InvestMacro

By JustMarkets

The US dollar came under pressure last week, falling about 0.8%, which was caused by a sharp drop in US bond yields. Traders and investors reassessed the Federal Reserve’s monetary policy in the US in the face of turmoil in the banking sector. Rates shifted dovish after the collapse of two mid-sized US regional banks heightened fears of financial Armageddon, prompting the Fed to take emergency measures to support depository institutions facing liquidity shortages. Late last week, the Fed injected $4.4 trillion into the Bank Term Funding Program (BTFP) to help banks. Many analysts consider this a hidden “quantitative easing” (QE). At the close of the stock market on Friday, the Dow Jones Index (US30) decreased by 1.19% (+0.13% for the week), while the S&P 500 (US500) fell by 1.10% (+2.13% for the week). The Technology Index NASDAQ (US100) lost 0.74% on Friday (+5.33% for the week).

This Wednesday is the important monetary policy meeting of the Fed, where the interest rate decision will be made. Market pricing is currently leaning toward a quarter-point interest rate hike, a move that would raise the cost of borrowing to 5.00%. The FOMC is likely to stress the importance of maintaining financial stability and its willingness to act to prevent the materialization of systemic risks. But there could be surprises, as GS strategists expect that the US Fed may announce the end of its tightening cycle. The implications of this announcement could lead to a further weakening of the US dollar.

The US Fed, the ECB, the Bank of England, the Bank of Japan, the Bank of Canada, and the Swiss National Bank from March 20 to the end of April, will conduct swap transactions between central banks on a daily basis rather than once a week. The reason is that central banks are preparing for bank liquidity problems.

Equity markets in Europe were mostly falling on Friday. German DAX (DE30) fell by 1.33% (-4.32% for the week), French CAC 40 (FR40) dropped by 1.43% (-3.97% for the week), Spanish IBEX 35 (ES35) lost 2.01% (-6.06% for the week), British FTSE 100 (UK100) was down by 1.01% (-5.33% for the week).

UBS Group AG agreed to buy Credit Suisse Group AG in a historic government-brokered deal aimed at curbing the crisis of confidence that has begun to spread to global financial markets. The Swiss bank will pay 3 billion francs ($3.3 billion) for its rival. The deal includes extensive government guarantees and liquidity provisions. The Swiss National Bank is offering UBS 100 billion francs in liquidity assistance, while the government is providing a guarantee of 9 billion francs to cover potential asset losses that UBS is taking on.

The International Criminal Court has issued arrest warrants for Russian President Vladimir Vladimirovich Putin. The ruling states that Putin is responsible for the war crimes of illegally deporting populations (children) and illegally transferring populations (children) from the occupied territories of Ukraine to the Russian Federation.

After a slight pullback on Thursday, gold prices resumed gains on Friday, rising more than 2%. Gold (XAUUSD) and silver (XAGUSD) are inversely correlated to US government bond yields. The turmoil in the banking sector has led to a drop in government bonds, which contributes to the strengthening of precious metals. But analysts expect a corrective movement as the situation begins to stabilize.

Fears of banking sector problems led both benchmarks of oil to their biggest weekly decline. Last week, Brent crude oil futures fell by 12%, while US West Texas Intermediate (WTI) crude fell by 13%. But analysts still expect tight global supply to support oil prices for the foreseeable future. OPEC+ representatives attributed the price decline to financial factors rather than supply and demand imbalances, adding that they expect the market to stabilize. Asian markets mostly declined last week. Japan’s Nikkei 225 (JP225) decreased by 1.98% for the week, China’s FTSE China A50 (CHA50) lost 0.88% for the week, Hong Kong’s Hang Seng (HK50) added 0.55% for the week, India’s NIFTY 50 (IND50) was down by 2.29%, and Australia’s S&P/ASX 200 (AU200) was negative by 2.10% for the week.

On Monday, the People’s Bank of China (PBOC) kept its annual LPR at 3.65% while the five-year LPR, which is used to determine mortgage rates, was kept at 4.30%. Both lending rates are the lowest in two decades. China’s central bank said Friday that for the first time this year, it would reduce the amount of cash banks must hold as reserves to help maintain sufficient liquidity and support the nascent economic recovery. The central bank has not yet estimated how much long-term liquidity will be released after the cuts, allowing banks to lend more money. Analysts estimate that the move freed up more than 500 billion yuan ($72.6 billion). Central bank governor Yi Gang said at a March 3 news conference that China’s real interest rates are at acceptable levels and that cutting banks’ reserve requirements will continue to be an effective tool to support the economy.

