Dow jumped 383, advancers over decliners better than 4-1 & NAZ gained 253. The MLP index added 2+ to the 214s & the REIT index rebounded 5+ to the 353s. Junk bond funds were little changed & Treasuries rose which lowered yields. Oil rose to the 71s & gold advanced a very big 37 to 1986.
AMJ (Alerian MLP Index tracking fund)
Federal Reserve Chair Jerome Powell said that the US banking sector is strong but that the recent failure of some regional banks could cause ripple effects that slow down the economy. At a press conference after the latest Federal Open Markets Committee meeting, Powell described the banking system as “sound and resilient” but said the central bank was monitoring a change in the availability of credit for consumers & businesses. “Financial conditions seem to have tightened, and probably by more than the traditional indexes say. ... The question for us though is how significant will that be — what will be the extent of it, and what will be the duration of it,” Powell said. “We’ll be looking to see how serious is this and does it look like it’s going to be sustained. And if it is, it could easily have a significant macroeconomic effect, and we would factor that into our policy decisions,” he added. The Fed hiked its benchmark interest rate by a qtr of a percentage point, but its projections called for just one more hike over the rest of the year. The central bank chief said that tighter financial conditions caused by more stringent lending decisions from banks could have a similar impact as further hikes from the Fed. Powell's comments come after regional banks have come under significant pressure this month. Silicon Valley Bank collapsed, making it the 2nd largest failure in US history, in part because the rapid rise in interest rates devalued its bond portfolio & created large paper losses for the bank. SVB's management “failed badly” in managing its interest rate risks, while other banks have managed to handle the hikes, Powell said. Other banks including First Republic & PacWest have seen significant outflows of deposits. The Fed set up a new Bank Term Funding Program to help banks access cash, but the stocks for regional banks have fallen in volatile trading since the facility was created on Mar 12. Powell said that deposit flows have stabilized over the past week & that Americans should feel confident that their money is safe, though he stopped short of explicitly saying that all deposits are now guaranteed. “What I’m saying is you’ve seen that we have the tools to protect depositors when there is a threat of serious harm to the economy or to the financial system, and we’re prepared to use those tools. I think depositors should assume that their deposits are safe,” he said.
Financial conditions are tightening after SVB’s collapse and could slow the economy, Powell says
The Bank of England raised interest rates by a further qtr of a percentage point & said it expected the surge in British inflation to cool faster than before, despite a surprise jump in price growth last month. Sounding more upbeat about the outlook for the country's slow economy, the BoE's 9 rate-setters voted 7-2 in favor of a 25 basis-point increase in Bank Rate to 4.25%, as expected. That was its 11th consecutive increase in borrowing costs, beginning in Dec 2021, although it was the smallest rise since Jun. Monetary Policy Committee members Swati Dhingra & Silvana Tenreyro voted to keep rates on hold while Catherine Mann, who has been the MPC's strongest advocate for increasing rates in bigger steps, backed the relatively small 25 basis-point rise. The BoE - which is trying to reconcile a weak economic outlook & anxieties about global banks with stubbornly high inflation - kept unchanged its message that the MPC saw less urgency about maintaining its fast run of rate hikes. "The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labor market conditions and the behavior of wage growth and services inflation," the BoE said. "If there were to be evidence of more persistent pressures, then further tightening of monetary policy would be required." BoE Governor Andrew Bailey and his colleagues last month dropped language saying that they were ready to act forcefully if the outlook suggested persistent inflationary pressures. The £ firmed against the $ & the € while British gov bond prices were little changed after the announcement. Investors in rate futures markets positioned themselves for one more 25 basis-point move by the BoE, putting a roughly 50% chance on a qtr-point increase as soon as May.
Bank of England raises interest rates again, sees inflation shock fading
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