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Fed Meeting Preview: Hike or No Hike?

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What’s in Today’s Report:

  • FOMC Preview
  • Three Reasons Oil Could Stabilize (At Least in the Near-Term)

U.S. stock futures are tracking European shares higher with banks notably outperforming while bonds retreat.

Bloomberg reported last night that Treasury Department officials are reviewing options to temporarily insure all bank deposits in order to avoid a potential financial crisis which is helping support risk on money flows this morning.

Economically, the German ZEW Survey was mixed but the Current Conditions Index was importantly not as bad as feared, helping risk assets extend the week’s gains.

Looking into today’s session, there is just one economic report to watch: Existing Home Sales (E: 4.170 million) and given the focus on the recent banking turmoil as well as the March FOMC meeting beginning, it is unlikely to move markets.

As such, a sense of “Fed paralysis” is likely to begin to grip markets today but any outsized moves in the broader banking sector, headline driven or otherwise, has the potential to impact the broader equity markets. To that point, if FRC can finally stabilize, that would be well received by investors today.

Catalysts to Watch This Week

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What’s in Today’s Report:

  • Roadmap for the Catalysts This Week
  • Economic Takeaways – Inflation Is Still High and the Consumer Is Still Healthy (For Now)
  • FOMC in Focus This Week – Will The Fed Signal a Pause?

Stock futures are little changed but cross-asset money flows remain cautious with Treasuries and gold both trading higher as the latest developments in the global banking sector are digested.

Swiss regulators brokered a deal for UBS to take over Credit Suisse for $3.2B over the weekend, a steep discount from CS’s $8B market value on Friday but global bank shares are relatively stable to start the week today helping the broader market hold steady in early trade.

The Fed and several other major central banks coordinated efforts to boost liquidity in dollar swaps over the weekend in their latest attempt to ease strains in the global financial system, which so far, is being received fairly well.

There are no notable economic reports today and no Fed officials are schedule to speak which will leave focus on the price action in banks today. If financials can hold above last week’s lows, that will be a positive, but if the selling pressure continues, the broader market is likely to be dragged lower with the banks as the March Fed meeting comes into focus.

Why Have RSP and SPY Diverged?

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What’s in Today’s Report:

  • Why Have RSP and SPY Diverged?

Futures are little changed following a mostly quiet night as markets digest the actions by large banks to shore up FRC.

Positively, banks borrowed $165 billion from the Fed via the discount window and the new BTFP this week and that importantly shows banks are using the Fed’s programs to shore up liquidity.

On inflation, core EU HICP met expectations at 5.6% y/y, although that’s an increase from the previous 5.3% gain.

Today focus will remain on any banking headlines and economic data, but as long as there are no surprises from either (meaning KRE is stable) then stocks can digest this week’s volatility and hold yesterday’s gains.

Economically, notable reports today include Industrial Production (E: 0.4%), Consumer Sentiment (E: 67.0) and Leading Indicators (E: -0.2%), but again it’ll take a substantial surprise from them to move markets.

Tom Essaye Quoted in Yahoo on March 14th, 2023

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How the Bank Failures Could Impact You Even If It Wasn’t Your Money

Sevens Report analyst Tom Essaye told Forbes the selloff following Silicon Valley Bank’s collapse and a similar collapse by crypto bank Silvergate last week was “undoubtedly an unwelcome reminder” of the 2008 financial crisis. And noted that SVB tried but failed to stay to afloat after the bank was forced to sell a bond portfolio at a $1.8 billion loss because higher interest rates pushed bond prices “far below” where they were when purchased. Click here to read the full article.

Tom Essaye Quoted in Forbes on March 14th, 2023

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‘Head Fake Rally’? Dow Jumps 400 Points On Bank Stocks’ $37 Billion Recovery

Sevens Report analyst Tom Essaye warned in a Tuesday note that the most recent market gains could be little more than a “head fake rally,” explaining that the Federal Reserve’s actions to protect depositors at Silicon Valley Bank and Signature Bank could actually cause inflation to linger even longer. Click here to read the full article.

Tom Essaye Quoted in Forbes on March 14th, 2023

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Inflation Fell To 6% In February—But Some Experts Fear Banking Crisis Could Make Prices Worse

“If the bank crisis is limited to just a few banks, then the actions taken on Sunday by the Fed and Treasury will prove inflationary,” says Sevens Report analyst Tom Essaye. “By backstopping the depositors, the government has avoided the lion’s share of economic loss from this crisis,” he says, and the $25 billion Bank Term Funding Program, which offers banks loans of up to one year, will increase the Fed’s balance sheet a time when it’s actively trying to shrink it, further reversing the central bank’s recent policy actions, Essaye explains. Click here to read the full article.

