Aurelia Butler

The current projection is for a 25 bps move, with some even expecting no hike at all.That is a quick reversal in expectations after a sharp fall in weekly jobless claims and hawkish commentary from Fed Chair Jerome Powell had prompted traders to see a near 70% chance of a 50 bps rate hike. Following are rate expectations from major Wall Street Banks:Bank Current expectation Expectation before SVB crisis March hike Terminal March Terminal rate (in bps) rate hike (in bps) Goldman No hike 5.25% – 5.5% 25 5.5% – 5.75% JPM 25 5% – 5.25% 25 5% – 5.25% Citi 50 5.5% – 5.75% 50 5.5% – 5.75% BofA 25 5.25% – 5.5% 25 5.25% – 5.5% Morgan 25 5.12% 25 5.125% Stanley Barclays (LON:BARC) 50 5.5% – 5.75% 25 5.25% – 5.5% More

Investing.com — Bailouts are back. Tech bros and crypto firms breathe a sigh of relief as the Feds step in to guarantee all of the deposits at Silicon Valley Bank and Signature Bank, as well as setting up a new liquidity program to stop contagion to the wider banking sector. That hasn’t stopped other west coast banks in particular from selling off in premarket, however. The dollar plunges as markets bet that the Federal Reserve will be too scared of causing a crash to raise interest rates in March. Bond yields fall as the flight to safety outweighs any fear of future inflation. Crypto soars accordingly. And Pfizer is set to buy Seagen for $43 billion. Here’s what you need to know in financial markets on Monday, 13th March.1. Feds bail out tech brosFederal authorities bailed out depositors in Silicon Valley Bank (NASDAQ:SIVB) and Signature Bank (NASDAQ:SBNY), aiming to head off a run on the country’s second-tier regional banks.The Federal Reserve, Federal Deposit Insurance Corporation and the Treasury said they will make sure the two banks honor all of their deposits, the vast majority of which are above the $250,000 federally-insured threshold.They also set up a new instrument, named the Bank Term Funding Plan (BTFP), which will allow banks to sell Treasury bonds and other high-quality liquid assets to the Fed at par if they need to raise liquidity. The program will be back-stopped by $25B of taxpayers’ money.The move means that the banks’ clients, many of them venture capitalists and crypto platforms, will not have to carry the can for what appears to have been startlingly elementary risk management failures at the two banks.2. Banking stocks still falling despite rate freeze betsThe signs of panic at incipient financial instability caused a sharp and abrupt reassessment of the outlook for interest rates.Goldman Sachs and others said they now expect the Fed to keep rates unchanged at its meeting in March, in contrast to the consensus for a 25 basis point hike before last week’s events. The dollar fell and risk assets were broadly supported, after having fallen out of bed with a bump on Friday.However, if the Fed and the Treasury thought they had drawn a line under the fiasco, they were much mistaken. Shares in First Republic Bank (NYSE:FRC), fell 60% in premarket trade, amid bets that it will be the next domino to fall, while PacWest Bancorp (NASDAQ:PACW) stock fell 40% and Western Alliance (NYSE:WAL) fell 45%.  Banks with high concentrations of flighty corporate deposits are seen as being most at risk from concerns about liquidity, while those with more staid retail deposit bases are seen as better insulated.3. Stocks set to open mixed; Pfizer seen close to sealing Seagen dealStocks more broadly were struggling to make headway in premarket trade, with many still unsettled by the federal rescue of institutions that were largely unknown outside their respective niches until last week.By 06:30 ET (10:30 GMT), Dow Jones futures were down 34 points, or 0.1%, while S&P 500 futures were up 0.2% and Nasdaq 100 futures were up a more solid 0.6%. All three main cash indices had lost between 1% and 1.8% on Friday. European markets were more rattled, with the main benchmark indices losing over 2% each in early trading.While the focus is likely to stay on the banking sector later (HSBC (LON:HSBA) was down 4.3% after snapping up SVB’s U.K. operations for a nominal £1), other stocks in the news include Pfizer (NYSE:PFE), which finally agreed to buy Seagen (NASDAQ:SGEN) for $43B, and Novartis (NYSE:NVS), which outperformed after announcing a big new buyback program. A rumored deal to sell Qualtrics (NASDAQ:XM) to Silver Lake for $12.5B couldn’t stop SAP (ETR:SAPG) from falling nearly 3%. Boeing (NYSE:BA) is bucking the trend on hopes for a large order from Saudi Arabia.4. Crypto breathes a sigh of reliefOne asset class with an unambiguously positive reaction to the weekend’s developments was crypto. Some of the biggest depositors at the two banks that were rescued were Coinbase (NASDAQ:COIN) and USD Coin issuer Circle, both of whom stood to lose a large part of their reserves in the absence of a bailout.USD Coin – a stablecoin designed to trade at $1 – had fallen as low as 88c at the weekend, after Circle’s $3.3B exposure to Silicon Valley Bank (never a secret) became widely known. It had recovered to 98.60 by early Monday in New York, still trading at a clear discount to its notional value. Coinbase stock, meanwhile, was up 3.3% in premarket.Elsewhere, Bitcoin rose 8.5% to $22,229, while Ethereum rose 8.6% to $1,585, supported by perceptions that the Fed will be forced to stop its rate hikes.  5. Oil down on fears for the economy; OPEC+ output held up in FebruaryCrude oil prices fell, with concerns about the longer-term implications of bank failures in the U.S. counting for more than the sharp drop in the dollar, which would generally support prices.By 06:45 ET, U.S. crude futures were down 1.3% at $75.64 a barrel, while Brent was down 1.2% at $81.76 a barrel.Argus Media estimated that the total output of the OPEC+ bloc had remained steady in February, despite pressure on Russia from tightened western sanctions. More

