Improved confidence around the European and US banking systems has helped lift risk appetite and driven global rates higher, with the US 2-year rate hitting 4% again. Currency movements have been well-contained, with higher rates driving the yen lower. The NZD has been hovering just under 0.62.
In another step to help shore up confidence in the US banking system, the FDIC chose First Citizens (the 30th largest US bank) to buy much of what’s left of Silicon Valley Bank, including its loan book at a $16.5b discount and with substantial support from the FDIC. The deal means that the FDIC’s Deposit Insurance Fund takes a hit of “only” $20b. The deal looked good for First Citizens, whose share price surged 50%.
First Republic Bank is up 10% after a Bloomberg report over the weekend that US authorities are considering expanding an emergency lending facility for banks in ways that would give FRB more time to shore up its balance sheet. Banking stocks are outperforming the broader market, with the KBW Bank index up 2.6% and the (smaller) KBW regional bank index up 1%. The S&P500 shows modest gains, with performance held back by higher yields (see below).
Ahead of his appearance before lawmakers tonight, Fed Vice-Chair for Supervision Barr issued prepared remarks, commenting “we will continue to closely monitor conditions in the banking system and are prepared to use all our tools for any size institution, as needed, to keep the system safe and sound”.
In Europe, Deutsche Bank rebounded by 6% after its speculative selling attack on Friday. The Euro Stoxx 600 index is up over 1%, with all sectors positive, after being whacked on Friday.
Increased confidence in the banking sector has seen pricing for Fed hikes lift to the extent that another 25bps hike at the next meeting in May is now seen slightly more likely than a pause. Future rates cuts have also been pared and the 2-year rate is up 24bps to 4%. The front-end led surge in rates has driven a flattening bias, with the 10-year rate up “only” 13bps to 3.51%.
Rates are higher across Europe as well, with German 2 and 10-year rates up 13bps and 10bps respectively. Bloomberg reports that well-respected ECB GC member Schnabel pushed this month’s decision statement to signal future possible interest-rate hikes, against the backdrop of the crisis around Credit Suisse. ECB President Lagarde wasn’t prepared to be so explicit.
Currency moves have been modest, but with notable weakness in the yen on the higher rates backdrop and strength in CAD with oil prices up over 4% on improved confidence in the banking sector. USD/JPY is up 0.7% to 131.65 while USD/CAD is down 0.6% to 1.3660.
The NZD has largely tracked sideways since the start of the week and is currently down slightly, just under 0.62. Same goes for the AUD, at 0.6640. EUR and GBP show a modest positive bias.
Domestic rates were lower yesterday, outperforming on a cross-market basis, playing catch-up to some of the larger falls seen globally recently. In a quiet session, NZGBs were 9-10bps lower across the curve, with the 10-year rate down to 4.03%, back to where it was in early February, prior to the run up to 4.7% in early March. Swap rates were 5-7bps lower, with the 2-year rate down to 4.81%. Australia’s 3 and 10-year bond futures are up 8-10bps in yield terms since the NZ close, which will see NZ rates open the day much higher.
In economic news, Germany’s IFO survey was stronger than expected, with both the current conditions and expectations components pushing higher. In other news, the head of Maersk in an interview with the FT said that China’s economic rebound is weaker than expected, with consumers stunned from the COVID-led disruptions and are not in a splurging mood right now. He noted parallels with SARS in 2003, when consumers in the hardest hit areas took time to recover their confidence.
In the day ahead, we’ve noted the Fed’s Barr speaking before lawmakers on the banking crisis tonight. We’ll hear from new FOMC Governor Jefferson this morning on monetary policy, ahead of Australian retail sales data today. US trade data and consumer confidence round out the calendar.
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14 Comments
There will be a growing cascade of such 'failures', and we have to laugh at the so-called free market needing intervention(s).
Eventually, there will be too many to stem. The reason is less surplus energy going into the system, so less being able to be done. Unfortunately, the current crop of 'economic' commentators were taught that economic activity is not parasitic on a bigger system, nor were they told that labour is mere noise compared to fossil energy.
