• Let’s begin with some market reactions to the SVB collapse.
  • The 2-year Treasury yield saw its biggest one-day decline in decades (dipping below 4%), as the market repriced Fed rate hike expectations (3 charts).

 

 

 

 

  • The market removed over 50 bps worth of rate hikes, …

 

 

  • …and added substantial rate cuts later this year.

 

 

  • Consumer inflation expectations continue to ease.

 

 

  • US consumer inflation remains persistently elevated, with housing-related CPI still running hot.
  • Headline CPI (month-over-month):

 

 

  • Markets still expect a rate hike this month, but a 50 bps increase is now off the table.

 

 

  • Credit Suisse is making news this week with a bailout. European banks are generally in good shape.

 

 

  • With Credit Suisse in trouble, attention turned to large banks in the US.

 

 

  • However, one regional US bank spooking investors is First Republic Bank.

 

 

  • Banks have borrowed $165 billion from the Fed over the past week:
    • $152.85 billion via the discount window and …

 

 

  • $11.9 billion via the Fed’s new emergency facility (Bank Term Funding Program). And there is more to come …

 

 

  • The Fed’s balance sheet surged, reversing four months of quantitative tightening in a week.

 

 

  • This chart shows the changes in the Fed’s reserve balances.

 

 

  • The number of multifamily housing units currently under construction hit another record high.

 

 

  • This chart shows single-family construction by stage.

 

Source: Mizuho Securities USA

 

Market Data

 

  • Bonds held to maturity:

 

 

  • Mark-to-market losses:

 

Source: @JosephPolitano   Read full article

 

  • Deposit outflows:

 

 

  • How would the capital ratios be impacted if banks had to crystallize unrealized losses on bonds?

 

 

  • Overall, US banks are well positioned for a recession.

 

 

  • Banks have strong capital positions and liquid balance sheets. At this time, MRB does not see the need for banks to sell their holdings of securities for funding purposes.

 

 

  • Banks hold a lot of agency MBS.

 

 

  • US bank failures over time:

 

 

  • Corruption around the world:

 

 

  • The Fear & Greed index is in “extreme fear” territory, which tightens financial conditions.

 

 

  • Stifel expects a secular bear market in stocks versus commodities, which typically occurs after major market tops.

 

 

  • How is the S&P 500 tracking other bear markets?

 

 

Quote of the Week

 

Police in Los Angeles had good luck with a robbery suspect who just couldn’t control himself during a lineup. When detectives asked each man in the lineup to repeat the words: ‘Give me all your money or I’ll shoot’, the man shouted, ‘that’s not what I said!’

 

Picture of the Week

 

 

 

All content is the opinion of Brian Decker