US Election

Fears of more failures in US regional banks were allayed after Silicon Valley Bank was purchased by First Citizens BancShares, Inc., easing contagion fears. There’s a cost to the bank failures – many of which were the product of poor decisions. But there’s a bigger cost to be paid by the erosion of confidence in the nation’s banking system. Investors hope that the recent actions by regulators have come a long way toward reinstating confidence in the banking system, although we still likely have some bumpy times ahead. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Financial markets remain concerned about Deutsche Bank even after assurances from authorities, with a flight to safety evident in US bonds and the Dollar. Deutsche Bank shares are down around 12% this week, after their credit default swaps spiked unexpectedly today (an indicator of stress). While no story has accompanied the move it nonetheless spooked markets. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Vincent Deluard argues that the resilience of the economy and the tightness of the labor market is bad news for a stock market whose rich valuations rely on low rates and record margins. Earnings downgrades and missed forecasts could trigger stocks to move lower.

Arlan Suderman notes that financial markets continued to rally after yesterday’s 25 basis point rate hike, as the central bank suggested an end to rate hikes is near by removing a line from its statement about "ongoing increases." Federal Chair Jerome Powell did his job, keeping Federal Open Market Committee (FOMC) members on the same page, while speaking with confidence regarding the economy and the banking sector. Will announcing a peak in rates be a mistake?

Rhona O'Connell notes that Gold edged higher before and during yesterday’s FOMC meeting, closing on the $2,000 per ounce level last seen in august 2020, and 14% up year-to-date. Gold will end the year at $2,070 per ounce in the view of O'Connell, StoneX Head of Commodity Market Analysis for EMEA & Asia.

Arlan Suderman says that markets bounced on news of an anticipated 25 basis point rate hike, but the Fed will no doubt be criticized by some market observers for its caution if inflation takes hold. The central bank suggested an end to rate hikes is near by removing a line from its statement about "ongoing increases."

Suderman Says that this may be one of the most pivotal meetings of Jerome Powell’s tenure as Chairman of the Federal Reserve. The Federal Open Market Committee (FOMC) will discuss whether to stay the course with its monetary tightening at a time when confidence in the nation’s banking system is being tested. On the other hand, policymakers don’t want to repeat mistakes made in the 1980’s when they cut interest rates too soon, allowing inflation to get a tighter grip on the economy that then required even larger rate hikes to get it under control.

Suderman Says that lingering uneasiness over bank solvency and this week’s Federal Reserve meeting worried traders overnight as Wall Street remains in an overall “risk-off” mode. Banking stocks largely led the way lower on fears of a broader contagion risk within the sector.

Arlan Suderman discusses his belief that the greater threat to our economy is for inflation to become deeply engrained, if the Fed backs off its focus on this problem, setting in motion a series of events that ends up creating long-term pain for everyone.

Natalie Scott-Gray discusses how a fundamental weakness in demand has caused a year-to-date retrenchment in the base metal index. Some explanations include souring macro demand conditions in the US, and weaker than expected economic forecasts from China after its annual ‘Two Sessions’ meetings (annual plenary sessions of the National People's Congress and of the Chinese People's Political Consultative Conference.)

Arlan Suderman notes that 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?

Rhona O’Connell took a look at the collapse of Silicon Valley Bank (SVB), a bank that concentrated on start-up companies in the technology sector and went into receivership last Friday. She argued that Gold benefited from a surge in buying, rising to $1,909 per ounce emphasizing its long-term role as a hedge against risk.

Arlan Suderman argues that payroll numbers were stronger than expected and so bearish for rates, but rising unemployment and trimming wage gains were more encouraging. Tuesday’s CPI number now looks like a tie-breaker for rate hike doves and the hawks, both of which could take some ammunition from the jobs report to argue for rate moves. All eyes on Tuesday’s inflation report.

Analysts Bruno Santos and Isabela Garcia argue that the natural gas market has been one of the most impacted by the war in Ukraine, reshaping global trade flows of the commodity, and causing price volatility.

Arlan Suderman argues that jobs data and the inflation outlook are in focus, with financial markets hoping that today’s signs of weakness will lead the Fed more do be more dovish on interest rate rises. Labor market was weaker than expected, but all eyes are on tomorrow’s key non-farm payroll data – with markets in a jittery mood.

Interest rate fears hit the gold price, with Fed Chairman Powell ramping up rate hike expectations. It’s commonly believed that gold prices have an inverse relationship with interest rates,. On the other hand, continuing geopolitical tensions with respect to Russia and China are supportive of the gold price, a haven in uncertain times.

Our oil team argue that traders grew cautious yesterday after Jerome Powell’s testimony in Congress triggered a selloff in energy futures. Benchmark West Texas Intermediate (WTI) crude oil price traded down to $76.6 per barrel this week and seem to be stuck in a $70-$80 range this year.