Weekly Market Commentary – 3/24/2023
-Darren Leavitt, CFA
Global markets sighed in relief with the announcement that the Swiss National Bank had brokered a deal, combining Credit Suisse with UBS. Investors had been worried that troubles within Credit Suisse could have spiraled into a systemic problem for the global banking system. Global central banks infused more liquidity into the system to avoid further deterioration in bank confidence. At the same time, the US Treasury mulled the idea of insuring all deposits in the banking system. These combined efforts gave banks a steady footing at the beginning of the week.
Midweek, Fed Chairman J Powell announced the decision to hike the Fed Funds rate by another 25 basis points to 4.75%-5%. The post-announcement comments made by the Chair and the Summary of Economic Projections indicate that the Fed is close to the end of its interest rate hiking cycle with a terminal rate of 5.10% but also signaled that the Fed has no plans to cut rates until next year. The market had been pricing in 3 rate cuts from June through December 2023. Realizing that higher rates could be in place for longer hit equity markets and favored safe-haven assets. US Treasuries rallied across the curve, with more prominent buying on the short end.
Additional banking worries showed up later in the week when Deutsche Bank shares sold off on the fact that its Credit Default Swaps had traded to a 4-year high. Credit Default Swaps are used to insure a company’s debt obligations. The US market stabilized and traded higher on Friday as the European markets closed. The action in DB’s CDS market is troubling and reintroduced fears of something breaking within the banking system.
The S&P 500 gained 1.4%, the Dow added 1.2%, the NASDAQ increased by 1.7%, and the Russell 2000 closed higher by 0.5%. The US 2-year yield declined, falling five basis points to 3.77%. The 10-year yield fell by three basis points to 3.38%. Oil prices took a step back, with WTI prices falling 3.4% or $2.36 to $66.87 a barrel. Gold prices increased by $7.6 to $1983 an Oz. Copper prices jumped $0.16 to $4.06 an Lb.
The economic calendar included data that suggest the labor market continues to be strong. Initial Claims came in at 198k versus the consensus estimate of 204k. The 4-week moving average continues to be less than 200k. Continuing Claims increased by 14k to 1694m. Preliminary Manufacturing PMIs generally continued to be in contraction but showed an uptick. Services PMIs generally showed expansion with increasing results. New Home Sales came in lighter than expected at 640k; the street was looking for an increase of 685k.
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