Category Archive: 4.) Marc to Market

Filter archive by: Show All Show only Articles Show only Videos

RBA Holds Fire, Sterling Reaches Best Level since last June, and the Dollar Struggles to Find Much Traction

2023-04-04

by

2023-04-04

Overview: The jump in oil prices is the newest shock and the May WTI contract is holding above $80 a barrel as it consolidates yesterday's surge. A week ago, it settled near $73.20. Australian and New Zealand bond yields moved lower, partly in catch-up and partly after the RBA stood pat. South Korean bonds also rallied on the back of softer inflation (4.2% vs. 4.8%). But European and US benchmark yields is 2-4 bp higher. The large equity markets...

Read More »

OPEC+ Surprises while Manufacturing Remains Challenged

2023-04-03

by

2023-04-03

Overview: News of OPEC+ unexpected output cuts saw May WTI gap sharply higher and helped lift bond yields. May WTI settled near three-week highs before the weekend near $75.65 and opened today near $80. It reached almost $81.70 before stabilizing and is straddling the $80 area before the North American session. The high for the year was set in the second half of January around $83. Benchmark 10-year yields are up 2-5 bp points. The 10-year US...

Read More »

April 2023 Monthly

2023-04-01

by

2023-04-01

There were three ways the monetary cycle was going to turn. First, unemployment could have reached unacceptable levels. This did not happen. Labor markets have proven thus far to be resilient among most G10 countries. Second, a significant and sustained drop in price pressures could end the tightening cycle. This has yet to materialize in a meaningful way. In some countries, governments have energy subsidies, and these measures only offer temporary...

Read More »

March: Going Out like A Lamb after Wrestling with a Lion

2023-03-31

by

2023-03-31

Overview: The banking stress that roiled the markets this month has eased. However, the emergency lending by the Federal Reserve, vias the discount window and new Bank Term Funding Program hardly slowed in the past week ($152.6 bln vs. $163.9 bln). Money markets took in more funds. Almost $305 bln has flowed to them over the past three weeks. The US KBW bank index is up 3.75% this week coming into day (after pulling back 1.2% yesterday). Europe's...

Read More »

Thumbnail Sketch of the Peso Ahead of Banxico’s Decision

2023-03-30

by

2023-03-30

The central bank of Mexico is expected to deliver a 25 bp rate hike later today that would lift the overnight cash target to 11.25%. The swaps market says this will be the last hike in the cycle. However, with a further hike by the Fed possible, it seems unlikely that Banxico will declare mission accomplished. Still, Mexico’s overnight rate is above current inflation.  CPI in February was about 7.6% and the core rate (excluding food and energy)...

Read More »

Dollar Soft but Stretched

2023-03-30

by

2023-03-30

Overview: While bank stress seems to continue to ease, the dollar languishes against most of the major currencies. The Japanese yen is the notable exception. It is off about 1.5% this week. The Dollar Index has given back the gains scored at the end of last week but remains inside the range set last Thursday and Friday (~101.90-102.35). Perhaps the participants are waiting for Friday. In addition to month-, quarter, and fiscal-year ends, it is...

Read More »

Financial Stress Continues to Recede

2023-03-29

by

2023-03-29

Overview: Financial stress continues to recede. The Topix bank index is up for the second consecutive session and the Stoxx 600 bank index is recovering for the third session. The AT1 ETF is trying to snap a four-day decline. The KBW US bank index rose for the third consecutive session yesterday. More broadly equity markets are rallying. The advance in the Asia Pacific was led by tech companies following Alibaba's re-organization announcement. The...

Read More »

Firmer Rates and Higher Bank Stocks Give the Greenback Little Help

2023-03-28

by

2023-03-28

Overview: Financial strains eased yesterday, and short-term yields jumped. The two-year US yield jumped 25 bp to pierce 4%. Yet, the dollar fell against most of the major currencies yesterday and is mostly softer today. Banking stress is ebbing. The Topix bank index snapped a three-day decline and jumped nearly 2% today to recoup the lion's share of its three-day decline. The Stoxx 600 index of EMU banks is extending yesterday's 1,7% advance. The...

Read More »

Calmer Markets to Start the New Week

2023-03-27

by

2023-03-27

Overview: There did not appear to be any negative surprises over the weekend, and this is helping calm investors' nerves at the start of the new week. Deutsche Bank shares have recovered most of the pre-weekend loss in the German market, and Stoxx bank index is posting a gain for the first time in four sessions. The AT1 ETF is slightly softer. In Japan, the Topix bank index slipped around 0.5%, its fourth decline in the past five sessions. Asia...

Read More »

Banking Crisis Roils Capital Markets, Overshadowing High-Frequency Data

2023-03-25

by

2023-03-25

The banking crisis is the newest shock to roil the capital markets. Pragmatic action by central banks, governments, and the private sector has thus far been insufficient to allow investors to be confident that the problem is ring-fenced. Credit Suisse was a pre-existing problem that flared up to the breaking point. The government's offer to take the first CHF9 bln in losses and the controversial triggering of clauses allowing AT1 bondholders to be...