“We appreciate the timeliness with which the U.S. authorities intervened and trust that, if necessary, European authorities will intervene with the same timeliness, assessing the implications for the conduct of monetary policy and financial stability,” the economy ministry said in a statement.Bank shares in Europe and Asia plunged on Monday as the United States’ move to guarantee the deposits of the collapsed tech-focused lender SVB failed to reassure investors that other banks remain financially sound.A government official said there was no sign of negative effects spreading to the broader Italian financial system at present, and played down Monday’s fall in bank shares as something that was to be expected.Shares of the country’s largest lenders Intesa Sanpaolo (OTC:ISNPY), UniCredit and Banco BPM fell between 5% and 7% in morning trading on the Milan bourse. More

The Bank Term Funding Program (BTFP) will offer loans with maturities of up to a year to banks, savings associations, credit unions and other eligible depository institutions.Here are some key elements of the Fed’s program:STRESS RELIEFThe Fed has raised rates from near zero a year ago to between 4.50-4.75% now to combat inflation that hit a 40-year high last year.That has undercut bond prices, including those for older-vintage Treasuries held widely by banks, which proved a major factor in Silicon Valley Bank’s inability to raise funds and contributed to its demise. Officials worry others could soon follow.”The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress,” the Fed said in a statement on Sunday.NO HAIRCUTA key element of the program is acceptable loan collateral – including U.S. Treasuries and mortgage-backed securities among others – will be valued at “par,” meaning open-market bond values that have been impaired by a year of Fed rate hikes will not reduce what a bank may borrow from the central bank.The same collateral terms will also be available for loans drawn from the Fed’s “discount window,” its traditional lender-of-last-resort facility. Ordinarily, loan amounts were governed by the market value of the pledged collateral.”This will allow banks to fund potential deposit outflows Without crystalizing losses on depreciated securities,” Goldman Sachs (NYSE:GS) wrote Sunday after the Fed announcement.LOANS FOR A YEARLoans of up to a year in length will be available under the new facility. Borrowers may prepay the loans without penalty. Advances can be made until March 11, 2024.FIXED BORROWING COSTInterest rates will be the one-year overnight index swap (OIS) rate plus 10 basis points and will be fixed for the term of the advance on the day the advance is made.That OIS rate was quoted at about 4.9% late Sunday following the Fed’s announcement, according to Refinitiv data, down from as high as 5.6% last week before Silicon Valley’s difficulties emerged and started driving rates lower.TREASURY BACKSTOPThe loan commitments made by the Fed’s 12 regional banks will be backstopped with $25 billion from the U.S. Treasury’s Exchange Stabilization Fund. The Fed said it does not expect to have to tap those funds because the loans under the program are full recourse, meaning the central bank can seize all of the pledged collateral in the event of a failure to repay.In fact, the Fed loans are made with “recourse beyond the pledged collateral,” which takes into account the fact that the collateral may be impaired.That suggests “that the par valuation of the collateral would only become relevant if the borrowing institution lacks sufficient assets to repay the loan,” Goldman wrote.CONTAGION CONTAINMENT “One of the biggest revelations about the failure of Silicon Valley Bank to raise capital last week was the impact of the cumulative increase in interest rates over the last year on their securities portfolios,” Jefferies economists wrote after the details were released.”Because the pledged collateral is going to be valued at par, this new facility will ensure that other banks with similarly impaired hold-to-maturity portfolios will be able to easily leverage them to access liquidity, rather than have to realize significant losses and flood the markets with paper.””Monday will surely be a stressful day for many in the regional banking sector, but today’s action dramatically reduces the risk of further contagion,” they said. More

