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MAY 1, 2023

JPMORGAN CHASE TAKES OVERS

JPMorgan Chase & Co has bought most of First Republic Bank’s assets, which consists of $173 billion in loans, $30 billion in securities, and $92 billion in deposits. This acquisition was led by U.S. regulators after First Republic Bank suffered a massive outflow of over $100 billion in the first quarter. First Republic Bank is the third major U.S. institution to fail in just two months, causing a lot of stress and concern in the banking sector. PNC Financial Services Group and Citizens Financial Group also made offers for First Republic Bank, but JPMorgan Chase was chosen as the buyer. According to JPMorgan CEO, Jamie Dimon, the bank will be “very well-capitalized” after the deal.

INVESTORS SHIFT TO SAFETY

Bond investors are turning to U.S. Treasuries and avoiding risky investments in anticipation of a potential recession and the end of the Federal Reserve’s tightening cycle. The collapse of several banks has added to the behavior, and while the Fed is expected to raise interest rates this week, investors are predicting a possible pause followed by rate cuts and even a future rate cut. In response to the uncertain environment, fund managers are adopting neutral positions, focusing on safe assets such as U.S. Treasuries, or lengthening the duration of their portfolios. Businesses with resilience in a downturn, such as health care and utilities, have become favored. Recent data revealed that U.S. government bond funds had $2.22bn worth of inflows in the week ending April 26, and U.S. Treasury ETFs attracted $634m.

OIL PRICES DECLINE ON CHINA’S SLOW RECOVERY AND MARKET UNCERTAINTY

Oil prices have decreased for the past two weeks due to concerns about China’s slow economic recovery. Although strong earnings from U.S. companies helped to mitigate this last Friday, China’s manufacturing activity unexpectedly dropped in April, suggesting that the country’s economy may be struggling to regain momentum. Furthermore, JPMorgan Chase & Co.’s acquisition of First Republic Bank caused market concerns about the stability of different lenders. Also, hedge funds and money managers have become bearish about crude oil after prices fluctuated in April.

MORTGAGE RATES EXPECTED TO LOWER IN MAY

Mortgage rates may drop in May due to various economic factors, including rising unemployment rates and lower inflation. According to top economists and forecasters from Fannie Mae, the Mortgage Bankers Association, and the National Association of Realtors, the average rate for a 30-year fixed-rate mortgage will continue to decline through the first quarter of 2024. The expected quarter-percentage-point rate increase by the Federal Reserve on May 3 has already been included into existing mortgage rates, and although mortgage rates on the 30-year fixed-rate mortgage saw a slight increase from March to April, they could continue to drop throughout the year.

KEY EVENTS HAPPENING THIS WEEK

Tuesday: U.S. Job openings and Factory orders reports for March, and earnings reports for Uber, Restaurant Brands, Pfizer (before market opens); Ford, Starbucks, AMD (after the market closes).

Wednesday: ADP Employment report for April, Federal Reserve interest-rate announcement, and earnings reports for CVS, Yum Brands (before the market opens); Qualcomm (after the market closes).

Thursday: First-quarter U.S. productivity report, U.S. trade deficit report for March, and earnings reports for Moderna, Paramount Global (before the market opens); Apple (after the market closes).

Friday: U.S. employment and Hourly wages year over year reports for April, U.S. unemployment rate for April, and earnings reports for Warner Bros. Discovery (before the market opens).

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