Welcome to this week's market update. In this blog post, we'll cover some of the most important events and trends to watch in the upcoming days. From the Federal Reserve's decision to the latest fallout in the financial regulatory commission, we'll also look at the economic calendar and the recent rise of Bitcoin. So, without further ado, let's dive in and see what's in store for the week ahead.
Brief summary of what happened last week:
In a turbulent Friday for the U.S. stock market, concerns about the banking sector's stability resurfaced, driven by the bankruptcy filing of SVB Financial Group and data showing banks borrowed $165 billion from the Federal Reserve in the past week.
For the week, the Dow fell 0.1%, the S&P 500 gained 1.4%, and the Nasdaq climbed 4.4%. However, the Dow booked back-to-back weekly losses, while the Nasdaq saw its biggest weekly percentage gain since January.
Investors are trying to gauge how quickly the economy may be slowing and whether the problems in the banking sector will lead to an "accelerated slowing," according to Paul Christopher, head of the global investment strategy at Wells Fargo Investment Institute. He said, "The markets are up and down all this week, and they're moving typically in big amounts because there really isn't any consensus on how the strains in the banking system will play into the economy."
Meanwhile, the Conference Board said on Friday that the U.S. leading economic index fell 0.3% in February, marking the 11th straight monthly decline. U.S. industrial production was flat in February, data released by the Fed showed. The University of Michigan's latest reading on consumer sentiment showed consumers were more downbeat in March than at any time in the last four months.
Amid the stock market's turbulence, some companies' shares stood out. FedEx Corp.'s stock jumped 8% after beating analyst estimates in its fiscal third-quarter earnings and lifting its profit forecast for the full fiscal year. Meanwhile, regional banks such as PacWest Bancorp and Western Alliance Bancorp faced pressure, with PacWest falling almost 19% and Western Alliance dropping 15.1%. In other mega-cap tech names, Microsoft Corp.'s shares rose 1.2%, Alphabet Inc.'s Class A shares gained 1.3%, and semiconductor giant Nvidia Corp. advanced 0.7%.
And now, let's dive into the latest news and updates about the commodities markets.
Today's markets saw oil prices fall to their lowest point in 15 months, signaling concerns about the global banking sector's risks and the potential for a recession that could lead to a decline in fuel demand. Brent crude futures for May settlement dropped by 3.2%, to $70.65 a barrel, after reaching its lowest point since December 2021. Last week, Brent fell almost 12%, marking its most significant weekly drop since December. Similarly, U.S. West Texas Intermediate crude for April delivery was down by 3.2%, at $64.59 a barrel, and fell to its lowest point since December 2021.
Turning to gold prices, we saw the yellow metal trade just below its strongest levels in 11 months as markets gauged the impact of emergency liquidity measures from the Federal Reserve and other major central banks amid increasing fears of a banking crisis.
Fears of a U.S. banking crisis spurred heavy flows into gold, especially after the collapse of Silicon Valley Bank, causing investors to begin pricing in a less hawkish Federal Reserve in the coming months as the bank races to stem further pressure on the economy from rising interest rates. These increased liquidity measures by the Fed also undermine a year of monetary tightening done by the bank to curb inflation and are likely to support gold demand.
As we move forward into the coming week, it's time to turn our attention to the most significant events on the horizon.
The headliner event is undoubtedly the Federal Reserve's policy-making committee meeting, which spans two days.
Investors are on a razor's edge over the potential for an unexpectedly hawkish tilt. Futures trading indicates a 74.5% probability of a 25 basis point rate hike by the Fed and a 25.5% chance of no hike at all. It's worth noting that the odds for a 50-point hike are now effectively off the table after being a betting favorite just a few weeks ago.
Given recent events, the opinion is divided on the tactics the central bank should take. Bank of America believes the Fed will raise the target range by 25 points to 4.75% to 5%, with short-term loans offered through the Bank Term Funding Program seen as an effective backstop to more banking fallout. However, Moody's analyst Mark Zandi is firm that the Fed should not tighten policy due to higher recession risks. "If they raise rates, that qualifies as a mistake, and I would call it an egregious mistake," he warned.
Turning to economic reports, we have a slew of them pouring in this week. The existing home sales update is due on March 20, the new home sales numbers on March 23, and the durable goods orders report on March 24. The corporate calendar is also packed with events. One of the biggest is Nvidia's GTC Conference, where the chipmaker's latest advancements in generative AI, the metaverse, large language models, robotics, cloud computing, and more will be discussed. Nike will also report earnings, and investors are looking to get a beat on how demand and inventory trends are holding up for the Dow 30 stock.
