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Global Marke – Recession in US Makret later in 2023 & US Economic data

Global Market – Recession in US in later part of 2023 – US Economic data & Fed minutes

This week we will discuss US economic data and US Fed meeting minutes of 22-Mar-23 meeting and key economic data.  We will also discuss how market is factoring in next move by US Fed on 3-May-23 high interest rate remains key risk to economy and banking system.

US Economic data – released this week 10-Apr-23 to 14-Apr-23

Core CPI & Core PPI remains key worry for US Fed as service inflation which is normally connected to wages remains higher and it would take few more quarter for US Fed’s long-term target of 2% inflation.  As on 15-Apr-23, Fed fund rate monitor tool indicate 78% probability of 25-bps rate hike and yes, our view is contradictory to current indicator.

US Fed meeting minutes of 21 – 22 March 2023 – released on 12-Apr-23

Spillovers from the banking crisis that rocked the United States in March will push the country into a mild recession later this year, according to the minutes of the Federal Reserve Open Market Committee’s March meeting released on Wednesday.

Equichain Wealth Advisors: Market View & Opinion

We see inflation and economic activity will continue to remain soft, corporate earnings have started and will provide further cues.  Major US Banks – JP Morgan, Wells Fargo & Co, Black Rock, CITI Group & PNC Financial came out with their results and most of them beat market expectation yet US market was down as hope of pause by US Fed declines.  

We continue to believe, US Fed might pause on 3-May-23 meeting near term data shows uncertainty and we continue to believe US Fed will focus on data rather than earnings, which continues declining trend.

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Global Market – Recession in US in later part of 2023 – US Economic data & Fed minutes.pdf
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Global Market – OPEC+ nations announce surprise production cut & US Economic data

Global Market – OPEC+ nations announced surprise production cut & US Economic data

This week we will discuss OPEC+ nations decision to cut production starting from 1-May-23 and US Economic data which continues to show weakness in US Economy and important inflation data due in next week.

OPEC+ nation announce surprise production cut starting from 1-May-23

Production cut announced by OPEC + nations starting from 1-May-23 till end of the year is at 1.6 million barrels per day.  Here are the list of countries and production cut by countries by end of the 2023.

• Russia: 500,000 barrels per day (bpd)
• Saudi Arabia: 500,000 bpd.
• United Arab Emirates (UAE): 144,000 bpd.
• Kuwait: 128,000 bpd.
• Kazakhstan: 78,000 bpd.
• Algeria: 48,000 bpd.
• Oman: 40,000 bpd.

US economic data – due in 10 – 14 April 2023 week

In coming week from, starting from 12-Apr-23 when US CPI & Core CPI inflation data will be released, it will provide further cues and US FOMC meeting minutes to be also released on 12-Apr-23 followed by PPI & Core PPI on 13-Apr-23 and PPI & Core PPI on 14-Apr-23.

Equichain Wealth Advisors: Market View & Opinion

If we follow the pattern since SVB bank crisis started on 8th or 9th March 2023, most US economic data are coming below expectation and weak, even US Fed meeting on 22-Mar-23 increase rate by 25-bps but before these crises begins, market was expecting 50-bps rate hike.

We expect next week to be very critical as market reaction to weak economic data is sometimes positive as hope of pause or pivot increase and there is another side of the coin which is recession fear.

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Global Market – OPEC+ nations announce surprise production cut & US Economic data.pdf
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Global Market – US Fed Balance Sheet & US Economic data

Global Market – US Fed balance sheet and US economic data

This week we will discuss increase in  US Fed balance sheet due to emergency funding and what are its implication on sentiment and its actual path of monitory tightening.  US bond yield indicate soft monitory policy in futures.

US Fed balance sheet @ $ 8.73 trillion – as on 20-Mar-23

Recent increase in US Fed balance sheet could be considered as emergency funding rather than expansion of US Fed balance sheet which can be defined as change in monitory policy.   This can be early sign of pause or pivot by US Fed but confirmation from US Fed is awaited.

US Bonds – Gap between 2-year / 10-year currently @ 60-bps

In February 2023 end there was gap of 100-bps, which was indicative of trend reversal and high probability of recession.  Recent crisis in US & Europe banking system was due to distress selling in bond as higher interest rate impacted the regional banks.

