Daily Market Outlook, March 14, 2023

Banking Contagion Contained For Now

Asian markets remain rattled by the ongoing concerns stateside regarding the potential for contagion risk amongst regional US banks, investors fled the sector enmasse in a shoot first ask questions later type trade, US regulators FDIC have confirmed that all bank deposits will be secured via the Bank Term Funding Program. While Wall Street closed near the flatline with the Nasdaq the standout performer notching up a 0.79% gain on the day, Asian investors hammered the Nikkei banking stocks overnight with the banking index slumping more than 7% posting its largest losses in the past six months.

Investor focus now shifts to US inflation data due later today, however, many market watcher now believe that this data will take on less significance given the Feds focus on fire fighting in the banking sector as they seek to reassure markets that the current crisis will not cause systemic risk, that said, FOMC CHair Powell remarked overnight that a full and transparent investigation into the cause of the crisis must be undertaken, suggesting this risk wasn't on their radar. Inflation data is expected to confirm a steady rise in consumer prices, as US home rental prices remain stubbornly elevated, coupled with an uptick in goods prices predominantly driven by the ongoing rise in used car prices, net net, markets expect core `CPI ex food and energy to print a 0.4% handle for the third consecutive month, this would mean the core CPI will have gained an annualised 5.5% in February versus a 5.6% level in January, representing the lowest levels seen in the last 12 months. The conundrum for the Fed is clear which do they feel is the biggest threat to economic stability, has the banking crisis been addressed if so the committee should remain on their set course and continue to raise rates, or is the market turmoil sufficient for the long awaited Fed pause to materialise, the argument is that the Fed usually embarks on a rate cycle until ‘something break’ SBV & Signature being the prime candidates for confirming a break, hence, most major investment banks now believe that the Fed will be forced to pause at the March meeting delivering one of the biggest turnarounds in recent financial history given just a week ago markets were heavily pricing a 50bps rise and 6%+ terminal rate, it appears that a week is along time in economics and not just politics!