Bank rescue plans are not convincing enough for markets

Stocks got off to a good start in Asian and European trading, and Wall Street was also up in pre-market trading before worries about First Republic Bank, other U.S. regional banks and Credit Suisse resurfaced. A growing number of analysts, including billionaire investor Bill Ackman, doubt that recent bank rescue plans – whether from central banks or support from banking giants – will be enough to stop the crisis. U.S. banks have already borrowed a total of $164.8 billion from two Federal Reserve support funds in the past two weeks, which could be seen as a sign that funding problems are worsening.

On Wall Street, as well as in Europe, stocks are now trading deep in the red, giving back some of yesterday's strong gains. Financial conditions are tightening, although expectations are rising that the Fed will slow or even halt its further monetary tightening actions. The rising expectation that the Fed will now pivot much sooner has also boosted interest rate-sensitive stocks this week – tech stocks in particular have outperformed and will continue to do so.

I think markets will continue to be in a back-and-forth mode, with strong gains meeting profit-taking, and overall days of wild swings. However, as long as there is an expectation that the Fed's tightening measures are about to end, investors will continue to invest in equities – especially those that can benefit from a Fed reversal.

I expect profit-taking to continue for a while as markets remain jittery and bank stocks, which have been hit hard recently, plummet again. High volatility often leads to panic selling. In addition, today's quarterly triple witching, where contracts for index futures, stock index options, and stock options all expire, will cause further turbulence

The focus will also be on the preliminary results of the University of Michigan's consumer sentiment index, which I think will be rather positive and could stabilize Wall Street again somewhat.

The markets are also still digesting yesterday's 50 basis point rate hike by the ECB and today's reported high inflation and wage developments in the Eurozone. I expect the EUR to continue to rise as the ECB will likely continue to take an aggressive stance, especially as inflationary pressures remain very high. 

Money markets expect the Fed to raise rates by 25 basis points next week. However, these expectations remain highly volatile, as do Treasury yields, which have fluctuated by at least 20 basis points over the past six sessions. The USD will likely continue to normalize against the major currencies as I believe the Fed will try to reassure markets given concerns about the health of the U.S. financial sector.

I expect the JPY to remain bullish and normalize as the overall prospects for further monetary tightening by central banks around the globe diminish.

Growth and recession concerns remain intact, as evidenced by the sharp drop in commodity prices this week – especially oil. Lower bond yields, on the other hand, have given a boost to gold and cryptocurrencies. As bond yields continue to fall, the rally in gold and cryptocurrencies may continue for a bit. In the short term, I see the oil price slightly oversold, but the overall bearish sentiment remains.


March 17 – 2023

🇺🇸 US Markets ↕️
Cyclical Stocks ↕️
Tech/Growth Stocks ↕️/↗️ (after losses; rebound likely)
Financial Stocks ↕️/↘️
Defensive Stocks ➡️/↘️
Energy Stocks ↘️

💱 Forex 
JPY ↗️ 
EUR ↗️ (supported by hawkish ECB / high Eurozone inflation)
CHF, AUD ➡️/↗️ 
GBP ➡️
USD, CAD ➡️/↘️

⚒ Commodity Markets ↕️
Oil prices ↕️/↘️
Natural Gas prices ➡️/↘️
Metal prices ➡️
Precious Metal prices ➡️/↗️ (benefiting from lower bond yields)

⚡️Cryptos ➡️/↗️ (benefiting from lower bond yields)

(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)

Yours, Robert 🏦🛡🔍❓