In the commodities market, futures on silver (+10.94%), lumber (+9.2%), gold (+6.77%), wheat (+4.42%), palladium (+3.87%), and corn (+2.84%) futures showed the biggest gains last week. Futures on WTI oil futures (-13.24%), Brent oil (-12.45%), gasoline (-5.81%), copper (-3.36%), and natural gas (-3.29%) showed the biggest drop.

S&P 500 (F) (US500) 3,916.64 −43.64 (−1.10%)

Dow Jones (US30)31,861.98 −384.57 (−1.19%)

DAX (DE40) 14,768.20 −198.90 (−1.33%)

FTSE 100 (UK100) 7,335.40 −74.63 (−1.01%)

USD Index 103.86 −0.55 (−0.53%)

• – China PBoC Loan Prime Rate at 03:15 (GMT+2);
• – German Producer Price Index (m/m) at 09:00 (GMT+2);
• – Eurozone Trade Balance (m/m) at 12:00 (GMT+2);
• – New Zealand Trade Balance (q/q) at 23:45 (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.

By JustMarkets

This week will be full of important events. On Wednesday is the important monetary policy meeting of the Fed, where policymakers will announce their interest rate decision. Market pricing is leaning toward a quarter-point interest rate hike, which would raise borrowing costs to 5.00%. The Bank of England (BoE) and the Swiss National Bank (SNB) will hold their meetings on Thursday. Also, inflation data from the UK, Canada, and Japan will be released during the week. The volatile week will finish with data on business activity in different countries’ manufacturing and service sectors.

• – China PBoC Loan Prime Rate at 03:15 (GMT+2);
• – German Producer Price Index (m/m) at 09:00 (GMT+2);
• – Eurozone Trade Balance (m/m) at 12:00 (GMT+2);
• – New Zealand Trade Balance (q/q) at 23:45 (GMT+2).

• – 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).

• – UK Consumer Price Index (m/m) at 09:00 (GMT+2);
• – UK Producer Price Index (m/m) at 09:00 (GMT+2);
• – Eurozone ECB President Lagarde Speaks at 10:45 (GMT+2);
• – US Crude Oil Reserves (w/w) at 16:30 (GMT+2);
• – US FOMC Economic Projections at 20:00 (GMT+2);
• – US Fed Interest Rate Decision at 20:00 (GMT+2);
• – US FOMC Statement at 20:00 (GMT+2);
• – US FOMC Press Conference at 20:30 (GMT+2).

• – Hong Kong Interest Rate Decision at 04:30 (GMT+2);
• – Singapore Consumer Price Index (m/m) at 07:00 (GMT+2);
• – Hong Kong Consumer Price Index at 10:30 (GMT+2);
• – Switzerland SNB Interest Rate Decision at 10:30 (GMT+2);
• – Switzerland SNB Monetary Policy Assessment at 10:30 (GMT+2);
• – Switzerland SNB Press Conference at 11:00 (GMT+2);
• – UK BoE Interest Rate Decision at 14:00 (GMT+2);
• – UK BoE MPC Meeting Minutes at 14:00 (GMT+2);
• – US Initial Jobless Claims (w/w) at 14:30 (GMT+2);
• – US New Home Sales (m/m) at 16:00 (GMT+2);
• – US Natural Gas Storage (w/w) at 16:30 (GMT+2).

• – Australia Manufacturing PMI (m/m) at 00:00 (GMT+2);
• – Australia Services PMI (m/m) at 00:00 (GMT+2);
• – Japan National Core CPI (m/m) at 01:30 (GMT+2);
• – Japan Manufacturing PMI (m/m) at 02:30 (GMT+2);
• – Japan Services PMI (m/m) at 02:30 (GMT+2);
• – UK Retail Sales (m/m) at 09:00 (GMT+2);
• – German Manufacturing PMI (m/m) at 10:30 (GMT+2);
• – German Services PMI (m/m) at 10:30 (GMT+2);
• – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+2);
• – Eurozone Services PMI (m/m) at 11:00 (GMT+2);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+2);
• – UK Services PMI (m/m) at 11:30 (GMT+2);
• – US Durable Goods Orders (m/m) at 14:30 (GMT+2);
• – Canada Retail Sales (m/m) at 14:30 (GMT+2);
• – US Manufacturing PMI (m/m) at 15:45 (GMT+2);
• – US Services PMI (m/m) at 15:45 (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.

