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WEEKLY MARKET ROUND-UP Thru March 17th 2023; “The Fed Conundrum”

Hey folks, this upcoming week will tell us a lot about where the markets want to go near term. Check out my update with this week’s market round-up.


US indexes closed mixed for the week, reflecting the crosscurrents of stresses in the banking sector, worries that a steeper slowdown in the economy would follow, and hopes that the Feds would now be forced to moderate or even pause in its rate-hiking cycle. We are seeing some sectors, like mega cap technology doing very well while financial and energy sectors did very poorly. After SVB bank failure the Feds, FDIC and the US Treasury announced all SVB depositors would have full access to funds the following Monday morning. In addition, the Feds made additional funding available to banks to safeguard deposits and prepared to address any potential liquidity pressures. With SVB, First Republic and Signature Banks being taken over by regulatory authorities US Treasury officials acted very quickly to short up liquidity in US banks to prevent further contagion effects. And by mid-week the FEDs had lent out over $300 Billion to banks to shore up liquidity.

Lower growth expectations and higher risk aversion led to a sharp drop in longer-term Treasury yields, with the yield on the benchmark 10-year note touching an intraday low of 3.37% on Thursday, its lowest level since the beginning of February. And the 2-Yr rates plunged 74-bps to 3.84%, the most in a week since the week of Oct 23rd, 1987, which included Black Monday.

By Friday of this week, futures markets were pricing in zero likelihood of a 50-bps rate hike with markets now pricing in a -basis-point hike compared with a 40% chance of one the week before, according to CME Group data. Markets were also placing a roughly 38% chance on the Fed keeping rates steady at its upcoming meeting on March 21–22 while over 62% forecast a 25-bps rate hike this coming Wednesday’s Fed Policy Decision. Inflation is still high and the US Labor markets are also resilient.

Over in Europe, the ECB said that it raised its deposit rate by 50-bps to 3.0% as part of its ongoing effort to curb elevated inflation. The ECB reiterated that future decisions would be data dependent but gave no forward guidance. The central bank’s projections put average inflation at 5.3% in 2023 and to 2.1% in 2025, while the forecast for growth this year was revised higher to 1.0%, reflecting lower energy prices and the economy’s resilience amid the challenges faced thus far. Meanwhile, the UK jobless rate was unchanged near a record low of 3.7% in the three months through January compared with the previous three months.

In Japan, many observers agree that banks appear to have limited funding and liquidity risks due to their balance sheets and the interest rate environment, but worries appear to have grown about the global market turmoil’s impact on BoJ monetary policy. In all cases they are very supportive of their markets via stimulus and monetary policies.

Chinese stocks ended a volatile week on a mixed note as global banking woes offset optimism about an economic recovery and further monetary support from Beijing. The People’s Bank of China (PBOC) said it will cut the reserve requirement ratio (RRR) for most banks by 25-BPS for the first time this year in a bid to ensure liquidity and boost the economy. On the Chinese real estate front, new home prices in 70 of China’s largest cities rose 0.3% in February, above the 0.1% gain in January and marking the fastest increase since July 2021.

Enjoy This Week’s Market Round-Up:

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