The US government is trying to resolve problems with failing banks. CPI data is in focus today

By JustMarkets

The Federal Reserve will lend one year’s worth of securities portfolios to banks under a new term financing program for banks, eliminating the risk that banks could be forced to sell their $4.4 trillion in government securities at a loss. Meanwhile, the Federal Deposit Insurance Corporation (FDIC) will safeguard all depositors of SVB, as well as depositors of Signature Bank of New York, closed by New York State because of “systemic risk.” According to politicians, these actions will reduce the burden on the financial system and support financial stability. Thus, US authorities are trying to avoid the risks of the 2008 crisis. But for investors and hedge funds, such actions were not so convincing. By the close of the stock market on Monday, Dow Jones (US30) decreased by 0.28%, S&P 500 (US500) lost 0.15%. The NASDAQ Technology Index (US100) gained 0.45% yesterday.

Considering the last news, Goldman Sachs no longer expects the Fed to raise rates at next week’s meeting. The bank sees “significant uncertainty about the path beyond March.” Concerns about financial stability are so great that investors speculate that the Fed now won’t want to rock the boat by raising interest rates by a whopping 50 basis points next week and may not raise them at all. The implied peak in rates has dropped to 5.08% from 5.69%. Many funds now assume the FOMC will raise rates by 25 bps in May, June, and July.

Equity markets in Europe showed their biggest one-day drop of the year yesterday. German DAX (DE30) fell by 3.04%, French CAC 40 (FR40) lost 2.90%, Spanish IBEX 35 (ES35) decreased by 3.51%, and British FTSE 100 (UK100) closed down by 2.58%. The STOXX 600 pan-European index closed the day down by 2.3%, with bank, financial, insurance, and energy stocks taking the brunt of the sellers’ pressure. European bank stocks fell by 5.7%. Investors were shaken by the events of the last few days, so such sell-offs are quite an expected reaction.

HSBC agreed with the Bank of England to buy the British operations of Silicon Valley Bank. After the news, HSBC shares fell by 4.1% by the end of the day. German Commerzbank fell by 12.7%, and French Societe Generale and Spanish Sabadell fell by 6.2% and 11.4%, respectively. Analysts at Morgan Stanley note that the strong liquidity in the structure of the balance sheet of European banks will avoid forced closure or sale of portfolios of bonds.

The European Central Bank meets Thursday and is still expected to raise its rate by 50 basis points and mark further tightening, although it will now have to consider financial stability.

Oil prices fell more than 2% in volatile trading Monday as the Silicon Valley Bank collapse rattled stock markets and raised fears of a new financial crisis—short-term US. Treasury bond yields continued to fall Monday amid lingering fears about the aftermath of the Silicon Valley Bank collapse. Given that gold and silver are inversely correlated to government bond yields, this situation contributes to a sharp strengthening of the precious metals.

Asian markets traded yesterday without a single trend. Japan’s Nikkei 225 (JP225) declined by 1.11%, China’s FTSE China A50 (CHA50) gained 0.88%, Hong Kong’s Hang Seng (HK50) jumped by 1.95%, India’s NIFTY 50 (IND50) was 1.49% lower, while S&P/ASX 200 Australia (AU200) closed down by 0.50% on Monday. But since the market opened on Tuesday, Asian indices started to show sharp declines. Investors are sharply reducing their positions in banking stocks amid fears of contagion from the looming US crisis, and there is also growing uncertainty over monetary policy ahead of US inflation data (CPI). Any signs of overheated inflation combined with problems in the banking sector could be a bad omen for Asian stock markets.

S&P 500 (F) (US500) 3,855.76 −5.83 (−0.15%)

Dow Jones (US30)31,819.14 −90.50 (−0.28%)

DAX (DE40) 14,959.47 −468.50 (−3.04%)

FTSE 100 (UK100) 7,548.63 −199.72 (−2.58%)

USD Index 103.63 −0.95 (−0.90%)

• – UK Average Earnings Index (m/m) at 09:00 (GMT+2);
• – UK Claimant Count Change (m/m) at 09:00 (GMT+2);
• – UK Unemployment Rate (m/m) at 09:00 (GMT+2);
• – Switzerland Producer Price Index (m/m) at 09:30 (GMT+2);
• – Spanish Consumer Price Index (m/m) at 10:00 (GMT+2);
• – US Consumer Price Index (m/m) at 14:30 (GMT+2);
• – US FOMC Member Bowman Speaks at 23:20 (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.