Category: Financial Markets

Schizophrenic Markets Wrestle With Countervailing Trends…

Once again, we saw contention in the markets, as US equities extended a rally Friday as investors weighed strong corporate earnings against concerns about regional banks and inflation. Treasuries rose. investors may still be cautious ahead of Apple’s results due next week and the Federal Open Market Committee (FOMC) meeting and the U.S. jobs report for April.

And later in the day, First Republic once again stole the show.

CONTENTS
0:00 Start
0:15 Introduction
0:40 US Markets
2:14 First Republic
3:26 Sentiment and Positioning
4:50 Economic Data
6:30 Oil
7:10 Europe
8:20 ECB Rate Rises?
9:30 ECB Debt As Government Debt
13:15 Asia
16:20 Australia
20:10 RBA Rate Rises?
20:40 Bitcoin Volatility
22:40 Summary and Close

Overall, the S&P 500 gained 0.8% after better-than-expected earnings from the likes of Exxon Mobil Corp. and Intel Corp., up 1.3% and 4% respectively.

However, the gains proved precarious in midday trading after Federal Reserve officials called for broad changes to bank rules in the wake of Silicon Valley Bank’s collapse and promised tougher supervision and stricter rules for banks.

The Nasdaq 100 rose 0.7%, weighed down by Amazon.com Inc.’s 4% loss after a warning over growth in its key cloud computing business.

Meanwhile, After the market close, First Republic Bank tumbled 49% to $1.77 after reports the regional lender was headed for receivership. That was after the bank’s 43% decline in the regular trading session.

In fact the U.S. Federal Deposit Insurance Corp has asked banks including JPMorgan Chase and PNC Financial Services Group to submit final bids for First Republic Bank by Sunday after gauging their initial interest earlier in the week, Bloomberg News reported today.

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The Market’s Game Of Chicken Continues….

US markets remain jittery as fears of a recession continue to build, despite some better than expected earrings reports, form tech. But the key issue relates to financial stability in the regional banking sector as the fall out from First Republic Bank continues. Indeed the regulators and banks are playing chicken – not good considering the 100 or so other institutions which to a greater of lesser effect have the same pressures derived from the rapid rate hike cycle.

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Volatility False Signals?

The VIX – or fear index is sitting below 20.00 and some are claiming this means the markets are showing signs of a recovery. However, in fact more options trades are being done on shorter terms than the VIX represents, so it is possible the VIX is broken as a distressed market signal.

Perhaps no surprise to see the CBOT will be releasing a new index, based on zero day options, where nearly half of all business is being written.

So today we discuss the rationale, and consider the consequences. Perhaps the existing VIX is giving a false signal!

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All Is Calm – But Is It The Calm Before The Storm?

In my final show from Australia, I consider the latest outlook for the financial system, ahead of decisions from the FED and Bank of England as markets try to navigate the uncertain signals coming to the surface. It may be calmer for now, but the question is, is this the calm before the storm?

And I will be back from the other side of the world in a few days as things progress with more shows on property and finance.

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Banking Crisis – What Banking Crisis? With Damien Klassen

My final chat with Damien Klassen from Nucleus Wealth before I fly out focussed on the current banking crisis and how this might play out ahead.

Things could get very interesting.

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Danger: Bank Fragility Ahead!

Are we in the foothills of the next banking crisis? Quite possibly. Investor sentiment remained fragile on Friday despite massive rescue for the banking sector, leaving global equities under pressure while gold prices were poised for their largest one-week rally since March 2020.

The U.S. banking crisis began after two mid-sized lenders — Silicon Valley Bank and Signature Bank— were rescued by the Federal Deposit Insurance Corp last week as depositors yanked billions of dollars from them after fearing about their solvency. Silicon Valley eventually filed for bankruptcy protection over the past 24 hours. A third bank, First Republic, is also in trouble despite receiving a $30 billion cash infusion from a consortium of banks.

SVB Financial Group announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank which sparked fears of contagion throughout the global banking system.

On Friday, investors lost confidence in U.S. regional banks and Credit Suisse in Europe. Risk appetite waned after showing signs of recovery on Thursday. Credit Suisse’s chief executive said on Friday the bank was working hard to stem customer outflows, although this could take time. Credit Suisse shares resumed their decline.

Fed data on Thursday showed banks sought record amounts of emergency liquidity in recent days, which helped undo months of central bank effort to shrink the size of its balance sheet. Its latest discount window borrowing has further seen banks take $150 billion, which makes for a new record even topping the 2008 GFC.