In addition to these events, Hyzon Motors and Workhorse Group are near the top of the stocks with the highest percentage of outstanding short interest. Credit Suisse's survival odds are being bet on by investors, with options trading spiking over the past week. Finally, we have some IPOs to look out for, including Chinese park operator Golden Heaven Group, Singapore-based real estate brokerage firm Ohmyhome Ltd, and contract logistics services Shengfeng Development.
Let's shift our attention to three highly discussed stocks currently at the forefront of everyone's minds and frequently searched for on StockInvest.us. You can find a detailed analysis of these stocks by simply entering the ticker name in the search bar on StockInvest.us.
- On Friday, shares of FIRST REPUBLIC BANK experienced a sharp decline of 32.80% from $34.27 to $23.03. The troubled bank's credit rating was cut deeper into junk territory over the weekend, with S&P Global Rating stating that the recent $30 billion rescue package doesn't solve the bank's substantial liquidity and funding challenges.
- In a bullish trend that extended into Monday morning trading in Asia, Bitcoin briefly breached US$28,000 over the weekend and helped increase most of the top 10 non-stablecoin cryptocurrencies. This surge in Bitcoin comes amid growing concern about the state of the global banking industry, with several central banks over the weekend coordinating an effort to inject cash into markets to ensure liquidity.
- On Friday, NVIDIA's stock price increased by 0.72%, reaching $257.25. This marks the fifth consecutive day of gains for the stock. Investment bank Morgan Stanley turned positive on the graphics-chip maker on Friday, with analyst Joseph Moore upgrading Nvidia stock to overweight or buy from equal weight or neutral. He also raised his price target to $304 from $255, citing the company's continued growth in AI spending.
Impact of Bank's Issues on Markets:
And to wrap things up, let's dive into our final topic.
On Monday, bank shares worldwide fell sharply following news of UBS Group's state-backed takeover of Credit Suisse. The deal, which Swiss regulators engineered, saw UBS pay $3.23 billion for Credit Suisse and assume up to $5.4 billion in losses. However, investors are concerned about the long-term benefits of the deal and the outlook for banks in Switzerland. UBS shares fell as much as 16% in early trade, while Credit Suisse shares slumped 62%.
The massive blow to some Credit Suisse bondholders under the UBS acquisition has added to anxiety about other key risks, including contagion and the fragile state of U.S. regional banks. European bank shares slumped, with an index of leading lenders down 5.8%. German banking giants Deutsche Bank and Commerzbank dropped 10.9% and 8.5%, respectively, while France's BNP Paribas fell 8.2%.
These sharp moves followed a day of heavy selling in Asian financial markets, as early investor optimism about official efforts to stem a banking crisis quickly evaporated. Some bondholders of Credit Suisse's additional tier-1 bonds, or AT1 bonds, were angered by the deal, as the Swiss regulator decided to value them at zero.
The fresh tumble in bank shares comes as investors shrugged off promises by top central banks to provide dollar liquidity to stabilize the financial system. The U.S. Federal Reserve said it had joined central banks in Canada, England, Japan, the E.U., and Switzerland in a coordinated action to enhance market liquidity. The European Central Bank vowed to support eurozone banks with loans if needed, adding the rescue of Credit Suisse was "instrumental" in restoring calm.
However, problems remain in the U.S. banking sector, where shares are still under pressure despite a move by several large banks to deposit $30 billion into First Republic Bank, another institution rocked by the failures of Silicon Valley and Signature Bank. On Sunday, First Republic saw its credit ratings downgraded deeper into junk status by S&P Global, which said the deposit infusion might not solve its liquidity problems. Its shares fell 22% in premarket dealing on Monday.
A massive government guarantee should help prevent what would have been one of the largest banking collapses since the fall of Lehman Brothers in 2008. The deal will also make UBS Switzerland's only global bank and the Swiss economy more dependent on a single lender.
Some experts have said that the Credit Suisse debacle will have serious ramifications for other Swiss financial institutions. "A country-wide reputation with prudent financial management, sound regulatory oversight, and, frankly, for being somewhat dour and boring regarding investments, has been wiped away," said Octavio Marenzi, CEO of Opimas, in Vienna.
Credit Suisse staff arriving to work in Hong Kong and Singapore on Monday morning were fretting about retrenchments and retaining business. UBS CEO Ralph Hamers said there were still many details to be worked through. "I know that there must be still questions that we have not been able to answer," he said. "And I understand that, and I even want to apologize for it.
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