Market Multiple Table Chart

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What’s in Today’s Report:

  • Market Multiple Table Chart
  • Update on Credit Suisse
  • An Important Difference Between Now and 2008

Futures are little changed despite the Swiss National Bank providing Credit Suisse (CS) liquidity, as that news isn’t eliminating general market anxiety.

Credit Suisse is rallying more than 20% pre-open after it was granted a $54 billion credit line from the Swiss National Bank.

Despite the positive CS news, investors remain very nervous and jittery about U.S. regional banks (especially FRC).

Today is an important day as there are numerous potentially market moving events this morning, with the most important being the ECB Decision (E: 50 bps hike). Markets will want to see the ECB “blink” in the face of market turmoil and hike less than 50 bps.  If the ECB sticks to a 50 bps hike, don’t be shocked to see more volatility today.

Economically, the hope that the Fed “blinks” and does not hike 25 bps next week has helped support stock and bond markets this week, so investors will want to see today’s economic data come in soft enough to make no hike more likely next week.  Key reports today are, in order of importance: Philly Fed (E: -15.8), Jobless Claims (E: 205K), Housing Starts (E: 1.315M).

Market Multiple Table: March Update

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What’s in Today’s Report:

  • Market Multiple Table – March Update (Printable PDF Available)
  • February CPI Takeaways
  • Breakdown in the Energy Markets: Oil Update

Markets are trading with a risk-off tone this morning amid renewed worries about the global banking system.

Credit Suisse’s 2022 annual report revealed “material weaknesses” but the bank’s chairman ruled out government assistance while the largest shareholder, the Saudi National Bank, said further financing was not an option. The negative news flow has sent Credit Suisse shares down more than 20% to a new record low this morning and that is dragging global bank stocks lower and weighing heavily on sentiment.

Economic data overnight was mostly better than expected with Housing Sales in China notably rising more than expected while the PBOC injected more liquidity into he system than anticipated, both of which helped bolster Asian markets overnight.

Looking into today’s session, focus will be on economic data early with PPI (E: 0.3%, 5.4%), Retail Sales (E: -0.3%), the Empire State Manufacturing Index (E: -7.7), and the Housing Market Index (E: 41) all due out this morning.

Regarding the data, markets want to see a further decline in inflation metrics and more slowing in growth readings to help shore up less hawkish Fed expectations, however, focus will also remain on the banking sector and if banks can’t stabilize and start to rebound broadly, the major indexes are going to have a hard time finding their own footing today.

Tom Essaye Quoted on Yahoo on March 13th, 2023

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How the Bank Failures Could Impact You Even If It Wasn’t Your Money

Sevens Report analyst Tom Essaye told Forbes the selloff following Silicon Valley Bank’s collapse — and a similar collapse by crypto bank Silvergate last week — was “undoubtedly an unwelcome reminder” of the 2008 financial crisis. Click here to read the full article.

Is the Fed Really Going to Turn That Dovish?

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What’s in Today’s Report:

  • Why Did the Nasdaq Rally Yesterday?
  • Is the Fed Really Going to Turn That Dovish?
  • Charts: 2-Yr Note Yield Plunges the Most in Decades, VIX Has Further to Run

Stock futures are cautiously higher and yields are bouncing globally following better than expected economic data overnight and more stable price action in U.S. bank shares while traders continue to unwind hawkish Fed policy bets ahead of today’s CPI report.

Economically, the U.K’s ILO Unemployment Rate came in at 3.7% vs. (E) 3.8% which is pressuring Gilts (down 11 bp) and lifting yields across Europe and the U.S. while the NFIB Small Business Optimism Index rose to 90.9 vs. (E) 89.9.

Looking into today’s session, focus will be on the February Consumer Price Index release before the bell with the headline expected to rise 0.4% m/m (6.0% y/y) while the all-important Core CPI figure is also expected to rise 0.4% m/m (5.5% y/y).

There are no Fed speakers today so if the inflation data comes in hot, expect a rebound in yields that would likely pressure equities as traders reassess the less-hawkish policy expectations that have been priced into rates markets since the SVB debacle began.

Additionally, bank shares (KBE) will remain in focus and if contagion fears persist and financial stocks remain under pressure, it will be hard for the broader equity market to meaningfully stabilize, much less recover some of the recent losses.