Daily Market Outlook, March 13, 2023

Banking Blowups & Bailouts

Asian markets have posted modest gains overnight as news out of the UK that SBV UK will be acquired by HSBC for £1, shoring up the beleaguered subsidiary of SBV US, who have now been officially backstopped by the FDIC, this comes in the light of another US lender Signature Bank also requiring government support, official announcements have confirmed that depositors in both institutions will be made whole at the open Monday, the weekend bailouts have seen US equity futures soar recovering over 1.5% on the overnight session erasing much of Friday’s losses. Goldman Sachs now believe that the FED’s hands are tied by the banking system stress as such they do not see the FOMC raising rates at the March 22nd meeting this has led to an uptick in bonds overnight weighing on yields with the 2yr US yields dropping back below 4.5%. The move by US regulators is seen as an urgent and significant defence of the banking system alleviating some of concerns last seen during the GFC, the weeknd moves by bankers and regulators do however bring back memories of the frantic weekend responses required during that period to provide market liquidity and security.

With a distinct lack of tier one data on the docket for both the European and US sessions, investor focus will shift to tomorrow's US CPI data, however, this release may have lost some of its significance given the banking system stress witnessed over the weekend, as the FED’s focus on fighting inflation has shifted to firefighting systemic stress. US core inflation is expected to print a circa 4% gain month on month, broadly in line with the January levels, the annual read is expected to show a modest retreat to 5.5% down from 5.6%. For the remainder of the week in the European sessions we will see Eurozone inflation releases coupled with industrial production data, in the UK employment prints are due tomorrow, with markets poised for the potential of a loosening in conditions, with the unemployment rate expected to show a modest uptick to 3.8%, which inturn should feed through to a mild retreat in headline wage growth, pulling back from 5.9% to 5.7%. Uk investors will then focus on Wednesday’s Spring Budget statement by Chancellor Hunt, which represents the third fiscal statement since September by the UK government, with investors anticipating far fewer fireworks than those seen post the September announcement!