Navigating the Aftermath of SVB Bank Collapse: Get Ready For Surprise CPI (Wall Street Cheat Sheet)

This past week, the stock market was like a sinking ship as investors struggled to digest the massive amount of news from Fed Chair Powell’s testimony before Congress, the February employment report, and then the shocking announcement of SVB Financial’s Silicon Valley Bank being shut down.

The S&P 500 saw rough waters, slicing through its 50-day and 200-day moving averages and turning the markets bearish.

The Chair’s remarks to the Senate Banking Committee and House Financial Services Committee caused turbulence among investors, who began to question whether a 50 basis points rate hike at the March FOMC meeting was still on the horizon.

Powell stated that while inflation has been cooling off lately, bringing it back down to 2% would be a bumpy road ahead and hinted at the likelihood of higher interest rates than previously anticipated.

The Fed funds futures market went into a tailspin, with a sudden 78.6% probability of a 50 basis points rate hike for the March meeting, down from 31.9% before Powell’s testimony.

However, the news of SVB Financial’s high cash burn sent a chill down market participants’ spines, and the bank’s closure prompted a stampede toward the safe haven of the Treasury market.

The fallout surrounding SVB Financial caused the fed funds futures market to perform a dramatic U-turn, with the Fed now looking likely to raise rates by a more modest 25 basis points at the March FOMC meeting. The CME FedWatch Tool indicates only a 39.5% probability of a 50 basis points rate increase.

Despite a relatively acceptable February employment report, with robust nonfarm payrolls and lower-than-expected average hourly earnings growth, the S&P 500 struggled to stay afloat, sinking to its lowest levels of the week by Friday.

The financial sector was the most brutal hit, followed by materials, real estate, consumer discretionary, energy, and industrial sectors. However, the consumer staples sector remained above water, down only 1.9%.

Last Week’s Economic Reports

JOLTS Report

  • 10.8 million job openings reported as of the last day of January, 410,000 lower than December’s upwardly revised reading
  • Industries contributing to the decrease in job openings include construction, accommodation and food services, and finance and insurance.
  • The number of people who voluntarily left their jobs dropped to 3.9 million, the most significant drop since May 2022
  • The hiring rate increased by 0.1% to 4.1% in January.
  • 1.9 available jobs for each unemployed person in January

Jobs Report

  • 311,000 jobs were added in February as the unemployment rate rose to 3.6%
  • The number of unemployed workers dropped slightly to 5.1 million.
  • Job gains were broad-based, with the most significant increases in leisure and hospitality, retail trade, government, professional and business services, and healthcare.
  • The labor force participation rate increased slightly to 62.5%
  • Average hourly earnings increased by 0.2% in February, up 4.6% from a year ago.

CALENDAR & MOVERS

  • Tuesday: CPI (MoM) (February)
  • Thursday: Building Permits (February)
  • Earnings
  • Bank Collapse Fallout

The clock is ticking for the United States as it prepares to spring forward into daylight saving time this weekend, leaving Europe behind for another fortnight. As the hours change, so too does the focus of the week.

All eyes are on Tuesday’s release of the February inflation figures in the US, alongside a flurry of other statistics, including producer prices, retail sales, and the Empire State index. I think the number will come in lower based on the Truflation report.

On Thursday, Europe takes center stage with the ECB’s highly anticipated monetary policy decision, which is expected to include a hike in the refinancing rate from 3 to 3.50%. But don’t worry, the US isn’t done yet –

Friday brings yet another round of data with the release of February’s industrial production and the University of Michigan’s March consumer confidence index. It’s a week packed with exciting developments and potential market-moving events, so buckle up and get ready for the ride.

Earnings

Monday: (GTLB)
Tuesday: (LEN), (SMAR), and (GES)
Wednesday: (ADBE) and (FIVE)
Thursday: (FDX), (DG), and (SIG)
Friday: (XPEV)

Dividend Spotlight

Get ready for some good news from the dividend front! Here are some companies that are expected to increase their quarterly dividend payouts soon: Signet Jewelers (SIG) plans to up theirs from $0.20 to $0.22, First Bancorp (NASDAQ: FBNC) from $0.22 to $0.24, Dollar General (DG) from $0.55 to $0.60, TE Connectivity (TEL) from $0.56 to $0.60, and Qualcomm (QCOM) from $0.75 to $0.80.

BONDS

Last week, the bond market saw some significant movements. The bond-market recession gauge plunged further into triple digits below zero after reaching a four-decade milestone. The six-month T-bill rate also rose to a nearly 16-year high after the release of the Fed minutes.

Despite the strong job market and economy, Permanent Portfolios Cuggino says we may see 6% or 7% interest rates by the middle. Bond experts weigh in on what’s happening with the bond market, noting that volatility seems to have returned after a strong start to the year. The market is also saying no, with lines indicating a come-to-Jesus meeting that could yield a nice downdraft.

The collapse of SVB Financial’s Silicon Valley Bank triggered panic among key investors, causing the bank’s stock to plummet over 80% and wiping out $55 billion from Wall Street’s top four banks in a day. The news contributed to added flight to safety interest in the Treasury market. Further, it prompted market participants to rein in their risk exposure amid concerns about a possible contagion effect.

The bond market’s movements have also affected other financial markets. The four biggest U.S. banks lost $47 billion of market value in Thursday trading, part of a broad rout across financial stocks.

COMMODITIES

OIL & ENERGY

The oil industry faces multiple challenges, starting with China’s mixed economic data that showed a 1% YoY contraction in crude oil imports for February. Federal Reserve Chairman Jerome Powell’s remarks on more rate hikes to curb inflation further affected oil prices and other risky assets. However, U.S. weekly inventories declined by 1.7 million barrels against market expectations of a 1.3 million barrel increase. Brent and WTI prices fell to $81 and $75 per barrel, respectively. In Europe, natural gas prices remained steady at around 46 EUR/MWh.

PRECIOUS METALS & GOLD

Base metal prices also witnessed a downward trend this week, with no major announcements at the annual meeting of the Chinese parliament that could boost demand for industrial metals. Traders expected new stimulus packages, but Beijing’s reports of a 10% YoY contraction in copper imports for the year’s first two months led to a decline in financial sentiment. LME copper is trading at $8820 per ton, while nickel and aluminum prices are at $23225 and $2290, respectively. Gold prices stabilized at $1835, and China increased its gold holdings by purchasing 25 tons last month.

CRYPTOCURRENCY

Bitcoin prices fell by 11% this week, nearing the $20,000 mark. The recent collapse of the crypto-friendly Silvergate bank and increasing regulatory crackdowns on ecosystem players in the U.S. contributed to the weak market sentiment. The macroeconomic environment’s inability to provide positive catalysts to revive risky assets also added to the decline. Bitcoin enthusiasts must be patient before the crypto market sees any significant upswing.

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