Moderating rate hikes silver lining of bank failures?

Calm is restored on Wall Street for now, as worries about bank failure contagion ease. Banks failures brought a silver lining: diminished expectations for rate rises. However, consumer price inflation day is still a problem, just as the Fed’s freedom to raise rates might be limited. Volatility and bond yields moderated, but for how long?

Markets stabilize, uncertainty remains

The S&P 500 index traded up over 1%. Banks stocks were up on the day, but still down 12% year-to-date
The VIX, Wall Street’s fear index, fell back to 24, a heightened level still signaling uncertainty
Yields on 2- and 10-year Treasuries saw yields trading back up to 4.28% and 3.62%, respectively
The dollar index is trading near 103.8, off highs

Rate expectations moderate …

The Federal Reserve meets a week tomorrow, and markets expect little or no movement on official rates
Fed fund futures, a market indication of near-term rate expectations, places 22% odds of no rate hike, and 78% odds of just a 25-basis point rate hike in March
Another 25-basis point rate hike is expected in May, taking the benchmark short-term rate to a 5.0% peak
Rate cuts are now forecast in June, culminating with rates between 4.25% and 4.5% by the end of the year

… but inflation still a problem

Consumer price inflation data came in pretty much as expected this morning – but core inflation remains a significant problem, just as the Fed’s hands might be tied on rate rises
The consumer price index (CPI) rose 0.4% month-on-month in February, matching analyst expectations, down from 0.5% the previous month
Headline CPI rose 6.0% year-on-year in February, matching expectations, down from 6.4% the previous month
Core CPI, excluding more volatile food and energy prices, was up 5.5% year-on-year in February, matching analyst expectations, down from 5.6% the previous month.
Monthly data was more worrying. Core CPI rose 0.5% month-on-month, slightly higher than expected
Components like shelter and services are still seeing inflation, even as energy prices, used vehicles and medical care services saw month-on-month declines

Commodities face demand headwinds

Broader commodity markets continue to face headwinds from economic uncertainties on Wall Street that have many traders worried about longer-term demand prospects
Crude oil prices are 2% lower on lingering demand worries
Russia agreed to extend the grain initiative that allows exports from three approved Ukrainian ports, but only for another 60 days and not 120 days as was originally agreed
Corn and wheat traders will be following these developments closely given tight supply markets
Low prices for US corn and wheat look attractive, and its grain exports are benefiting – for example, the USDA today reported that exporters sold 24.1 million bushels of old-crop corn to China over the past 24 hours
Soybean charts on the other hand look top-heavy, with prices struggling amid significant fund ownership that now worries that a short Argentine crop may not increase demand for US soymeal amid a bumper Brazilian crop

Arlan Suderman, Chief Commodities Economist

Contact: Arlan.Suderman@StoneX.com

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.