The Bank of Japan kept its monetary policy unchanged. The US banking sector is under pressure

March 10, 2023

Yesterday, the US stock indices fell sharply, mainly due to falling banking sector shares. Shares of SVB Financial Group (SIVB) fell more than 55% after the bank disclosed a net loss of $1.8 billion and gave a negative outlook for the year on the impact of higher interest rates. SVB Financial Group said it was taking aggressive measures to shore up its balance sheet, including selling shares and liquidating its securities portfolio. The SIVB’s fall has dampened sentiment toward bank stocks, which have been pressured by a deeper inversion of the yield curve, a harbinger of recession. As the stock market closed Thursday, the Dow Jones Index (US30) decreased by 1.66%, and the S&P 500 Index (US500) lost 1.85%. The NASDAQ Technology Index (US100) fell by 2.05%.

Investors remain tense ahead of Friday’s jobs report. The US economy is expected to grow by 200,000 jobs last month, well below January’s 517,000. The unemployment rate is forecast at 3.4%. Yesterday’s weekly labor market data showed that US employers announced 77,770 job cuts in February, down 24% from the 102,943 cuts announced in January. This indicates a resilient labor market. Many fear that a strong Nonfarm Payrolls report could solidify the return of aggressive rate hikes by the Federal Reserve.

On Thursday, President Joe Biden unveiled a $6.9 trillion budget proposal. The proposal, which the Republican-controlled House of Representatives will undoubtedly reject, showed little inclination to compromise. The president’s proposal would increase funding for a number of government programs, increase Medicare solvency, lower prescription drug prices, and reduce the deficit by $3 trillion over the next decade. Biden also proposes adding $77 billion for defense spending.

Stock markets in Europe were mostly down yesterday. Germany’s DAX (DE30) gained 0.01%, France’s CAC 40 (FR40) fell by 0.12%, Spain’s IBEX 35 (ES35) decreased by 0.45%, and Britain’s FTSE 100 (UK100) closed down 0.63%.

The ECB will raise rates by 50 basis points at its March meeting, and analysts expect the central bank to signal the next such move, probably in May. Executive Board spokeswoman Isabel Schnabel recently said that in order to slow the pace of rate hikes, she needs to see the ECB’s monetary policy become restrictive, which should show up in credit markets, labor markets, and various components of aggregate demand. But there is disagreement within the ECB. On the hawkish side, Holzmann argued that the ECB should raise the rate by 50 basis points at all the next four meetings. On the other hand, Visco did not appreciate such comments from his colleagues and said that decisions should be made meeting by meeting in an environment of high uncertainty. But in any scenario, the ECB will remain hawkish until the summer.

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On Wednesday, crude oil prices fell for a second straight day, even as oil inventories fell. Inventories fell by 1.694 million barrels last week, the first weekly drop in inventories since December. The rise in the dollar index on the back of the US Federal Reserve’s aggressiveness outweighs the factors of falling inventories and rising demand from China.

Oil prices continued to fall Friday due to fears of more aggressive interest rate hikes by the US Federal Reserve and disappointing data from China. Markets are worried that a potential US recession triggered by tighter monetary conditions could hit oil demand this year. China’s weak economic signals also upset oil markets, as the world’s largest oil importer recorded a drop in oil imports between January and February. Expectations of higher interest rates are strengthening the dollar, putting pressure on commodities priced in the currency, mainly oil. A stronger dollar makes oil more expensive for international buyers, which reduces demand.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) jumped 0.63%, China’s FTSE China A50 (CHA50) fell by 0.61%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.63%, India’s NIFTY 50 (IND50) fell by 0.93%, and Australia’s S&P/ASX 200 (AU200) ended the day up by 0.05%.

The Bank of Japan kept interest rates at record lows on Friday and said it would continue the current rate of Yield Curve Control (YCC). The BOJ said in a statement that inflation is likely to slow by mid-2023, thanks to government subsidies on energy prices and easing pressure from high commodity rates. But the Bank of Japan also said that prices would rise again by the end of the year and that growing uncertainty about the economy underscored the need to maintain the adaptive monetary policy. This was the last meeting in the office for Haruhiko Kuroda.

S&P 500 (F) (US500) 3,918.32 −73.69 (−1.85%)

Dow Jones (US30)32,254.86 −543.54 (−1.66%)

DAX (DE40) 15,653.58 +75.19 (+0.01%)

FTSE 100 (UK100) 7,879.98 −49.94 (−0.63%)

USD Index 105.28 −0.38 (−0.36%)

Important events for today:

– Japan BoJ Interest Rate Decision at 05:00 (GMT+2);
– Japan BoJ Rate Statement at 05:00 (GMT+2);
– Japan BoJ Press Conference at 07:00 (GMT+2);
– UK GDP (m/m) at 09:00 (GMT+2);
– UK Industrial Production (m/m) at 09:00 (GMT+2);
– UK Manufacturing Production (m/m) at 09:00 (GMT+2);
– US Nonfarm Payrolls (m/m) at 15:30 (GMT+2);
– US Unemployment Rate (m/m) at 15:30 (GMT+2);
– Canada Unemployment Rate (m/m) at 15:30 (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.

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The Bank of Japan kept its monetary policy unchanged. The US banking sector is under pressure