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SVB shut down, Powell has to decide between a new financial crisis or raising inflation target

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TLDRMore

  • A rate hike of 25 basis points may be favored at the Federal Open Market Committee (FOMC) meeting scheduled for March 22nd.
  • Terminal Fed Funds Rate of 5.50% with 25bps rate cut at the end of the year
  • The unemployment rate rose from 3.4% to 3.6%
  • GBTC Discount Tightens After SEC Hearing, Up 7% Over Last 5 Days
  • Bitcoin falls below $20,000 in second-largest Bitcoin liquidation of the year

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SVB Bank Run

Shares of SVB Financial Corp (SIVB) plunged 60% on March 9th, before plummeting another 40% on March 10th. A deposit run forced us to sell our assets after a tax loss of $1.8 billion. Banks are seeking more than $2.25 billion from him, which has had a knock-on effect in the banking sector as it wiped him $52 billion from the top four market caps.

The contagion spread to many other banks, including First Republic and Signature Bank, all stopped at the exchange.

SVIB has been closed by California regulators. This was the biggest bank failure since the Great Recession. He was also the 18th largest bank in the United States by total assets.

As a result, the two-year Treasury yield fell 45bps from yesterday’s high, its biggest drop since 2008.

Unemployment rate

With the unemployment rate at 3.6%, just above the estimated 3.4%, the US economy created +311,000 jobs, while it was forecasted to be +205,000.

fed fund rate

As a result of the above, in addition to Chairman Powell’s testimony before both the Senate and the House, markets plunged between 25 and 50 bps at the next FOMC meeting, with terminal rates continuing to move. At the end of the week, the market is pricing in a 25bps hike with a final rate of 5.50% for him, and a 25bps cut at the end of the year.

All eyes will be on Tuesday’s Consumer Price Index (CPI).

England

Indecisive BOE

The Bank of England (BoE) continues to vacillate between overtightening and an inflationary riot. To show how the BoE is split, BoE policymaker Catherine Mann spoke about the dangers of currency depreciation with the risk of imported inflation. Meanwhile, another BoE policy maker, Swati Dhingra, warned of the problem of “over-tightening” and thought a better strategy would be to maintain policy.

As a result, the pound fell to a year-to-date low of 1.18 against the dollar before closing higher at 1.20 on Friday.

China

The announcement over the weekend that China has set a growth target of 5% was a disappointment. Many analysts expected something closer to 6%, as 5% was the lowest forecast in over a quarter century.

China, like Japan, has backed stimulus measures to keep its real estate market healthy. Municipalities and developers are facing excessive debt burdens while property values ​​are declining.

The Wall Street Journal reports that a third of major cities are struggling with huge interest payments, while outstanding debt topped 120% of last year’s income.

Japan

Friday was Governor Kuroda’s final meeting. The Bank of Japan (BOJ) has not changed its policy, giving new Governor Ueda the daunting task of years of economic stimulus. The governor has changed, but the policy remains the same.

Japan’s fourth quarter GDP showed the economy was sluggish, removing immediate pressure from the Bank of Japan to change policy.

Posted In: Featured, Macro
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