequences of those disclosures, are part of what is supposed to keep banks from doing stupid things,” Wolf Street editor-in-chief and eponym Wolf Richter wrote last week. “The purpose of these disclosures is to impose some discipline on banks and bank CEOs; and if they do stupid things, allow markets and depositors to punish them.” 

With that regulator-imposed discipline going by the wayside in service of averting “potentially negative consequences,” Richter wonders if the publication of unrealized losses might be next on the FDIC’s chopping block.

Stocks came under heavy pressure this afternoon to erase Friday’s rally and then some, though the S&P 500 settled off its lows with a minus 1.8% showing. Treasurys maintained their recent strength as 2- and 30-year yields declined to 3.96% and 4.45%, respectively, down three and six basis points on the session. WTI crude retreated to $68 a barrel, gold bounced to $2,894 per ounce, bitcoin failed to hold yesterday’s Trump pump at $86,200 and the VIX ripped more than three points to finish near 23.

- Philip Grant

Maybe send over some panda bears instead?  From the Financial Times:

China’s securities regulator has clamped down on small companies’ listings on New York stock exchanges after many of them became vehicles for price-rigging, causing heavy losses for U.S. investors.

The rate of China-approved applications for U.S. initial public offerings has slowed noticeably in the past year, falling from 22 in the first half of 2024 to 11 since June. Four people close to the China Securities Regulatory Commission said it intended to impose “tighter control” this year over U.S. IPOs of Chinese companies with small capitalization and weak fundamentals, viewing them as prone to market manipulation. . .

According to a study released in January by Hindenburg Research, a now-shuttered investment research company, 128 Chinese companies have reported irregular price activity not explained by corporate fundamentals shortly after their New York IPOs since 2022.

U.S. regulators, led by the Securities and Exchange Commission, have in recent years issued multiple warnings about pump and dump schemes involving small Chinese companies listed in New York.

Easy come, easy go. Hodlers headed for the exits en masse earlier this week, as spot bitcoin ETFs logged upwards of $1 billion in outflows Tuesday by Bloomberg’s count. That’s the largest single-session leakage since their January 2024 debut.

Yet crypto investors have hardly panicked during the recent drawdown, as the iShares Bitcoin Trust ETF has seen total assets ebb by 21% from its early January peak, tracking the underlying digital currency’s pullback. Assets within the BlackRock-managed vehicle have jumped by 150% since Labor Day (bitcoin has appreciated by 65% over that stretch) to $46 billion.  For context, the SPDR Gold Trust – which is near legal drinking age with a fall 2004 inception – houses just under $88 billion.   

At the same time, institutional adoption continues apace. Fiduciaries controlled 25% of spot bitcoin ETF shares outstanding as of year-end according to Bernstein, up from 21% three months prior. “As the industry becomes more institutionalized, it should be safer,” Standard Chartered analyst Geoff Kendrick commented on CNBC this morning. That dynamic, in tandem with enhanced “regulatory clarity” under Trump 2.0, “should add to. . . top-side potential, which for me is bitcoin up to $200,000 this year, and $500,000 before Trump leaves office,” the bulled-up Kendrick predicts.

While the future is anyone’s guess, it’s a cinch that higher prices would further encourage geeky digital bandits to ply their nerdy trade. Last week, hackers made off with nearly $1.5 billion worth of crypto from the Bybit exchange, marking the largest such theft on record.  The culprits, since identified by the FBI as North Korea-based outfit Lazarus Group, managed to pilfer some 400,000 ethereum tokens from Bybit’s offline, “cold” wallet before dispersing the assets across 50 different wallets according to analytics firm Elliptic.

For its part, Bybit replenished its reserves in noteworthy fashion, securing emergency loans from rival platforms with “unusual” terms per a Monday bulletin from The Information.  For instance, peer Bitget furnished Bybit 40,000 ether a mere five hours after the theft, charging no interest, requiring no collateral and specifying no timeline for repayment. “It is more of pure trust,” commented Bitget CEO Gracy Chen.

Will such unbridled faith prove justified?  See “Memo to the bitcoiners” in the brand-new edition of Grant’s Interest Rate Observer dated Feb. 28 (the 1,000^th issue!) for a detailed look at the asset class’s inherent security flaws, via conversation with a “technophile extraordinaire” who helped design a blockchain-like protocol in the 1990s yet today owns nary a digital ducat.

A $30.6 billion weekly downtick in Reserve Bank credit leaves the Fed’s portfolio of interest-bearing assets at $6.729 trillion. That’s down $51 billion from the final week in January and 24.6% south of the early 2022 highs.

Stocks took another beating as early strength gave way to intense selling pressure in the final hour, leaving the S&P 500 lower by 1.6% on the day to erase its year-to-date gains. Treasurys were unable to maintain their recent bid with 2- and 30-year yields rising to 4.07% and 4.56%, respectively, up two and five basis points on the session, while WTI crude bounced to $70 a barrel and gold sank 1.5% to $2,873 per ounce. Bitcoin dropped to $83,400 and the VIX topped 21 to notch its highest close of 2025.

- Philip Grant