Read More »

The Dollar Jumps Back

2023-03-24

by

2023-03-24

Overview: The pendulum of market expectations has swung dramatically and now looks for 100 bp cut in the Fed funds target this year. That seems extreme. At the same time, the dollar's downside momentum has stalled, suggesting that the dollar may recover some of the ground lost recently as the interest rate leg was knocked out from beneath it. The euro twice in the past two days pushed through $1.09 only to be turned away. Similarly, sterling pushed...

Read More »

Market Hears Dovish Fed Hike and Sells Dollars

2023-03-23

by

2023-03-23

Overview:  The dollar remains under pressure following the Federal Reserve's rate hike. The market thinks it heard that the Fed was done hiking, even though Fed Chair Powell held out the possibility that "some additional firming may be necessary."  The Norwegian krone is the strongest of the G10 currencies today, up more than 1%, spurred by a 25 bp hike and a commitment to do more. The Dollar Index briefly traded below 102.00 for the...

Read More »

Tough Fed Decisions

2023-03-22

by

2023-03-22

Overview: The market has concluded that the Fed will hike rates today. The US two-year yield has risen from about 3.63% at Monday's lows almost 4.20% yesterday. It needs to rise to 4.35% to recover half of its decline since March 8 but has come back softer today. Meanwhile, the banking crisis continues to ease, and Europe's Stoxx 600 bank index is up 1.5%, its third consecutive advance. The US KBW bank index rallied almost 5% yesterday. Still,...

Read More »

Banking Stress Eases

2023-03-21

by

2023-03-21

Overview: The banking crisis is ebbing. The Bank of England and European Central Bank assured investors that the AT1 bonds are senior to equity claims, and Switzerland is a unique case. Bank share indices in the Europe and the US rose yesterday, even though the shares of First Republic Bank fell by 47% yesterday. The $123-stock at the end of last month reached almost $11 yesterday. It is trading around $14.75 pre-market. Global equities are...

Read More »

Terms of UBS Acquisition Wipes out Additional Tier 1 Capital and Spurs Fresh Concerns

2023-03-20

by

2023-03-20

Overview:  UBS takeover of Credit Suisse, the sale of Signature bank assets, and the daily dollar swaps could have helped stabilize the budding banking crisis. However, the wipeout of the additional tier 1 capital cushion (16 bln Swiss francs) at Credit Suisse has raised concern about the vulnerability of other such assets, which post-GFC is a $275 bln market in Europe. Asia Pacific equities was a sea of red, led by a 2.65% drop in the Hang Seng...

Read More »

FOMC and BOE Meet As Investors are Not Persuaded that Efforts to Contain the Financial Crisis are Sufficient

2023-03-18

by

2023-03-18

It was widely understood that the Federal Reserve would raise rates until one of three things took place: inflation was clearly on course to return to the target, the labor market would weaken precipitously, or systemic stress threatened. At the same time, the shocks we have had to cope with, Covid, supply chains, and Russia's invasion of Ukraine were commonly cited, and the. The re-pricing of assets as interest rates began normalizing may have...

Read More »

Fragile Calm to End the Volatile Week even with the Quadruple Expirations

2023-03-17

by

2023-03-17

Overview: The support for First Republic Bank shown by a consortium of US banks by shifting $30 bln of deposits is helping break the financial anxiety that has gripped the market for more than a week. The liquidity provisions for Credit Suisse by the Swiss National Bank also are contributing to improved sentiment. The Fed's balance sheet expanded sharply last week as the bridge banks were extended credit to help the unwind of SVB and Signature...

Read More »

Swiss National Bank Support Steadies Market as ECB Faces Difficult Choice

2023-03-16

by

2023-03-16

Overview: The pendulum of market psychology is swinging dramatically. Amid the US banking crisis, Credit Suisse's long-running pressures percolated back to top-of-mind, sending ripples through the capital markets, trigging a sharp slide in the euro. The SNB support is helping the markets calm today. The odds of a 50 bp hike by the ECB today have been cut to about 50% compared with a nearly 100% a week ago. The market has about a 66% chance of a 25...

Read More »

Investor Anxiety Continues to Run High even If More Comfortable ECB 50 BP Tomorrow and 25 bp Next Week by the Fed

2023-03-15

by

2023-03-15

Overview: The capital markets remain unsettled. Asia-Pacific bourses rose, but European markets are sharply lower, with the Stoxx 600 off 1.3%, giving back the lion's share of yesterday's gains and US equity futures are lower. Benchmark 10-year yields are off 3-9 bp in Europe, with widening core-periphery yields. The yield on the 10-year US Treasury is off a dozen basis points to about 3.56%. Two-year yields are also sharply lower, led by the 15-16...

Read More »

Does the US Inflation Report Matter or Has it Been Superseded by Deflationary Forces of a Financial Crisis?

2023-03-14

by

2023-03-14

Overview: The dramatic shift in expectations for Fed policy is a potent shock, with reverberations throughout the capital markets.  The business press was full of accounts putting the nearly 50 bp decline in the US two-year note in an historical perspective. Yesterday, it fell by 61 bp as the market continued to unwind Fed hikes and reprice the chances of a cut as early as Q2. While the poorly received bill auctions suggests not significant deposit...

Read More »