WASHINGTON (Reuters) – U.S. Federal Reserve officials meet next week again chasing persistent inflation but now balancing that against the first acute tremors from the aggressive interest rate hikes the central bank approved over the past year.The sudden failure of Silicon Valley Bank last week isn’t expected to prevent the Fed from continuing to raise interest rates at its March 21-22 meeting, with inflation still running far above the Fed’s 2% target and Fed chair Jerome Powell indicating monetary policy might need to become even more aggressive.But it could add a dose of caution to the policy debate and undermine the sense, common among officials so far, that Fed policy had not caused anything to “break” in an economy where spending and job growth have seemed immune to the impact of higher interest rates.SVB’s failure, which the Fed came to a view as a potentially systemic shock if bank depositors faced losses, prompted the Fed to announce a new bank lending facility on Sunday in an effort to maintain confidence in the system – effectively putting the Fed back in the business of emergency lending even as it tries to tighten credit overall with higher interest rates.Given the stakes that bit of dissonance seemed unavoidable, and may be accompanied by a slightly softer approach to monetary policy if risks are seen to be intensifying.”The threat of a systemic disruption in the banking system is small, but the risk of stoking financial instability may well encourage the Fed to opt for a smaller rate increase at the upcoming meeting,” Oxford Economics economist Bob Schwartz wrote on Friday after SVB was closed by regulators and as officials began examining how to respond to the largest bank failure since the 2007 to 2009 financial crisis.The upcoming Fed session was already providing a reality check of sorts, as policymakers tried to understand why the rapid rate hikes of the last year have not had more impact on the pace of price increases.The inflation rate in January actually rose, while an Atlanta Fed real-time projection as of March 8 showed gross domestic product expanding at a 2.6% annual rate, well above the economy’s roughly 2% underlying potential.Officials were poised to push the expected path of interest rates higher yet again as a result, the third time in their two-year battle against inflation that U.S. policymakers will have shifted on the fly after price increases proved to be faster, broader and more persistent than seen in their forecasts.A February jobs report released Friday showed the unemployment rate rising to 3.6%. More importantly for the Fed, monthly wage growth slowed even as the economy continued to add jobs, an outcome that leaves open whether the Fed will approve a quarter or a half point rate increase at its next meeting. By late Sunday after the day’s emergency actions, the probability of a half-point hike had diminished to below one-in-five. GRAPHIC: Fed view of 2023 policy rate (https://www.reuters.com/graphics/USA-FED/INFLATION/zdvxdxmywvx/chart.png) HIGHER END POINT?New inflation data to be released Tuesday and retail sales data on Wednesday both have the potential to push policymakers in either direction at the two-day meeting, which concludes March 22 with a new Federal Open Market Committee statement and projections issued at 2 p.m. EDT (1800 GMT), and a press conference by Powell at 2:30 p.m.While investors at this point see lower odds of a return to larger rate hikes, there is still the question of just how much higher the Fed will go overall. Powell in his remarks to Congress last week signaled the new “dot plot” of projections for the rate path beyond March would likely be higher than previously expected in order to slow inflation to the central bank’s 2% target from levels more than double that. As of December the high point for the target federal funds rate was expected by most officials to be 5.1%. In their final public comments before the beginning of a pre-meeting blackout period, Fed officials other than Powell also said they were primed for a more aggressive response if upcoming data show them losing more ground on inflation.”The ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in congressional testimony that reset expectations for where the Fed was heading, and pushing yields on U.S. Treasury bonds higher and prompting a sell-off in equity markets. At a Feb. 1 press conference, in contrast, his focus was on a “disinflationary process” he saw taking root.Developments since then have raised some doubt in investors minds if Fed officials will follow through with that, however, and much of the immediate heat on bond yields and rate expectations eased after Friday’s employment data, with the weekend’s developments in the banking sector to address the Silicon Valley Bank collapse also factoring into the reversal. STILL NIMBLE? Government reports released after Powell’s last press conference showed the central bank’s preferred measure of inflation had risen slightly to a 5.4% annual rate. Revisions to prior months also erased some of the progress policymakers had relied on when they decided to step down to quarter point rate hikes at their last session. A New York Fed study last week suggested moreover that current inflation was being driven more by persistent factors and less by cyclical or sectoral influences that might be quicker to dissipate.It is not the first time the Fed has been caught out by after-the-fact data updates. In the fall of 2021 the first release of monthly jobs reports seemed to show the job market weakening, taking some of the urgency out of discussions about when to start tightening monetary policy. By the end of the year revisions showed hundreds of thousands more jobs had been added than originally estimated.”If you are trying to be nimble, this is the risk. And Powell is trying to be nimble,” said former Fed economist John Roberts. More

