Category Archive: 4.) Marc to Market

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Market Hears Dovish Fed Hike and Sells Dollars

2023-03-23

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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...

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Tough Fed Decisions

2023-03-22

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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,...

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Banking Stress Eases

2023-03-21

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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...

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

2023-03-20

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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...

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

2023-03-18

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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...

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

2023-03-17

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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...

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Swiss National Bank Support Steadies Market as ECB Faces Difficult Choice

2023-03-16

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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...

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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

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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...

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Does the US Inflation Report Matter or Has it Been Superseded by Deflationary Forces of a Financial Crisis?

2023-03-14

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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...

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US Banking Crisis Swamps Other Considerations

2023-03-13

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2023-03-13

Overview:  The US banking crisis has overwhelmed other market drivers. The strong measures announced as Asia Pacific trading got under way was embraced by the market even though moral hazard issues and gaps in the Dodd-Frank regulatory framework were exposed. The dollar is trading heavily. The prospect of a 50 bp Fed hike next week has evaporated and some are doubting that a 25 bp increase will be delivered. Rate hike expectations for the ECB this...

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Market Prices in a Fed Cut in Q4 Ahead of CPI, While ECB to may Deliver a 50 bp Hawkish Hike

2023-03-11

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2023-03-11

Three macro events highlight the week ahead. The US February CPI will be reported on March 14. The UK's Chancellor of the Exchequer Hunt will deliver the spring budget on March 15. The ECB meets the following day. A 50 bp hike is discounted not only for this meeting, but that is the bias for the May meeting as well. It seems that US interest rate adjustment that began early February (jobs data and strong gains in the service ISM) and helped fuel...

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Concerns Over US Banks Rival Today’s Jobs Report

2023-03-10

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2023-03-10

Overview: The unexpectedly large rise in US weekly jobless claims, the largest since the end of last September and concerns about the impact of the sharp rise in interest rates on the liquidity and value of assets (bonds) owned by small and medium-sized banks saw the market unwind the effect of Fed Chair Powell's comments. The yield on the US two-year note slumped almost 20 bp to 4.87% yesterday and fell to 4.75% today before stabilizing (~4.82%)....

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Yen Jumps Despite Poor GDP Ahead of Tomorrow’s BOJ Outcome

2023-03-09

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2023-03-09

Overview: Seeing the drama he inspired on Tuesday, the Fed chair tried soft-pedaling the idea that he was signaling a 50 bp hike in March. The market did not buy it. And the odds, discounted by the Fed funds futures rose a little above 70% from about 62% at Tuesday's close. The two-year note yield solidified its foothold above the 5% mark. With the Bank of Canada confirming its pause, the Reserve Bank of Australia does not seem that far behind, and...

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Powell Sends the Two-Year Yield above 5% and Ignites Powerful Dollar Rally

2023-03-08

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2023-03-08

Overview:  Federal Reserve Chair Powell's comments to the Senate Banking Committee were seen as hawkish by the market, even though it has been clear to most observers that the 5.10% median terminal rate that the Fed projected in December would be increased. Also, it seemed well appreciated a few Fed officials support a 50 bp hike at the February 1 FOMC meeting, two days before a "hot" jobs report that showed over 500k jobs were filled. It...

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US Dollar is Better Bid Ahead of Powell, while Aussie Sells Off on Dovish Hike by the RBA

2023-03-07

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2023-03-07

Overview: The US dollar is trading with a firmer bias against nearly all the G10 currencies ahead of Federal Reserve Chairman Powell's semi-annual testimony before Congress. Speaking for the Federal Reserve, the Chair is likely to stay on message which is higher rates are necessary to cool the overheating economy. This comes on the heels of the Reserve Bank of Australia's 25 bp hike and indication that it is not pre-committing to an April hike. The...

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Yields Pull Back to Start the New Week

2023-03-06

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2023-03-06

Overview: The modest economic goals announced as China's National People's Congress starts was seen as a cautionary sign after growth disappointed last year. It seemed to weigh on Chinese stocks, though others large bourses in the region advanced, led by Japan's Nikkei and South Korea with gains of more than 1%. Europe's Stoxx 600 is little changed after rising for the past two sessions. US index futures are slightly softer. Strong gains were seen...

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US Jobs, Kuroda’s Last BOJ Meeting, and Powell’s Congressional Testimony Highlight the Week Ahead

2023-03-04

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2023-03-04

The dollar peaked last September/October and trended lower until the January jobs report and strong service ISM on February 3. These reports and firm inflation readings, owing, at least in part, to benchmark and methodological changes, helped spur the greenback's recovery. However, we learned last week that auto sales and the service ISM prices paid decelerated in February, and this week, we will learn that job growth has slowed considerably. If...

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Tumbling Tokyo Prices Gives Ueda Breathing Space

2023-03-03

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2023-03-03

Overview: Talk from two Fed officials yesterday, which seemed to validate market expectations eased the upward pressure on the dollar and helped equities launch a dramatic recovery. The market is pricing in a terminal rate near 5.50%, a little higher than the median dot in December. The S&P 500 posted a dramatic recover and posted a potential bullish key reversal. Its 0.75% closing gain was the largest advance in nearly three weeks. A large...

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Higher for Longer Helps the Dollar while Weighs on Equities

2023-03-02

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2023-03-02

Overview: The jump in prices paid in yesterday's US ISM manufacturing coupled with the stronger eurozone inflation, with a new cyclical high reported in the core rate, underscores the market theme of higher-for-longer. This is seen as dollar supportive but also negative for risk-assets, including and especially equities. European benchmark 10-year yields are up another couple of basis points today and the 10-year US Treasury yield is pushing above...

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March 2023

2023-03-01

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2023-03-01

Price pressures remain elevated, and labor markets are strong, giving most policymakers in the G10 the incentive to continue raising interest interests. There are two exceptions: Japan, the only country still with a negative policy rate (-0.10%), and Canada, where the central bank has indicated it would pause. While half-point hikes or larger were common in the second half of last year, the major central banks have slowed or will slow the pace to...

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