Marketmind-Deep breaths as banks calm, but only a bit

Mike Dolan gives a look at the future in U.S. markets and worldwide markets.

The hyperventilating world markets are finally catching their breath after the U.S. Bank shock of the week seemed to have calmed down and gyrating rates reached a level.

But volatility is likely to persistMOVE> – not least in pre-meeting blackout periods for major central banks – as easing financial system tensions merely re-introduce rate hike risks that sticky US inflation readings seem to warrant.

Credit Suisse shares plunged by 10.5% on Wednesday, as the bank’s largest investor declared it was unable to provide more financial support.

Although bank stocks recovered slightly on Tuesday, Moody’s downgrading of the credit outlook for the U.S. banking sector was a significant factor in the recovery. Now, the focus is shifting to tighter regulation and workarounds for those worst-affected firms.

The Federal Reserve will consider tighter oversight and rules for midsize banks, similar to Silicon Valley Bank which collapsed unexpectedly last week. Banks in the $100 billion-250 billion range may have stronger rules. These rules could mirror those of larger systemic banks. “stress tests”.

Although there were numerous reports of depositors fleeing from smaller banks and weaker financial institutions to larger firms, the stock market in general did not seem to be affected.

This trend continued in Asia on Wednesday. However, Europe’s bank stocks as well as wider bourses remained in the red while futures for the United States were slightly lower. At 23:23, the VIX equity volatility gauge remained in line with Tuesday’s close.

Other than the Credit Suisse anxiety, there was another reason for persistent trepidation throughout Europe. This was due to signals from central banks that the European Central Bank would increase its interest rate by half at its policymaking meeting on Thursday.

If the ECB stays the course and the Fed follows suit next week, anxiety about further banking ructions may return – or at least see further wild volatility in rates markets that could end up having similar effects.

U.S. Treasury market volatility has already reached its highest level since 2009’s banking crisis. On Monday, the 2-year Treasury yields fell to their lowest point since 1987. Tuesday saw the largest one-day jump in over 14 years.

On Wednesday, 2-year yields settled about 4.3% – still 80 basis points lower than they were a week ago, but up half a point from Tuesday’s trough. Futures markets now see an 80% chance of a quarter-point Fed hike next week to a 4.75-5.0% range, with a ‘terminal rate’ at 5% in May.

Rates were recalibrated slightly made the dollar slightly higher.

The February Chinese industrial and retail updates showed that the post-COVID lockdown recovery was underway, but at a slow pace.

Sterling was stable as investors awaited UK’s Spring Budget. The bumper tax receipts allowed Jeremy Hunt, the finance minister, to provide some relief for pensions and childcare while also extending crucial energy price support.

The impact of the SVB collapse in the U.S. tech industry was widely feared. Meta, Facebook’s parent, said Tuesday that it would be cutting 10,000 jobs this year. It is the first Big Tech company to announce another round of mass layoffs, as the sector braces itself for a severe economic downturn.

Foxconn, the Apple supplier, said Wednesday that it anticipated a slight decline in smart consumer electronics demand this year. The company reported a 10% decrease in its fourth-quarter net profits compared to last year.

OpenAI, a startup, announced it is now releasing GPT-4, an artificial intelligence model that can recognize images and provide prompts for searches.

The following key developments could provide direction for U.S. markets on Wednesday:

* US Feb retail sales and producer prices, US March NAHB housing market index, Empire State manufacturing survey, Jan business inventories.

* UK government’s Spring budget

* US corp earnings: Adobe

(By Mike Dolan, editing by Elaine Hardcastle; [email protected]. Twitter: @reutersMikeD)

The February consumer price index report has been released. It shows that inflation is up 6% compared to last year.

California Governor Gavin Newsom claims he is making a multimillion-dollar deal with Walgreens to get rid of abortion pills.

Rep. Steve Toth

Alex Bruesewitz

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