Must Know: SVB’s rescue means the Fed gained’t hike charges in March, says Goldman Sachs
After a frantic regulators-to-the-rescue weekend that sparked a rally for U.S. equity futures on Sunday night, the atmosphere has turned more cautious, except for still-partying tech futures. That’s as lots of banks are in the red ahead of Monday’s open.
Nervous investors may be wary of more shoes dropping following the Silicon Valley Bank fallout that is resurfacing great financial crisis memories for some more long-toothed traders. And no rest for the wicked as the next update on consumer prices hits Tuesday.
Read: SVB collapse means look out for more stock-market volatility, say analysts.
Here’s Jim Reid and a team of strategists at Deutsche Bank, neatly summing up a whirlwind few days: “SVB’s woes are a combination of one of the largest hiking cycles in history, one of the most inverted curves in history, one of the biggest bubbles in tech in history bursting, and the runaway growth of private capital. The one missing ingredient not involved here is a U.S. recession.”
It’s just more of the boom-bust cycle we’re stuck in, says Reid. “That being… too much stimulus -> very high inflation and an asset bubble -> aggressive central bank hikes -> inverted curves -> tighter lending standards/accidents -> recession.”
Onto our call of the day from Goldman Sachs, where economists say the rescue of SVB and other depositors will tie the Fed’s hands next week.
“In light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March,” said a team led by chief economist Jan Hatzius in a note to clients late Sunday.
Hatzius and Co. had expected a 25-basis point hike next week. “We have left unchanged our expectation that the FOMC will deliver 25bp hikes in May, June and July and now expect a 5.25-5.5% terminal rate, though we see considerable uncertainty about the path,” they said.
They clearly aren’t alone as Fed fund futures indicate the chances of the Fed hiking interest rates by 50 basis points next week have fallen from 70% to zero in recent days.
But some say the Wall Street banking behemoth is getting ahead of itself:
Capital Economics, meanwhile, is siding with Goldman here: “Even if the authorities are successful at putting a firewall around the problems at SVB and Signature Bank, the lags with which policy operates are a reason to adopt a more gradual approach to policy tightening from here,” said Neil Shearing, group chief economist.
Note, Goldman also said that while the Fed has stemmed the panic over SVB and Signature Bank, it remains to be seen whether the FDIC would similarly address other such lenders if they were smaller than the two banks in question.
Last word and perhaps a testiment to nervousness around banks, goes to Mark Haefele, chief investment officer at UBS Global Wealth Management who told clients this: “We remain least preferred on financials in our US strategy and recommend investors who have above-benchmark weights in global financials (15% of the MSCI ACWI) to revisit their exposure.”
After soaring late Sunday in the wake of measures to curb SVB panic, Nasdaq-100 futures
and S&P 500 futures
remain higher, but Dow futures
are in the red. The two-year Treasury yield
is down 31 basis points to 4.284%, the dollar
is off 0.4% and gold
is up $28.30 to $1,895.80 an ounce. For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.
At the end of a hectic weekend of negotiations, U.S. regulators say Silicon Valley Bank
depositors will have access to their money, with no fallout for U.S. taxpayers, though share and bondholders appear to be out of luck. Depositors of crypto-friendly New York-based Signature Bank
closed Sunday by its state regulator, have received similar guarantees. The Fed also announced a new emergency loan program for banks in trouble to ease contagion risk.
But there’s some chaos for banks on both sides of the Atlantic. Tainted by similarities to SVB, First Republic Bank
is down 60%, despite getting a Fed and JPMorgan funding boost and reassurances by its founder and CEO on Sunday.
Read: Stablecoin issuer Circle to transfer $3.3 billion in cash held at Silicon Valley Bank to BNY Mellon
SVB’s U.K. arm has been bought for £1 by HSBC
in a deal brokered by the country’s Treasury and Bank of England. U.S.-listed HSBC shares are down 2%, while Credit Suisse shares
are off 9%, hitting a new record low.
Shares of pharma group Provention Bio
are up 259% after French drugmaker Sanofi
said it would buy the fellow pharma group in a deal worth $2.9 billion.
Apart from CPI on Tuesday, the week will also bring other important data including retail sales, producer prices, housing updates and the Empire State manufacturing survey.
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