The result is that such comments - and forward projections - will be more likely to be (more) adrift from reality, as time goes on. There is now orders of magnitude too much 'liquidity' in the system; orders of magnitude too many calls on the planet. Trying to read reality through 'money', is becoming ever-more fraught.
But we will keep doing it, and repressing challenges, because we have all built our narratives - our cultures - atop it. Essentially, atop a falsehood. Interesting times, close ahead.
What I find fascinating - being older, cynical, and somewhat insulated from the ' system' - is the way folk close ranks culturally, otherising others. This is true of the financial arena, including scribes thereof. Ultimately, economic growth forever on a finite planet, was a lie. But rather than acknowledge this, I see the MSM doubling-down on reporting in economic-growth-speak.
We are living through a one-off event, using a language not fit for purpose. It does give a hint as to what happened at the end of the Roman, Mayan etc constructs; clipping the (coinage) ticket; reducing complexity, bread and circuses - then silence. Followed by a historical appraisal viewed through an economic-growth lens, from which we don't learn the lessons.
Goes back further than that PDK. Indeed the current cultural perspective, irrespective of the culture, is based on religious paradigms. In the bible for example is the story where God instructs Adam and Eve to "go forth and multiply". No where in that instruction is an implied limit. And it is in little details like that that instruct in the truth that religion is the great lie (I will leave the debate about the existence or not of God separate), and is simply about power and control. There is evidence that humans have risen to technological heights prior to this age of man, possibly several times, but somehow we have screwed it up each time. Just looking around the world today leaves the observer with the unmistakable conclusion that as a species we simply haven't learned much. It is the egos, and the power hungry who continue to push against physical limits, and who will sacrifice any and everyone in their hunger for power. And while the planet is sending a clear message that the physical limits to our planetary resources are encroaching on our ability to survive, those in power and with influence remain in a state of denial.
The masses were, some still are largely, led and manipulated by religion and the accompanying threats, persecution and destruction when the relative tribes clashed and/or conquered. Those characteristics prevail regardless of the creed. Read Paul Johnson’s History of the American People and it is undeniable that, let’s call them, the christians would have been hopelessly lost, couldn’t have survived, without the community, structure and direction thus provided even though it culminated in the horrific Salem witch hunts and many many more perversions. Seems to be humans have to create something to worship, Golding - Lord of the Flies, that leads to power and exploitation of the weak by the strong. Been around long enough to see that little scenario and its niceties being played out from modest office space to boardrooms.
Yes there is little doubt that in forming communities the species does become stronger, but our nature is as much an enemy as a strength. Political power, however it comes about always has a cost. Knowledge is a strength, but information combined with weakness can become a threat that undermines communities too. Recent events have demonstrated that. All this comes together to make groups fear difference and react against it. Theoretically as a species within current communities, the survival imperative should no longer be valid, but instead it has become destructive as some seek power over others. To rule without accountability. While others seek to not be bound by the restrictions that being a part of a community necessarily requires.
Just put this up on another thread, but it's a doozy. Worth every minute:
https://www.youtube.com/watch?v=oJJ2GnSRX14
Steve Keen is one of the few economists trying to figure a way to morph the current financial construct, so it fits with reality. But he doesn't think for a minute the string-pullers will do anything outside BAU - and that link tells us why.
In other news, the head of Maersk in an interview with the FT said that China’s economic rebound is weaker than expected, with consumers stunned from the COVID-led disruptions and are not in a splurging mood right now.
All the angst about China boils down to this chart. Within the last 20 years, the Chinese sprinted ahead like no nation has ever done before in human history. The chart is for GDP based on purchasing power parity. Before the end of this decade, China will surpass the US in nominal GDP as well... although there is still denialism among Western "experts." The West woke up late and is trying to contain the rise of China, Asia and a multipolar world. Link
I have a question about bank account types for the experts in the comment section (dangerous I know).
With the failure of banks overseas, there is a chance of contagion to banks here in NZ. I currently have money tied up in a bank bonus savings account set up as a PIE, this provides a small tax advantage. The account balance is in units where 1 unit = $1 NZD. I think it’s therefore technically an investment rather than a normal bank account.
My question is, if the bank providing this product goes under are my savings protected in any way? Like the governments $100,000 protection? Or am I an unsecured creditor?
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