E-bikes, frozen berries and security cameras have been added to the list of goods and services tracked to calculate inflation in the UK, in changes that reflect the popularity of new technology and rising concern about the environment.In its annual update to the basket of goods and services used to track inflation, the Office for National Statistics added 26 new items and removed 16 from the more than 700 that it selects as representative of what consumers typically spend their money on.During the past three years items related to the pandemic, such as hand sanitisers, were added to the basket but this year the impact of Covid-19 “has faded”, according to the ONS. Non-film DVDs dropped out of the collection, reflecting the rise in streaming services. Also out were non-chart CDs and digital cameras. Mike Hardie, ONS deputy director of prices transformation, said that the removal reflected “how most of us listen to music and take pictures straight from our phones these days”. Instead, video doorbells and security cameras were added to the basket, together with soundbars and computer game accessories.Hardie added that with many people looking to reduce their impact on the environment, e-bikes were also added, reflecting their rise in popularity over the recent years.The changes also showed transformations in food preferences. Frozen berries were introduced for the first time, partly a reflection of the popularity of home-made smoothies. Dairy-free spreads were also added, expanding the range of “free from” products, capturing the growing number of people switching to a vegan diet. Cooking apples were taken out of the basket, however, as few shops are now stocking them. Alcopops, low alcohol and typically brightly coloured drinks, have also fizzled out, together with packets of 20 super king-size cigarettes.

Myron Jobson, senior personal finance analyst at online platform Interactive Investor, said that the latest inflation basket reflects a market “that is both increasingly technologically savvy and health conscious”.The ONS is also introducing a new data source for rail fares, switching away from the index of regulator the Office for Rail and Road. Instead it will use 30mn price points provided by rail industry body the Rail Delivery Group. According to the statistical agency, this will provide “much more granularity and a better understanding of how rail prices are changing”.The change is part of a wider transformation in the calculation of prices by the ONS. In the coming years it will rely less on collecting the prices of physical goods and instead use information and price intelligence from sources including supermarket scanners and retailer websites. More