— U.S. CMBS Delinquencies Rise for Consecutive Months; Fed Raises Rates by 25 Basis Points; Shopify Sells Logistics Unit and Cuts Jobs; TD Abandons First Horizon Merger; J&J Pharma Unit Sets IPO Record; U.S. Homeowner Equity Near Record; Continuing Jobless Claims Decline
1. U.S. CMBS Delinquencies Rise for Consecutive Months
According to data from CRED iQ, the U.S. CMBS delinquency rate rose for a third consecutive month in April to 3.93%, up from 3.77% in March.
The pressure facing commercial real estate is the primary culprit behind the rising delinquency rates over the past two months.
The combined figure of delinquency and special servicing rates serves as a distress rate indicator, which has now reached 6.08%.
Among all property types, retail properties account for a distress rate of 11.46%, followed by lodging properties at 6.38%.
The delinquency rate for office property loans rose 72 basis points month-over-month to 3.81%, a jump of 23%.
Office properties faced growing headwinds in April, and the delinquency rate is now more than double compared to a year ago.
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2. Fed Raises Rates by 25 Basis Points
On Wednesday, the Federal Reserve raised the benchmark interest rate by 25 basis points. Unlike the March meeting, the Fed did not explicitly signal that further hikes are necessary, suggesting a possible pause in June.
The FOMC stated that the committee will closely monitor incoming data and make appropriate adjustments to monetary policy as needed.
When asked whether the Fed would raise rates again in June, Chair Powell said more future data is needed, and decisions will be considered at the June meeting.
The federal funds rate now stands at 5% to 5.25%, the highest level since 2007. The committee unanimously approved the 25-basis-point increase.
Powell added that based on the committee’s outlook for inflation and the economy, it is not yet time to cut rates.
While the Fed believes rate cuts are premature, the language indicates a pause in June is highly likely.
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3. Shopify Sells Logistics Unit and Cuts Jobs
Tobi Lutke, CEO of U.S. e-commerce company Shopify, said in a letter to employees that the company plans to lay off around 20% of its workforce and will sell most of its logistics division to Flexport Inc., meaning some employees will leave Shopify as a result.
In the first quarter, Shopify posted revenue of $1.51 billion, beating expectations. Gross merchandise volume reached $49.6 billion, also exceeding the forecast of $47.68 billion.
The company expects second-quarter revenue growth to be similar to the first quarter, and it anticipates generating free cash flow every quarter of 2023.
Last summer, Shopify laid off 1,000 employees, raised prices, and began building its own logistics network.
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4. TD Abandons First Horizon Merger
Canada’s second-largest bank, TD Bank, and First Horizon jointly announced today that they have terminated their merger agreement due to the likelihood of not receiving regulatory approval.
According to the previously signed merger contract, TD must pay Memphis-based First Horizon a $200 million termination fee in cash.
With several regional bank failures in recent months in the U.S., TD had hoped to use the opportunity to quickly expand into the southeastern market. This morning, First Horizon’s share price was nearly halved.
In early 2022, TD announced plans to acquire First Horizon for $13.4 billion. If successful, the deal would have added more than 400 U.S. branches and 1.1 million employees to TD’s operations.
TD informed First Horizon that the uncertainty around regulatory approval was too high, forcing the termination of the merger.
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5. J&J Pharma Unit Sets IPO Record
Kenvue, the consumer health unit of Johnson & Johnson (J&J), raised $3.8 billion in today’s IPO, marking the largest IPO since 2021.
Kenvue priced its shares at $22, the high end of the company’s projected range. It also increased the number of shares offered, bringing its market capitalization to over $41 billion.
This year has been the slowest for U.S. IPOs since 2016, and Kenvue’s listing injected a dose of energy into the capital markets.
Kenvue’s well-known brands include Tylenol, Listerine, Neutrogena, and Nicorette. In the fiscal year ended January 1, 2022, the company generated $15 billion in revenue and $1.5 billion in net income.
Goldman Sachs, JPMorgan Chase, and Bank of America are managing Kenvue’s IPO.
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6. U.S. Homeowner Equity Near Record
According to the latest data from ATTOM, in the first quarter, 47.2% of U.S. mortgaged homes had more than 50% equity, slightly down from 48% in the previous quarter.
The decline in the ratio is mainly due to falling home prices across most parts of the U.S.
High levels of equity help homeowners reduce the risk of default and avoid a crisis similar to 2008.
ATTOM’s report shows that in Q1, 238,000 homes faced potential foreclosure, accounting for 0.5% of all properties, and 90% of those homeowners still had some accumulated equity.
The 50 markets with the highest equity ratios are all located in California, Florida, New York, and Texas.
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7. Continuing Jobless Claims Decline
The U.S. Department of Labor reported today that initial jobless claims rose by 13,000 to 242,000 in the week ending April 29, the largest increase in six weeks and slightly above economists’ forecasts.
Continuing claims dropped by 38,000 to 1.81 million, the largest weekly decline since July 2022, suggesting unemployed workers are finding jobs more quickly.
While some softening in the labor market is visible, the pace of cooling remains slower than the Fed would prefer.
Economists expect Friday’s jobs data to show that employers are slowing hiring and that the unemployment rate will tick up slightly.
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This content is sourced from Financial Times, Bloomberg, and The Real Deal, among other financial news outlets.