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GBP

22 Mar 2023

Fed nearing the end

• Another Fed hike. Inflation trumps banking concerns with the Fed delivering another 25bp rate hike. Though its forward guidance was watered down.• Mixed reaction. Volatility around the announcements, but in the end US equities and bond yields fell with the more challenging outlook hitting home.• AUD underperforms. AUD/USD was on net little changed, but the AUD underperformed on the crosses as global growth risks intensify. The US Fed announcement and Chair Powell’s press conference was the focus overnight, and as is usually the case there was some intra-day volatility across different markets as participants digested the range of comments...

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20 Mar 2023

Official Policy Actions Ease Market Tensions

Risk aversion appears to be ebbing in financial markets after Swiss regulators forced UBS and Credit Suisse together, and major central banks agreed to increase swap line availability. The dollar is softer, Treasury yields are down, and North American equity futures are stabilizing. We remain convinced that the US and European banking sectors are well capitalized and flush with liquidity, meaning that official policy actions should prove successful in preventing a broad-based meltdown in global financial markets.  But signs of potential contagion remain obvious: implied volatility levels are elevated, regional bank indices are sitting on losses, and commodities are lower....

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17 Mar 2023

The Morning After the Night Before

After a brutal week, markets are in hangover mode, laying on the sofa, drinking as much liquidity as they can, and remaining ready to puke at any time. Risk appetites are reviving and major equity indices are poised to extend gains after Credit Suisse said it would stabilize its balance sheet with 50 billion francs borrowed from the Swiss National Bank, and a group of big US banks agreed to inject $30 billion into First Republic Bank. Treasury yields are seeing bifurcated moves, with the two year rising as the ten-year falls, and the dollar is weakening. Oil and other commodities...

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10 Mar 2023

Contagion

A broad selloff in the US banking sector has wiped out billions of dollars in market value and is lowering expectations for rate hikes from the Federal Reserve. The rout began when a rate-related decline in the value of bond holdings, paired with a related drop in technology-sector deposits, forced SVB Financial Group—parent of Silicon Valley Bank—to raise capital through a share sale and sell roughly $21 billion in securities at a loss. Its shares are down more than 79 percent from yesterday’s open, and the financial sector is receiving a pummelling across the board. Market-implied expectations for the Fed...

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07 Mar 2023

Hawks in the Fed nest

• Hawkish Fed. Chair Powell pointed to rates rising even higher than previously thought, with the door to larger hikes still open.• Market repricing. US rate expectations have risen, supporting the USD. While the outlook for the RBA has been pared back following tweaks to its guidance.• AUD slump. The diverging RBA and Fed outlooks has weighed on the AUD. The shift in thinking can keep the AUD under pressure near-term. Market attention was on US Fed Chair Powell’s Congressional Testimony overnight, and he didn’t disappoint. In line with our thinking, which we have highlighted over the past few days,...

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