Equichain Wealth Advisors: Market View & Opinion

Is financial crisis in US & Europe is over or not, it will be too early to judge as in next two weeks, quarterly earnings and US economic data will provide better clarity.  

This week, there was no fresh negative news and market has witness relief rally.  We continue to believe high probability of pause or pivot on or before next US Fed meeting on 3-May-23 and market will preempt from US Economic data & quarterly earnings season.

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Global Market – US Fed Balance Sheet & US Economic data.pdf
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Global Market – Banking Crisis in US & Europe – Domino effect started?

Global Market – Banking crisis in US & Europe – Domino effect started?

This week we will discuss whether this ongoing crisis will have domino effect on US & European banking system and more banks will follow.  This week we will also focus on US Fed & Bank of England monitory policy decision.  Big question remains that whether market will witness domino effect in US & European ongoing banking crisis.

What is Domino effect?

“a cumulative effect produced when one event initiates a succession of similar events.”1 The term usually refers to something that is inevitable or at least very likely to happen, due to causal events that have already occurred.

Banking crisis in US & Europe – Domino effect started?

• 9-Mar-23: SVB report loss of $1.8 billion due to distress bond sale.
• 10-Mar-23: FDIC took control of SVB and closed SVB and FDIC insured depositors
• 12-Mar-23: FDIC shut down SIGNATURE BANK.
• 9-Mar-23: US regulator shut down SILVERGATE Bank – key bank in crypto world struggling after FTX and Genesis fall.
• 15-Mar-23: Credit Suisse as much as 30%, Swiss National Bank came to its rescue.  
• 19-Mar-23: UBS agrees to buy Credit Suisse in an emergency deal aimed at stemming financial market panic.
• 16-Mar-23: First Republic Bank witness sharp sell-off as customer withdraw deposits.  US Big 11 banks deposit $30 billion unsecured deposit.

Equichain Wealth Advisors: Market View & Opinion

Latest bank to show stress is DEUTSCHE Bank which is German bank and ECB will be central bank is focus.  On Friday, ECB ‘s Lagarde told EU leaders ECB fully equipped to provide liquidity to euro area financial system, if needed – RTRS

Financial crisis in US & Europe is evolving, it will be difficult to predict the quantum of problem and market reaction to it, ECB raised interest rate by 50-bps on 16-Mar-23, US Fed raises interest rate 25-bps on 22-Mar-23 & BOE raised interest rate on 23-Mar-23.  

Their comment on future rate hike has surely changed and it could be sign of pause as we see interest rate to peak around current level.

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Global Market – Banking Crisis in US & Europe – Domino effect started?.pdf
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Global Market – Will US Fed signal pause on 22-Mar-23 – US Fed meeting

Global Market – Will US Fed signal pause on 22-Mar-23 – US Fed meeting

This week we will focus on US Fed meeting outcome on 22-Mar-23.  Market participants will be watching closely as crisis has impacted few US regional banks and European banks.  ECB raised rates by 50-bps on 16-Mar-23, but scrapped future guidance as situation is still evolving.

US Fed balance sheet increase by $300 billion to $8.69 trillion from $8.39 trillion

• $152.85 billion – Discount borrowing window
• $164.80 billion – Banks borrowing from US Fed.

US regional bank (FRC) First Republic Bank – Big US banks deposit $30 billion deposit

• JPMORGAN, Citibank, Bank of America, Wells Fargo each making a $5b uninsured deposit into FRC
• Goldman Sachs and Morgan Stanley each depositing $2.5b
• BNY-Mellon, PNC bank, state street, U.S. bank each deposit $1b

Equichain Wealth Advisors: Market View & Opinion

Last week, probability of 50-bps rate hike by US Fed on 22-Mar-23 was more than 75% after US Fed chair Jerome Powell testimony, lots of things have changed in last 1 week.

Since last week financial crisis in US & Europe is evolving and now is fearing more negative surprise from US & European banks.  We continue to believe that US Fed meeting outcome on 22-Mar-23 will be very important and crucial for market.  After this week’s event we have turn cautious as this financial crisis could trigger domino effect unless properly addressed by US Fed.

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Global Market – Will US Fed signal pause on 22-Mar-23 – US Fed meeting.pdf
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Global Market – Powell’s testimony, BOJ Meeting outcome & SVB collapse

This week we will discuss US Fed chair Jerome Powell testimony, BOJ Meeting outcome and its commitment to maintain ultra-accommodative policy and collapse in (SVB) Silicon Valley Bank on Thursday after reporting $1.8 billion loss on bonds to meets client’s cash demand.

