Vinod Bhat's Market Pulse - Mar 13, 2023
2-min read to stay updated on markets and become better investors
In good news for markets, Fed has stepped in to provide a back stop to bank deposits. This should stabilize the banking system and avoid a crisis in the US.
In a move that should improve confidence of depositors and prevent a potential run on bank deposits, the Fed has announced a liquidity facility where a bank can borrow against investments. SVB deposits will also be accessible in full.
The Fed usually hikes until something breaks. Is SVB that something or will something bigger be needed? Futures now indicate 90% probability of 25 bps Fed hike in Mar, with 50bps probability now going to almost zero and rate cuts expected in H2.
Inflation and retail sales data to be released this week will be closely watched. However, expectations for the peak Fed Funds rate have already fallen to the 5.25 – 5.5% range.
US 2-yr yield has fallen to 4.35% (from above 5% just a few days back) and 10-yr yield has fallen to 3.67% (from above 4%). Dollar Index has declined to 103.4 levels. Consequently, gold prices have risen to $1,874/oz.