Morning Report: Big deal in the credit card space

Posted on February 20, 2024 by Brent Nyitray

Vital Statistics:

Stocks are lower this morning after we return from a long weekend. Bonds and MBS are up small.

Capital One is buying Discover Financial Services in a $35 billion deal. With the interest rate environment less hospitable than before, we might see more merger activity in the financial sector. This deal seems to be mainly about attracting deposits: “Discover has done a better job of bringing in a lot of deposits and [has] access to a lot of institutions to run the debit card network and provide service. So it gives them a lot of deposit gathering ability, which particularly in the current market is enormously important,” said David Schiff, West Monroe’s head of consumer retail and banking.

The upcoming week won’t have much in the way of market-moving data, however we will get the FOMC minutes on Wednesday. This should give us more insight into when the Fed is going to start cutting rates. The CPI report last week caused traders to pare back their bets on rate cuts this year, although shelter inflation was the big driver.

Shelter accounted for about 2/3 of the increase in the CPI last month, and in my latest Substack, I take a deeper dive into the shelter component and look at how the worst might be over here.

Consumer sentiment in February is mostly unchanged from January, according to the University of Michigan Consumer Sentiment Survey. Consumers are generally getting more constructive about the economy, although there remains a partisan gap.

Year-ahead inflationary expectations ticked up from 2.9% to 3.0% which is still within the pre-pandemic 2.3% – 3.0% range. Longer-term inflationary expectations remained at 2.9%, which is still above the pre-pandemic range of 2.2% – 2.6%.

Some encouraging data for the Spring Selling Season, which is more or less underway. New listings were up 9.5% compared to a year ago, while median prices were more or less flat. Active inventory was up 13.9%.

I am wondering if people are accepting the fact that we aren’t going back to 3% mortgage rates and just dealing with it.

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