Dow sank 384, decliners over advancers about 6-1 & NAZ pulled back 86. The MLP index fell 3 to the 212s & the REIT index dropped 7+ to the 359s. Junk bond funds were sold & Treasuries remained in heavy demand, sharply reducing yields. Oil continued weak, down 1+ to the 66s, & gold roared ahead 58 to 1981 purchased by frightened investors (more below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Even with turmoil in the banking industry & uncertainty ahead, the Federal Reserve likely will approve a ¼ percentage point interest rate increase next week, according to market pricing & many experts. Rate expectations have been on a rapidly swinging pendulum over the past 2 weeks, varying from a ½-point hike to holding the line & even at one point some talk that the Fed could cut. However, a consensus has emerged that Chair Jerome Powell & his fellow central bankers will want to signal that while they are attuned to the financial sector upheaval, it's important to continue the fight to bring down inflation. That likely will take the form of a 0.25 percentage point (25 basis point) increase, accompanied by assurances that there's no pre-set path ahead. Markets largely agree that the Fed is going to hike. As of today, there was about a 75% chance of a ¼-point increase, according to CME Group data using fed funds futures contracts as a guide. The other 25% was in the no-hike camp, anticipating that the policymakers might take a step back from the aggressive tightening campaign that began just over a year ago. Goldman Sachs is one of the most high-profile forecasters seeing no change in rates, as it expects central bankers in general “to adopt a more cautious short-term stance in order to avoid worsening market fears of further banking stress.” Whichever way the Fed goes, it's likely to face criticism. A rate increase would come just over a week after the Fed other regulators rolled out an emergency lending facility to halt a crisis of confidence in the banking industry. But more bank failures over the weekend could again throw policy for a loop. One important caveat to market expectations is that traders don't think any further rate hikes will hold. Current pricing indicates rate cuts ahead, putting the Fed's benchmark funds rate in a target range around 4% by year end. An increase would put the range at 4.75-5.00%. The market, though, has not had the benefit of hearing from Fed speakers since the financial tumult began, so it will be harder to gauge how officials feel about the latest events & how they fit into the policy framework.
Fed poised to approve quarter-point rate hike next week, despite market turmoil
Shares of First Republic (FRC) were under pressure today despite the beaten-down regional bank receiving aid from other financial institutions. Those losses come even after 11 other banks pledged to deposit $30B in FRC as a vote of confidence in the company. “This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities,” the group, which includes Goldman Sachs, Morgan Stanley & Citigroup, said. To be sure, there were concerns that the infusion may not be enough to shore up FRC going forward. Atlantic Equities downgraded FRC to neutral, noting the bank may need an additional $5B in capital. “Management is exploring different strategic options which may include a full sale or divestments of parts of the loan portfolio. The limited information provided implies that the balance sheet has increased substantially, which may well necessitate a capital raise,” analyst John Heagerty wrote. Meanwhile, Wedbush analysts put a $5 price target on FRC, saying that a takeover could wipe out most of its equity value. “A distressed M&A sale could result in minimal, if any, residual value to common equity holders owing to FRC’s significant negative tangible book value after taking into account fair value marks on its loans and securities.” FRC shares fall more than 20% despite deposit infusion, dragging down regional banks.First Republic shares fall more than 20% despite deposit infusion, dragging down regional banks
Janet Yellen disclosed that the US banking system could potentially allow for Chinese Communist Party-linked (CCP) Silicon Valley Bank depositors to be "made whole." Sen James Lanklord asked Yellen about the reported CCP-linked depositors during a Senate Finance Committee hearing. "It has been reported publicly that SVB had a large number of Chinese investors that are there, including some companies that were directly connected to the Chinese Communist Party," Lankford began. "So what I’m asking is: will my banks in Oklahoma pay a special assessment to be able to make Chinese investors whole in Silicon Valley Bank?" the senator asked. "Uninsured investors will be made whole in that bank and I suppose that could include foreign depositors, but I don’t believe there is any legal basis to discriminate among uninsured depositors," Yellen responded. Yellen emphasized during the hearing that the American banking system is "sound" despite SVB's collapse. "I can reassure the members of the committee that our banking system remains sound and that Americans can feel confident that their deposits will be there when they need them," the treasury secretary emphasized. "This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe."
CCP-linked SVB depositors could be 'made whole' by US: Yellen
Gold prices finished at their highest levels in 11 months today & booked their best weekly gain in nearly 3 years, as fears of a global banking crisis weighed on investors' sentiment, bolstering the safe-haven appeal of the yellow metal. Gold futures for Apr gained $50 (2.6%) to settle at $1973 per ounce, with the most-active contract rallying 5.7% for the week. That was the highest settlement for the yellow metal since Apr 18, 2022 & its biggest weekly advance since Apr 2020. Gold prices surged, adding to the rally of the past week, as investors turned to safe-haven assets amid the stress in the banking sector on both sides of the Atlantic, while a fall in Treasury yields & the $ also provided support. Gold is also benefiting from the view that the Federal Reserve might end its cycle of interest-rate hikes at its meeting next week, delivering one final 25 basis point hike before standing pat. Traders are now betting that the Fed will hike interest rates by a qtr-percentage-point when they meet next week, versus the ½-point hike that had been forecast last week before the sudden collapse of Silicon Valley Bank. There is growing speculation that the Fed will repeat next week what the ECB has done this week, raise as expected, then pause. There are expectations that the Fed is nearing the end of its tightening cycle have battered the $.
Gold settles at highest level in 11 months on bank sector woes
Oil futures gave up early gains to end lower, booking the biggest weekly drop of 2023 as worries over the US & European banking sector stoke recession fears. Price action West Texas Intermediate crude for Apr fell $1.61 (2.4%) to close at $66.74 a barrel, leaving the US benchmark with a weekly loss of 13%. The US benchmark suffered its biggest weekly loss since Jun. May Brent crude the global benchmark, dropped $1.73 (4 2.3%) to settle at $72.97 a barrel, its lowest close since Dec.20. For the week, Brent dropped 11.9%, its worst performance since the week ended last Aug. Both WTI & Brent ended the week at 15-month lows, bearing the brunt of a commodity selloff that analysts tied to recession fears that were amplified by the collapse of California’s Silicon Valley Bank & troubles at Swiss lender Credit Suisse. Oil prices have become particularly caught up in the downward pull amid the current market turmoil. Oil bounced modestly yesterday after Credit Suisse said it had tapped a $54B lifeline from the Swiss National Bank & 11 US banks agreed to deposit $30B with First Republic Bank the latest US regional lender to find itself under scrutiny. Credit Suisse shares were seeing renewed pressure today. Russian Deputy Prime Minister Alexander Novak & Saudi Arabia's energy minister, Prince Abdulaziz bin Salman, met yesterday. They likely discussed ways to stabilize oil prices, while the recovery of Chinese oil demand after the lifting of COVID restrictions remains an important crutch. Also, crude is now trading at a level that could prompt the US gov to consider refilling the Strategic Petroleum Reserve, which sits at a 40-year low..
Oil prices see biggest weekly drop of 2023 on recession fears
This was another brutal week for stocks & there is no end in sight with all the chaos out there. The chart for the Dow below tells it all & it's an ugly story. Dow is down over 800 in Mar. Between banking woes & the FOMC meeting next week there is not a lot to look forward to. Hope for some improvement in the coming weeks.
Dow Jones Industrials
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