Markets remain worried about banks; ECB rate decision looms

Turbulence in global financial markets calmed somewhat Thursday after the Swiss National Bank threw Credit Suisse a lifeline. However, the news was not enough to allay Wall Street fears of an impending crisis, causing US regional banks to fall further in pre-market UStrading. The SPDR S&P Regional Banking ETF (KRE) fell 2.6% in extended trading, led by a more than 26% drop in First Republic Bank after the bank was downgraded to junk status by S&P & Fitch.

European stocks pared their positive opening gains and the rally in bank shares also ebbed, although Credit Suisse jumped the most in history at the open after the troubled Swiss lender borrowed CHF50 billion ($54 billion) from a Swiss National Bank liquidity facility. 

The European Central Bank's interest rate decision will be in the spotlight today. The ECB recently promised to continue raising rates quickly, but money markets are now expecting “only” a 25 basis point rate hike due to the ongoing banking drama.

ECB President Christine Lagarde's comments will be keenly watched by investors to see how central bankers view the current crisis in the banking sector and how it will affect the outlook for monetary policy.

rate hike of 50 basis points would likely lead to heavy selling of European stocks and send the EUR sharply higher. The ECB has been waiting for guidance from the Fed under Lagarde and therefore a smaller rate hike (25-bp) seems more likely. While a pause in rate hikes should be positive for European equities, it is also a signal that the ECB considers the current banking crisis to be severe and sees the risk of it spreading further.

Uncertainty remains very high at the moment, which will likely lead to rallies ending in profit-taking. We also see high volatility with high trading volumes, which may trigger further panic selling.

Oil prices traded near their lowest levels in 15 months after a three-day slide triggered by the US banking crisis and accelerated by options selling, fading hopes for a strong rebound in China, rising global tensions and Russia's efforts to keep oil exports high.

Although markets remain nervous, I don't see the current turmoil in the banking sector as bad as most analysts. However, the impact on the Fed Funds rate and increasing consumer concerns could lead to an earlier swing by the Fed and likely a lower Fed Funds ceiling. This will ultimately help markets, especially the growth sector such as tech stocks, recover. It would also mean that the USD would slowly normalize again after the very strong demand since the Fed tightening started more than 12 months ago.


March 16 – 2023

🇺🇸 US Markets ↕️/↘️
Cyclical Stocks ↕️
Tech/Growth Stocks ↕️
Financial Stocks ↕️/↘️
Defensive Stocks ➡️
Energy Stocks ↘️

💱 Forex 
CHF ↗️ (recovering after recent losses)
JPY ↗️  (still benefiting from safe haven demand / weak USD)
EUR ↗️ (if ECB hikes by at least 25-bps and remains “hawkish”)
AUD ➡️
GBP, CAD, USD ➡️/↘️

⚒ Commodity Markets ↕️
Oil prices ↕️/↘️
Natural Gas prices ➡️/↘️
Metal prices ➡️
Precious Metal prices ➡️/↗️

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

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

Yours, Robert 🇪🇺🏦🔍🏦🥵