Stocks in Europe rallied and Wall Street pointed to a strong opening, adding to yesterday's gains sparked by hopes for a containment of the banking turmoil.
U.S. regional banks strongly advanced in premarket trading, led by First Republic Bank, which was the worst performer yesterday. The troubled bank trades 22% higher, a day after losing 47%. The SPDR Regional Banking ETF is currently trading more than 3% higher. The takeover of Credit Suisse by Swiss rival UBS was seen more positively after initially sparking concerns that it would not be enough to reduce turmoil in the banking sector. U.S. Treasury Secretary Janet Yellen said earlier today (U.S. time) that the government was prepared to provide further deposit insurance if the banking crisis worsened, which also helped to calm things down.
Markets, including analysts, have panicked, but recent actions by central banks and major banks have significantly reduced tail risk. I've said it before in the past few days when everyone was panicking, and I'll say it again: I don't think the current banking crisis will hit the biggest banks on Wall Street or spread from Credit Suisse to other major European banks – Credit Suisse has been in trouble before and was poorly managed. The liquidity problems seem to have been resolved, which should be enough to calm nerves.
Instead, we are now seeing the other phenomenon I have been describing – an opportunity in the current crisis that could be enough to bring about an end to the Fed's monetary tightening measures after a likely further (small) rate hike tomorrow of 25-bp. Rate hike expectations continue to fall and hopes are rising that corporate profits can recover before the end of the year. I also believe that the current banking crisis has exacerbated the disinflation process.
We see the USD still bearish on the expectation that the Fed will ease its tight monetary policy again later this year – including a cut in interest rates. While I believe markets are overly optimistic in this regard, market expectations may have been overly hawkish earlier as well. The current improved risk sentiment will continue, leading to further gains in equities.
I believe the Fed will signal that it believes recent policy changes are already having an impact on equities and credit risk expectations, including a deflationary impact and an easing of the still very tight labor market. We may even be seeing the end of the bear market – although many analysts are concerned about the current turmoil in the banking sector.
The JPY weakened temporarily due to lower safe haven demand, but remains bullish in the medium term. The EUR benefited from the expectation that the ECB will continue to adopt a hawkish stance and from the sharp easing of concerns about the European banking sector. The CHF also recovered from its losses.
Lower safe haven demand has caused gold to lose some of yesterday's gains, also due to government bond yields rebounding as demand for bonds has fallen. Oil prices are recovering as risk sentiment improves – I expect further gains.
👁 ROB'S MARKET OVERVIEW:
March 21 – 2023
🇺🇸 US Markets ↗️
Cyclical Stocks ↗️
Tech/Growth Stocks ➡️/↗️
Financial Stocks ↗️
Defensive Stocks ➡️
Energy Stocks ↗️
💱 Forex
EUR ↗️
CHF, CAD ➡️/↗️
GBP, AUD ➡️
USD ➡️/↘️ (stabilizing after losses but remaining bearish)
JPY ➡️/↘️ (temporarily weakened on lower safe haven demand)
⚒ Commodity Markets ↕️
Oil prices ↕️/↗️
Natural Gas prices ➡️/↘️
Metal prices ➡️
Precious Metal prices ↕️/↘️ (lower due to higher bond yields)
⚡️Cryptos ➡️/↗️
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Yours, Robert 🏦⛈🌥☀️🌈
