Investors are evaluating the prospects of the US Federal Reserve’s interest rate decision

By JustMarkets

At the close of the stock market yesterday, the Dow Jones Index (US30) gained 1.20%, and the S&P 500 Index (US500) increased by 0.89%. The NASDAQ Technology Index (US100) added 0.32% yesterday. The US Federal Reserve said late last week that it would work with other major central banks to provide liquidity to the global banking sector. Certainly, this has brought some optimism back to the stock market. But that could easily dissipate if the US Federal Reserve raises interest rates on Wednesday and hints at further policy tightening.

Former Goldman Sachs chief executive Lloyd Blankfein said the Federal Reserve might take a pause in raising interest rates this week as the unfolding banking crisis tightens lending standards in the economy. Blankfein also warned that without intervention to protect deposits at small and regional banks, consumers could only rely on large banks that have high capital and liquidity standards. This, he said, could lead to consolidation in the financial sector, which would negatively impact the nation’s large and growing economy. Before the SVB collapse and the resulting policy implications, the Fed was willing to raise rates by as much as 50 basis points as price pressures in the US economy were deemed sustainable. Given the current market volatility, some Fed observers expect a quarter-point hike, while others predict a pause.

Shares of the New York Community Bancorp jumped by more than 31% after his subsidiary Flagstar Bank agreed to buy most of Signature Bank for $2.7 billion. Concerns about the banks’ liquidity crisis subsided somewhat Monday when Swiss investment bank UBS said it would buy Credit Suisse, and JPMorgan (JPM) appeared to have made progress in rescuing First Republic Bank (FRC) following last week’s federal takeover of regional banks Silicon Valley and Signature.

European stock indexes rose on Monday amid improving sentiment in the banking sector after UBS agreed to buy struggling rival Credit Suisse. German DAX (DE30) gained 1.12%, French CAC 40 (FR40) jumped by 1.27%, Spanish IBEX 35 (ES35) gained 1.31%, and British FTSE 100 (UK100) closed yesterday with a 0.93% gain.

To further improve financial stability in Europe, European Central Bank President Christine Lagarde said that the central bank is “ready to respond as necessary” to maintain the stability of the euro area.

Gold prices have finally reached the $2,000 per ounce mark. Falling dollar index and falling government bond yields amid the banking crisis are fueling gold’s rise. But analysts are confident that traders should expect a correction wave in the coming days because prices are heavily overbought now.

Crude markets tried to rebound yesterday after regulatory measures to shore up liquidity and consolidate weak players in the banking sector helped ease some fears of an impending crisis. But that was largely offset by uncertainty ahead of this week’s key Fed meeting. Asian markets mostly fell Monday. Japan’s Nikkei 225 (JP225) decreased by 1.42%, China’s FTSE China A50 (CHA50) lost 0.41% for the day, Hong Kong’s Hang Seng (HK50) lost 2.65% for the day, India’s NIFTY 50 (IND50) decreased by 0.65%, and Australia’s S&P/ASX 200 (AU200) was down by 1.38%.

On Monday, the Bank of Japan appointed Seiichi Shimizu, whose market and technical expertise in the bank’s Yield Curve Control (YCC) policy has earned him the nickname “Mr. YCC. During his tenure as head of the financial market division, the 57-year-old banker helped put together a package of steps to mitigate the side effects of the YCC in 2021, such as phasing out large purchases of risky assets. Shinichi Uchida was elected deputy governor. The new governor, Kazuo Ueda, will join the Bank of Japan when the term of incumbent Haruhiko Kuroda expires next month. Many analysts expect the Bank of Japan to change or cancel the YCC during Ueda’s five years in office, as the bank’s huge bond purchases to protect the yield cap have been criticized for distorting the shape of the yield curve and depleting bond market liquidity.

S&P 500 (F) (US500) 3,951.57 +34.93 (+0.89%)

Dow Jones (US30)32,244.58 +382.60 (+1.20%)

DAX (DE40) 14,933.38 +165.18 (+1.12%)

FTSE 100 (UK100) 7,403.85 +68.45 (+0.93%)

USD Index 103.30 −0.40 (−0.39%)

• – Australia RBA Meeting Minutes at 02:30 (GMT+2);
• – German ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
• – Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
• – Canada Consumer Price Index (m/m) at 14:30 (GMT+2);
• – Eurozone ECB President Lagarde Speaks at 14:30 (GMT+2);
• – US Existing Home Sales (m/m) at 16:00 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.