“Last week the Fed’s balance sheet swelled by $300 billion, wiping out 4 months of QT in one week,” gold bug Peter Schiff wrote in part of a Twitter reaction. “By the end of the month the balance sheet could reach a new high. Rate hikes don’t matter. Inflation is headed much higher, thanks to bank bailouts.”

Markets are pricing in a 25 bps increase by the U.S. Federal Reserve when it meets next week, down from previous expectations for a 50 bps increase. At last glance, financial markets have priced in a 60.5% likelihood that the central bank will raise its key target rate by 25 basis points, and a 39.5% probability that it will let the current rate stand.

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Two Weeks To Save The Banking System!

For the final time in Australia, I caught up with Robbie Barwick from the Citizens Party. We looked at the progress towards the establishment of a Public Bank in the light of recent failures, and the inquiry into Regional Banking.

Importantly, there are just two more weeks to get your submission to the Inquiry. Have your say! and support the transformational policy.

https://www.aph.gov.au/sitecore/content/Home/Parliamentary_Business/Committees/Senate/Rural_and_Regional_Affairs_and_Transport/BankClosures/Submissions

Make a submission to regional bank closures inquiry

Submissions to the inquiry are due by 31 March. All communities, organisations, businesses, and individuals impacted by the banks’ war on cash are strongly urged to make a submission, including to support a government post office bank.

A submission can be a formal representation from an organisation, or as simple as a letter or email, which explains to the Committee your experience and views.

Elderly and vulnerable regional bank customers, who are disproportionately affected, are especially encouraged to hand-write or type physical letters and mail them to the Committee through the post.

Mail your submission to the Committee at this address:

Committee Secretary
Senate Standing Committees on Rural and Regional Affairs and Transport
PO Box 6100
Parliament House
Canberra ACT 2600

Email your submission to the Committee at rrat.sen@aph.gov.au

Upload your submission, and get more information, at the inquiry website

For more information, phone the Committee on 02 6277 3511.

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No Free Market Capitalism Here!

So once again the banks get a helping hand from the FED, and depositors in the US are guaranteed to an unlimited extent. But what of moral hazard?

And the markets now do not expect further rate rises, despite the inflation pressures in play. Yet perhaps there is a bifurcation between liquidity and rates, so perhaps the markets are not reading things right.

And once again the FED and Treasury proved Free Market Capitalism is dead!

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Banking Crisis Incoming?

Last Thursday the S&P 500’s bank index finished down 6.6% after hitting its lowest level since mid-October, its biggest one-day drop in over two years as Investors fled the sector after tech-industry lender SVB Financial Group launched a share sale to shore up its balance sheet due to declining deposits from startups struggling for funding and following crypto bank Silvergate’s decision to wind down operations.

Shares of SVB, whose operating segments include Silicon Valley Bank, slumped over 50% in their deepest one-day drop on record after the company announced a $1.75 billion share sale late on Wednesday. SVB is battling cash burn due to declining deposits from startups struggling with a venture capital funding drought.

Unlike most banks, which are helped by rising rates, SVB Financial is “generally hurt by them,” Oppenheimer says, as its deposit base is “generally made up of commercial customers who are rate-sensitive.”

The slump in SVB Financial further soured the sentiment on banking stocks, which have been pressured by a deeper inversion in the Treasury yield curve – a harbinger for a recession.

Morgan Stanley analysts said lower 2023 NII guidance at SVB is driven by cash burn among private companies that bank with SVB. This, according to the analysts, will cause SIVB to bring more higher-cost sweep accounts onto its balance sheet, paying roughly the Fed funds rate to do so.

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Risk On In Tech And Financials

The S&P 500 slumped Friday, amid fears of contagion that swept through banking stocks as regulators closed SVB Financial to protect customer funds after the beleaguered bank’s effort to secure funding failed.

The S&P 500 fell 1.4%, the Dow Jones Industrial Average fell 1%, or 333 points, the Nasdaq Composite was down 1.8%.

SVB Financial Group was closed by regulators and its deposits placed under control of regulators to protect depositors following a run on deposits, after its parent company’s share price crashed a record 60% on Thursday.

In the latest update regarding the rapidly moving SVB Financial Group saga, the Federal Deposit Insurance Corporation (FDIC) said Friday that SVB has been shut down by the California Department of Financial Protection and Innovation.

The regulator, which appointed the Federal Deposit Insurance Corporation as receiver, revealed that the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB) to protect insured depositors. (250k)

“The FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank,” the FDIC said in a statement.
They added that all insured depositors will have access to their insured deposits no later than Monday, March 13.

The FDIC said it will pay uninsured depositors an advance dividend within the next week. For any remaining uninsured funds, depositors will receive a receivership certificate. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to certificate holders.

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