Daily Digest:
w/c 24th June - a relatively light data week, with spotlight on US GDP and Durable Goods Wednesday, then the Fed’s preferred inflation measure, the MoM and YoY PCE data on Friday

Stocks Rally, Despite Lower Yield Plunge with Bank Crisis

Intermediate

Macroeconomic/ geopolitical developments

  • The US banking sector was negatively hit by collapse of SVB Financial, Silicon Valley Bank the prior Friday (10th March) and this was compounded by the collapse of Signature Bank at the weekend after customers withdrew deposits and these regional banks were forced to realize losses held on their balance sheets to meet capital requirements. These were the second and third biggest bank failures in U.S. history.
SVB
  • This sent the stock prices of other regional US banks plunging lower early last week, as contagion fears grew (global bonds surged as yields plunged).
  • This caused the interest rate markets and bank strategists to update their views on the outlook for the US and global economy, and also for the path of interest rates.
  • The market quickly moved to only price in a 0.25% interest rate hike from the Fed this week and now sees a far lower peak in US rates and sees the Fed cutting rates into the second half of 2023, to below current levels.
Fed
  • The contagion threat saw the already beleaguered Credit Suisse come under intense negative pressures after their largest stockholder, Saudi National Bank said that it could not provide the Swiss bank with any further financial assistance.
  • The subsequent collapse in the Credit Suisse share price to an all-time low saw the Swiss National bank throw a lifeline of 50 billion Swiss Francs (over $50 billion).
  • This only slowed the share price decent, however, and over the weekend, it appears that UBS has agreed to buy Credit Suisse after increasing its offer to more than $2 billion.
  • The UK Budget was on Wednesday, but market impacts were negligible.
  • Despite the turmoil in the banking sector, the European Central Bank (ECB) stayed on script and hiked interest rates 0.5%, as expected.

Global financial market developments

  • The major US stock averages rebounded last week, despite the turmoil in the banking sector.
  • European indices saw notable losses, however, underperforming their US counterparts.
  • US and European Bond surged to higher prices and lower yields in the wake of contagion fears, with the US 2 year posting its largest 3-day lower yield move since 1987, and the German 2yr Schatz posting its largest one-day lower yield move ever!
German 2 yr yield
  • Forex markets were relatively orderly and contained given the moves across global bond markets, with the US Dollar Index slightly lower for the week.
  • Gold surged higher to a 2023 and multi-month high, as the ultimate safe haven!
  • Oil plunged to a 2023 and multi-month low, as fears grew for the strength of the global economy in the wake of the financial sector worries.

Key this week

  • Geopolitical: Japan Vernal Equinox Day is on Monday, markets are closed; the time difference between the UK/ Europe to the US is still one hour narrower than the norm, for one more week (until 26/03)
  • Central Bank Watch: The Reserve Bank of Australia (RBA) Meeting Minutes are released Tuesday, and we get the critical US Federal Open Market Committee (FOMC) Interest Rate Decision, Projections and Press Conference. Thursday brings the Swiss National Bank (SNB) Interest Rate Decision and the same from the Bank of England (BoE)
  • Macroeconomic data: Wednesday sees UK CPI and then UK Retail Sales is released on Friday. Key data points for the week will be Friday’s global S&P Global Flash Purchasing Managers Index (PMI) releases.
DateKey Macroeconomic Events
20/03/23Japan Vernal Equinox Day markets closed; no data of note
21/03/23RBA Meeting Minutes; German ZEW Survey; Canadian CPI
22/03/23UK CPI; US FOMC Interest Rate Decision, Projections and Press Conference
23/03/23SNB and BoE Interest Rate Decisions
24/03/23UK Retail Sales; global S&P Global Flash PMI; US Durable Goods

Editor in chief

Steve Miley is the Market Chartist and has 32 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Mar... Continued

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