—— Silicon Valley Bank Faces Bank Run Crisis; U.S. February Jobs Data Mixed; Elliott Sells UK Data Center; JD.com Revenue Growth Slows Sharply; Adani Sells Shares to Repay Debt; U.S. Mortgage Payments Hit Record High; U.S. FY2023 Fiscal Deficit Surges
1. Silicon Valley Bank Faces Bank Run Crisis
On Thursday, Silicon Valley Bank (SVB) announced it had sold $21 billion worth of securities from its investment portfolio and planned to raise $2.25 billion through a stock offering. In addition, SVB projected a significant decline in net interest income this year.
Amid fears of liquidity issues and a potential bank run, many investors rushed to withdraw their funds from SVB.
Following the announcement, SVB’s stock plunged 60%, and its bond prices also hit record lows. SVB CEO Greg Becker held a conference call with clients, including venture capital (VC) investors, urging calm.
SVB’s stock collapse rippled across the entire banking sector—shares of major banks like Wells Fargo, Bank of America, and JPMorgan Chase all fell by at least 5%.
SVB serves nearly half of all VC-backed startups in the U.S. In 2022, 44% of the tech and healthcare companies that went public with VC backing were SVB clients.
Prominent VC investor Peter Thiel’s Founders Fund, along with Coatue Management and others, advised startups to transfer their cash out of SVB.
Having failed to secure new capital, SVB has now been shut down and taken over by the Federal Deposit Insurance Corporation (FDIC).
Silicon Valley Bank is considered a lifeline for America’s startups; a collapse could have devastating consequences.
______
2. U.S. February Jobs Data Mixed
According to data released today by the U.S. Bureau of Labor Statistics, nonfarm payrolls increased by 311,000 in February, down from 504,000 in January, while the unemployment rate rose to 3.6%.
The U.S. has now seen job growth beat economists’ expectations for 11 consecutive months, marking the longest such streak since 1998.
Average hourly earnings rose 0.2% month-over-month and 4.6% year-over-year. Labor force participation increased to 62.5%, the highest since March 2020.
Investors believe today’s data suggests slight weakening in the labor market, increasing the likelihood of a 25-basis-point rate hike by the Fed.
However, many economists argue that despite slower wage growth, the job gains far exceeded expectations, making a 50-basis-point hike still possible.
February’s employment data presents a mixed picture for the Federal Reserve.
______
3. Elliott Sells UK Data Center
Sources reveal that New Zealand infrastructure investor HRL Morrison & Co. is in talks to acquire UK-based Ark Data Centres, which may be valued at up to $3 billion.
Ark, owned by Elliott Investment Management, has also attracted interest from another undisclosed buyer. While talks are in the final stages, no deal has been finalized.
With demand for cloud services soaring in recent years, investors have become bullish on data center prospects. Bloomberg also reported this week that DigitalBridge Group is considering selling a minority stake in Vantage Data Centers.
Founded in London in 2005, Ark is one of the UK’s largest operators, offering cloud and connectivity services to a broad range of clients.
Morrison primarily invests in infrastructure-related alternative assets and manages $18 billion in AUM, focusing on data centers, airports, and similar assets across the Asia-Pacific, Europe, and the U.S.
U.S.-based Elliott is the primary shareholder in Ark.
______
4. JD.com Revenue Growth Slows Sharply
On Thursday, China’s second-largest e-commerce platform JD.com reported that revenue rose 7% in the quarter ending March, a significant slowdown from 23% a year earlier and 1% lower than the previous quarter.
Both JD.com and China’s largest e-commerce player Alibaba have seen business disruptions in recent years, amid weakened consumer sentiment and spending due to the pandemic and economic concerns.
Data shows that China’s total imports and exports continued to decline in the first two months of 2023, creating uncertainty in the economic recovery. Economists believe consumer spending will be the main driver of China’s GDP growth this year.
Worryingly, urbanization is slowing and the wealth gap is widening—both of which could further dampen consumer purchasing power.
JD.com shares fell as much as 12% today, hitting their lowest level since November.
JD.com stated that consumer confidence in China has improved this year, but it remains cautious about the future.
______
5. Adani Sells Shares to Repay Debt
Sources report that Indian billionaire Gautam Adani plans to sell a 4% to 5% stake in his cement company, Ambuja Cement, worth approximately $450 million, to help restore investor confidence and repay debt.
Previously, U.S. short seller Hindenburg Research accused Adani of fraud and market manipulation, leading to a $145 billion wipeout in the valuation of his companies.
While Adani has denied any wrongdoing, he claimed he has the capacity to repay $24 billion in debt and interest.
The Adani Group has announced it will repay all pledged share-backed loans by the end of March to reduce stock price volatility.
Given the steep drop and high volatility in Adani’s stock prices, repaying pledged loans is a prudent move.
______
6. U.S. Mortgage Payments Hit Record High
According to new data from real estate brokerage Redfin, the average monthly mortgage payment in the U.S. has reached $2,563 this week, up 29% year-over-year and the highest since 2015.
Although home prices have dropped 1.2% year-over-year to $353,000, the surge in mortgage rates has fully offset any affordability gains.
A year ago, with mortgage rates around 3.85%, a buyer with a $2,500 monthly budget could afford a $480,000 home. Today, that same budget only covers a $376,000 home.
Redfin’s homebuyer demand index is down 27% from a year ago, reflecting a significant drop in viewing and buying inquiries among agents.
With stagnant budgets, buyers today can afford far less home than a year ago.
______
7. U.S. FY2023 Fiscal Deficit Surges
According to monthly budget data released today by the U.S. Treasury Department, the federal deficit in February increased by $262 billion to $723 billion.
So far in fiscal year 2023, the U.S. government has spent $307 billion on debt interest, a 29% year-over-year increase, including $46 billion in February alone.
Federal Reserve rate hikes have inevitably raised the government’s borrowing costs. Fed Chair Jerome Powell stated that interest expenses on government debt are not his top concern, as the Fed’s primary mandate remains price stability and employment.
Due to higher interest paid to banks, the Fed has not recorded any interest income this year.
______
This content is sourced from Financial Times, Bloomberg, and The Real Deal, among other financial news outlets.