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We currently see three U.S. banks having gone under in the past week: Silicon Valley Bank (SVB), Silvergate before that and now Signature Bank. All three did much of their business in specialized, higher-risk areas such as tech startups and crypto investments. These are industries that have been through a rough few months, so it might stand to reason some mismanagement in the front office may lead to such circumstances as these.
However, it’s also possible that this is a sign that the Fed’s interest rate hikes — 450 basis points (bps) in the past year, the highest and fastest ratcheting-up in more than 40 years — have begun to curb inflation, and may do well to consider pausing here before anything more widespread breaks. Bank collapses are credit shocks, after all, and even though the U.S. government is already stepping in to backstop depositors, this could be a sign of things to come.
If there’s one thing we’ve noticed in the past two trading days that we hadn’t seen in a while, it’s that pricing-in a 50 bps hike a week from Wednesday is no longer being talked about. According to the Fed’s own dot-plot from late last year, its preference had been to get to a tail of 25 bps hikes before pausing and seeing how the high rates affect different elements of the overall economy. Most likely, therefore, we’re looking at 25 bps — and, depending what happens after that, maybe staying pat at 4.75-5.00%.
What a difference a week makes! It seems like a long time ago, but early last week JPMorgan (JPM - Free Report) CEO Jamie Dimon was openly musing about a rise to 6% interest rates. Thus, while we don’t wish to make light of whatever contagion there may be here in regards to these bank failures (though the banking industry has more solid regulations than it did back in the financial collapse of 2008, so that’s not a reasonable fear), we do see a chance the Fed pumps the brakes here — and market participants may respond by picking up some relatively low-priced equities.
The Dow dipped into the red minutes before the close, finishing -0.30% on the session. The S&P 500 did the same, but reached -0.15% when the bell rang. The Nasdaq actually gained +0.44% on the day, still up +7.7% year to date even after a tough month of trading. Only the small-cap Russell 2000 failed to stay above the zero-level on the day, -1.60%.
Tomorrow morning brings us the most important economic print of the week: the Consumer Price Index (CPI) for February. Month over month is expected to remain +0.4%, while year over year, also known as the Inflation Rate, is projected to come in +6.0%, four bps month over month. Core CPI year over year is expected to tick down slightly to +5.5% for last month. These results would illustrate there’s still a long way to go to get to +2% inflation, the Fed’s ideal level, but also that we’ve come down significantly from +6.6% core CPI year over year in September of last year.
Image: Bigstock
Bank Failures and the Fed: Reason for Hope?
We currently see three U.S. banks having gone under in the past week: Silicon Valley Bank (SVB), Silvergate before that and now Signature Bank. All three did much of their business in specialized, higher-risk areas such as tech startups and crypto investments. These are industries that have been through a rough few months, so it might stand to reason some mismanagement in the front office may lead to such circumstances as these.
However, it’s also possible that this is a sign that the Fed’s interest rate hikes — 450 basis points (bps) in the past year, the highest and fastest ratcheting-up in more than 40 years — have begun to curb inflation, and may do well to consider pausing here before anything more widespread breaks. Bank collapses are credit shocks, after all, and even though the U.S. government is already stepping in to backstop depositors, this could be a sign of things to come.
If there’s one thing we’ve noticed in the past two trading days that we hadn’t seen in a while, it’s that pricing-in a 50 bps hike a week from Wednesday is no longer being talked about. According to the Fed’s own dot-plot from late last year, its preference had been to get to a tail of 25 bps hikes before pausing and seeing how the high rates affect different elements of the overall economy. Most likely, therefore, we’re looking at 25 bps — and, depending what happens after that, maybe staying pat at 4.75-5.00%.
What a difference a week makes! It seems like a long time ago, but early last week JPMorgan (JPM - Free Report) CEO Jamie Dimon was openly musing about a rise to 6% interest rates. Thus, while we don’t wish to make light of whatever contagion there may be here in regards to these bank failures (though the banking industry has more solid regulations than it did back in the financial collapse of 2008, so that’s not a reasonable fear), we do see a chance the Fed pumps the brakes here — and market participants may respond by picking up some relatively low-priced equities.
The Dow dipped into the red minutes before the close, finishing -0.30% on the session. The S&P 500 did the same, but reached -0.15% when the bell rang. The Nasdaq actually gained +0.44% on the day, still up +7.7% year to date even after a tough month of trading. Only the small-cap Russell 2000 failed to stay above the zero-level on the day, -1.60%.
Tomorrow morning brings us the most important economic print of the week: the Consumer Price Index (CPI) for February. Month over month is expected to remain +0.4%, while year over year, also known as the Inflation Rate, is projected to come in +6.0%, four bps month over month. Core CPI year over year is expected to tick down slightly to +5.5% for last month. These results would illustrate there’s still a long way to go to get to +2% inflation, the Fed’s ideal level, but also that we’ve come down significantly from +6.6% core CPI year over year in September of last year.
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