By JustMarkets

The US indices rose Thursday after reports that major Wall Street banks pledged billions of dollars to bail out First Republic Bank. JPMorgan Chase & Co (JPM), Bank of America Corp (BAC), and Wells Fargo & Company (WFC) led a group of major banks that will rescue First Republic Bank (FRC) deposits totaling $30 billion. As the stock market closed on Thursday, the Dow Jones Index (US30) increased by 1.17%, and the S&P 500 Index (US500) added 1.76%. NASDAQ Technology Index (US100) gained 2.48% yesterday.

The new Bank Term Funding Program (BTFP) is very popular among banks. The US banks took $303 billion in “cash” from the Fed over the week. Many analysts believe the new BTFP instrument is a hidden quantitative easing (QE) program. In general, if you evaluate the situation in a comprehensive way: bankruptcies of banks in the USA, the problem of Switzerland’s largest bank, and liquidity problems in a number of market segments (government debt). All these are direct consequences of the aggressive increase of rates in response to inflation, which was a consequence of previous unbridled monetary and fiscal policy. The Fed simply has no choice but to shift policy tightening toward easing. The US Federal Reserve’s monetary policy meeting next week will show the FOMC’s reaction.

The Federal Reserve’s cornerstone method for determining whether US banks can survive an economic crisis has had a huge misstep over the years: regulators have not tested a scenario resembling the 2023 economy and current financial conditions. Fed officials promoted annual stress tests as the primary supervisory method for assessing the health and soundness of the nation’s largest banks. According to regulatory experts, a more realistic stress-testing scenario would not have solved the institutional problems that led to SVB’s decline. But the lack of modeling of an interest rate hike does point to a hole in the way Fed officials think about financial risk.

European stocks rose yesterday. Germany’s DAX (DE30) gained 1.57%, France’s CAC 40 (FR40) jumped by 2.03%, Spain’s IBEX 35 index (ES35) added 1.50%, Britain’s FTSE 100 (UK100) closed up by 0.89%.

The ECB raised its rate by 50bp to 3.5% and will start cutting its bonds portfolio by 15bn euros a month. Further monetary policy will be determined by new data on inflation as well as the banking sector. The ECB’s latest set of forecasts, released Thursday, shows that inflation is still slightly above the bank’s medium-term target of 2% in 2025. At the same time, it raised growth forecasts for the single currency bloc and now sees GDP growth of 1% this year.

A rapid drop in US Treasury bond yields has driven the rise in precious metals in recent days. Yields are now near their lowest level since September 2022 amid a dovish revision to the Fed’s monetary policy outlook. Gold is considered a safe haven asset, so it performs well in times of heightened uncertainty, high volatility, and financial stress. Therefore, it is not surprising that it has rallied strongly over the past few trading sessions. If the US Federal Reserve announces its latest rate hike next week, gold and silver prices could get additional support, especially if bank problems worsen.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.80%, China’s FTSE China A50 (CHA50) fell by 0.60%, Hong Kong’s Hang Seng (HK50) ended the day down by 1.72%, India’s NIFTY 50 (IND50) added 0.08%, and Australia’s S&P/ASX 200 (AU200) ended the day up by 0.40%.

New Zealand’s GDP fell by 0.6% in the last quarter. For the RBNZ, this is a clear signal that it is time to cut down the tightening program, as the economy has shrunk faster than the central bank forecasts. If the second quarter of 2023 also sees a decline, it would mean that New Zealand is in about a six-month recession. According to Stats NZ, the decline in manufacturing activity was the biggest contributor to the decline, with the sector down by 1.9%. Overall, 9 of the 16 industries tracked by Stats NZ fell, especially in retail, housing, arts, leisure, and transportation.

S&P 500 (F) (US500) 3,960.28 +68.35 (+1.76%)

Dow Jones (US30)32,246.55 +371.98 (+1.17%)

DAX (DE40) 14,967.10 +231.84 (+1.57%)

FTSE 100 (UK100) 7,410.03 +65.58 (+0.89%)

USD Index 104.44 -0.20 (-0.19%)

• – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
• – US Industrial Production (m/m) at 15:15 (GMT+2);
• – US Michigan Consumer Sentiment (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.

