Market Update – Markets brace ahead of Inflation!

The fallout from the failure of SVB and Signature Bank has been far and wide, rattling global markets. Much of the focus now is on upcoming central bank actions and whether policymakers will be hesitant to add to market volatility with additional rate hikes.

Wall Street was all over the board and finished mixed. Equities opened on the backfoot after steep declines overnight and amid losses of -2% in European bourses. Stocks slumped in Asia. Major US regional bank stocks suffered their largest decline in three years, FRC -61.83%, Credit Suisse fell by 15% (withdrew $120 billion in the three months to Dec. 31).

With the creation of the new “BTFP” to backstop the financial system, Treasuries garnered a very strong flight to safety bid, and especially at the front end of the curve. The markets also repriced Fed rate hike expectations, taking out the prospects for further aggressive action, and pricing in rate cuts later in the year. US Dollar was generally weaker through the session.

Investors  bet against the 2-year Treasury en masse, expecting its yield to continue climbing. That was the worst three-day rout since the days after Black Monday in 1987 eventhough it was not maintained.

USDIndex fell to 103.48 with losses against its G10 peers. Today slightly higher.
Yields – The 2-year had its biggest slide since 2008, to a low of 3.935%. It closed at 3.984%, the lowest since mid-September and is 113 bps richer just from Wednesday’s 5.07% peak, which was the highest since 2007. The 10-year closed at 3.568%.
VIX climbed to 28.35 before retracing to 24.47.
Euro settled slightly below 1.07, Sterling held gains at 1.2160 (no impact from tight labor data). Yen picked up a strong haven bid to 133.00.
Stocks – US100 posted a +0.45% gain, US500 -0.15% lower, US30 closed in red -0.28%.

USOil – held losses ahead of key inflation data as the biggest US bank collapse since 2008 continued to ripple through financial markets. It is at $74 rising 0.65%.
Gold – surges lower after 5% rally to $1914. Currently at $1909.
Cryptocurrencies – BTC surges by 12% spiking to $24,815. 

Ether also climbed 6% to $1,693.

Today: US CPI report could give the FOMC the chance to remain sidelined, or at least decide on a 25 bp hike versus the 50 bps that was firmly priced in last Wednesday.

Biggest FX Mover @ (07:30 GMT) VIX (+6.94%). Spiked to 28.55 before settling below PP at 24.47.

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Andria Pichidi

Market Analyst

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