Why you can’t rely on the FDIC if your bank goes under

By Elliott Wave International

Editor’s note: The failures of Silicon Valley Bank and Silvergate Bank have many observers of the banking system discussing the possibility of contagion. Even so, many depositors feel safe because their deposits are covered up to $250,000 by the F.D.I.C. (Federal Deposit Insurance Corporation). However, this feeling of safety may very well be misplaced.

Here are some important insights about the F.D.I.C. and the safety of your bank deposits.

Millions of U.S. bank depositors feel safe in the knowledge that the Federal Deposit Insurance Corporation will protect their accounts, even if their bank goes under.

Yes, it’s true that the FDIC says it will do so. As their website states:

The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

But, the question is: Does the FDIC have the wherewithal to fulfill its promise?

In the event of a major financial crisis, the answer is an emphatic “no.” Not even close.

Here’s what the Elliott Wave Theorist said in August 2008, near the middle of the 2007-2009 financial crisis:

The FDIC is not funded well enough to bail out even a handful of the biggest banks in America. It has enough money to pay depositors of about three big banks. After that, it’s broke.

No doubt, most bank depositors would be shocked to learn this.

But think about it: No single entity could possibly insure all of the nation’s bank deposits.

Yet, that FDIC sticker on the front of your bank is very reassuring. The discussions with your banker about your deposit “insurance” might be reassuring.

But, something that is not quite so reassuring is from none other than a former vice-chairman of the FDIC itself. Here’s what Thomas Hoenig wrote for the Los Angeles Times in a Dec. 18, 2014 article titled, “FDIC couldn’t cover a big bank bailout without taxpayer support”:

As a reminder, when the financial industry imploded in 2008, Congress had to pass a special law to fund a $700-billion bailout… . The Federal Deposit Insurance Corp. had nowhere near enough resources to fund their resolution.

Today, with assets of nearly $11 trillion and derivatives worth $4 trillion, the eight largest U.S. banks are far bigger and hold more derivatives than in 2008. Compare those numbers with the FDIC insurance fund of $54 billion. [Emphasis added]

These are eye-opening statistics.

The best way to protect your deposits is to adequately research the banks in your community, and pick one where the banks’ officers handle their customers’ deposits prudently.

Indeed, the Theorist once remarked:

Relatively safe banks may become even safer. If they have the sense to inform the public of their relative safety aspect, depositors in a developing financial crisis will move funds out of weak banks into stronger ones, making the weak ones weaker and the relatively strong ones stronger.

But, as you’ve seen, it’s a myth that the FDIC can always protect your bank deposits, and it’s not the only myth. We have more.

You can see them in EWI’s classic report, “Market Myths Exposed.” It’s part of your free 21-day Elliott wave journey across U.S. markets — FreePass for a Changed World.

You’ll discover the 10 most nefarious myths and how they undermine your financial safety. Myths like:

• News and Events Drive the Markets
• Earnings Drive Stock Prices
• To Do Well Investing, You Have to Diversify
• And 7 more

Don’t delay. Join FreePass for a Changed World and read the FREE “Market Myths Exposed” report instantly.

By JustMarkets 

The released US producer price index data came in better than expected. Factory inflation decreased by 0.1% last month. Markets reacted with a drop in US Treasury bond yields. This indicates an impending change in the Fed’s rhetoric and the imminent end of the rate hike cycle. Federal funds futures show a 40% probability that the rate will remain unchanged at the March 22 meeting and a 60% probability that 25 bps will raise the rate to the 5.00% level. At the same time, it is expected that the maximum rates will be formed already at the next meeting, and by the end of 2023, the Fed will cut the rate to 3.75%. At the close of the stock market on Tuesday, the Dow Jones Index (US30) was down by 0.87%, and the S&P 500 Index (US500) fell by 0.70%. The NASDAQ Technology Index (US100) gained 0.05% yesterday.

Concerns about the deepening banking crisis persist. Shares of the struggling Swiss bank Credit Suisse fell to a new historic low. Credit Suisse’s biggest sponsor, the National Bank of Saudi Arabia, said it would not provide further financial assistance to the bank. The bank’s shares fell more than 26%. After European markets closed, Swiss regulators said that Credit Suisse was now meeting capital and liquidity requirements and that the Swiss National Bank would provide additional liquidity if needed. It became known today that Credit Suisse will exercise an option to borrow up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank under two lines of credit to strengthen liquidity conditions. This situation has led to renewed sell-offs among European banks: French Societe Generale, Spanish Banco de Sabadell, and German Commerzbank fell sharply yesterday, pulling European indices into the abyss. German DAX (DE30) shed by 3.27%, French CAC 40 (FR40) fell by 3.58%, Spanish IBEX 35 (ES35) lost 4.37%, British FTSE 100 (UK100) closed yesterday down by 3.83%.

The consumer price index in France rose from 6.0% to 6.3% in annual terms. Inflationary pressures in Europe remain resilient and figures from Germany, Spain, and France clearly show it. Reuters reported yesterday that the European Central Bank intends to stick to its plans to raise its key rate by 50 basis points at its meeting today. ECB head Christine Lagarde’s remarks on the European central bank’s future plans are also worth a closer look. The Office for Budget Responsibility (OBR) forecast, taking into account the new UK budget, argues that the country will not enter a technical recession as originally thought. Instead, the UK economy is expected to contract by a modest 0.2%. The government has also pledged to halve inflation, and further OBR projections suggest that inflation will fall to 2.9% by the end of 2023.

Gold strengthened its position at $1900 on Wednesday, hitting a new six-week high. The banking crisis is forcing investors to hide money in precious metals. The technical on spot gold suggests it could go much higher. The fundamental picture now is also in favor of further growth in gold and silver.

Crude oil prices are down for the third straight day. The US WTI crude oil has fallen below $70 a barrel. The collapse of SVB, the problems of Credit Suisse, and the general financial instability contribute to the decline in quotes. While US authorities tried to ease fears of a broader contagion in the banking sector, the financial turmoil at Swiss bank Credit Suisse posed an additional threat to the global economy. At the same time, the IEA (International Energy Agency) reported an increase in oil inventories, pushing oil supply to an 18-month-high.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 0.03%, China’s FTSE China A50 (CHA50) added 0.02%, Hong Kong’s Hang Seng (HK50) jumped by 1.52%, India’s NIFTY 50 (IND50) declined by 0.42% and Australia’s S&P/ASX 200 (AU200) was positive 0.86% by Wednesday.

Bank of Japan (BOJ) Governor Haruhiko Kuroda, who is retiring in April, said his ten-year monetary experiment, during which $3.7 trillion was injected into the economy, was “half successful.” In addition to lowering borrowing costs, Kuroda’s policies sought to sway public opinion and lead the public out of deflation with a powerful kick of monetary stimulus. Kuroda left a mixed legacy for the Bank of Japan: his massive stimulus was praised for pulling the economy out of deflation, but it reduced bank profits and distorted market functions through prolonged low rates. In 2016, Kuroda added a cap on long-term rates as part of a policy called yield curve control (YCC), which is still in effect. Many analysts expect the Bank of Japan to begin dismantling Kuroda’s stimulus policy under a new governor, Kazuo Ueda.

In Australia, the latest labor market data showed that the economy added 64,600 jobs last month, with the unemployment rate falling to a record 3.5%. The stronger-than-expected employment figures for February reinforced fears of further interest rate hikes by the Reserve Bank of Australia (RBA).

S&P 500 (F) (US500) 3,891.93 −27.36 (−0.70%)

Dow Jones (US30)31,874.57 −280.83 (−0.87%)

DAX (DE40) 14,735.26 −497.57 (−3.27%)

FTSE 100 (UK100) 7,344.45 −292.66 (−3.83%)

USD Index 104.74 +1.14 (+1.10%)

• – Japan Trade Balance (m/m) at 01:50 (GMT+2);
• – Australia Unemployment Rate (m/m) at 02:30 (GMT+2);
• – Italian Consumer Price Index (m/m) at 11:00 (GMT+2);
• – US Building Permits (m/m) at 14:30 (GMT+2);
• – US Initial Jobless Claims (w/w) at 14:30 (GMT+2);
• – US Philadelphia Fed Manufacturing Index (m/m) at 14:30 (GMT+2);
• – Eurozone ECB Interest Rate Decision at 15:15 (GMT+2);
• – Eurozone ECB Monetary Policy Statement at 15:15 (GMT+2);
• – Eurozone ECB Press Conference at 15:45 (GMT+2);
• – US Natural Gas Storage (w/w) at 16:30 (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.