Bank of Japan – Policy outcome & Statement

• BOJ kept interest rate unchanged at -0.10% Vs estimate of -0.10%
• The Bank will purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent.
• JGB yield curve control maintain at -0.50% to 0.50%

Silicon Valley Bank – SVB Financial Group (SIVB)

On Friday as on 7:35 PM IST, trading halted @ $39.40 down 62.84% in a pre-open market.  On Friday, regulator shut down SVB financial group, regulator appoint FDIC as received and deposit to be secured through FDIC – Federal Deposit Insurance Corporation.

Equichain Wealth Advisors: Market View & Opinion

We continue to maintain our view as on last week as now there is added challenge for US Fed as SIVB issue is still evolving.  US Fed post meeting conference will and guidance of future action will be an important event as more hawkish US Fed will challenge economic activity which is already showing signs of slowdown.  Key challenge for US Fed will be to manage soft landing.

US Treasury Janet Yellen closely monitoring situation as SVB financial group shutdown by regulator and it could impact other banking system.  SVB is the largest failure since 2008.  We remain cautious as situation is evolving and early pause or pivot could be very much possible as we mentioned in our Repeat of August 2007 – January 2008 phase.

Click on the attachment to read the full report:
Global Market – Powell’s testimony, BOJ Meeting outcome & SVB collapse.pdf
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Global Market – Key challenges for global central banks

This week we will discuss the challenges the central banks would face globally as next round of central banks meeting starts from next week with Bank of Japan meeting outcome on 10-Mar-23.  High core CPI inflation will next big challenge for central banks as their obsession to control inflation continues.

We would focus on BOJ, ECB & US Fed meeting outcome as we believe, their decision will impact decision larger global narrative as their greater impact due to various reason.

1) Bank of Japan – Meeting outcome on 9-Mar-23 & Statement on 10-Mar-23
2) ECB meeting outcome on 16-Mar-23
3) US Fed meeting outcome on 22-Mar-23

Equichain Wealth Advisors: Market View & Opinion

Any major change in policy by BOJ will impact global liquidity as BOJ has adopted negative interest rate since February 2016.

US Fed post meeting conference will and guidance of future action will be an important event as more hawkish US Fed will challenge economic activity which is already showing sings of slowdown.  Key challenge for US Fed will be to manage soft landing.

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Global Market – Key challenges for global central banks.pdf
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Global Market – Core CPI Inflation data in US & Europe – Next hurdle?

Global Market – Core CPI Inflation data in US & Europe – Next hurdle?

This week, we will discuss Core CPI inflation data from US & Europe, which will set the stage from next monitory policy action by US Fed, BOE, ECB & BOJ.   Global market continues to find cues and navigate around whether there will be soft landing or hard landing.  

Core CPI, Core Retail sales, Core PPI & Core PCE Price Index

Today we will focus on data which does not include fuel and food price index in inflation, retail sales or Producer price index (PPI) data.  In recent times we have seen crude oil & natural gas prices has come down bringing some relief in US & European countries.

Equichain Wealth Advisors: Market View & Opinion

The strong data in this month will compel US Fed, BOE, ECB & BOJ to maintain its tight monitory policy.   Next round of central banks meeting starts from 

1) BOJ on 10-Mar-23, 
2) ECB on 16-Mar-23, 
3) US Fed on 22-Mar-23, 
4) BOE on 23-Mar-23 & 
5) RBI MPC on 3-Apr-23.  

We believe, globally market has not factored in continuation of strong monitory policy and another round of strong rate hike followed by hawkish commentary could be negative for risk-on sentiment and bring fresh round of downward move in global asset classes.  

We would turn cautious as after this week data which is clearly indicating inflation more sticky than earlier market estimate.

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Global Market – Core CPI Inflation data in US & Europe – Next hurdle?.pdf
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Global Market – US Economic data & European market at fresh recent highs

Global Market – US Economic data & European market at fresh recent highs.

This week we will discuss how US economic data which came above market estimate, leading to rise in bond yield of US & Europe.  European market is trading at fresh recent highs on back of positive corporate earnings despite worrying of inflation and recession fear.

US Economic data

All major data this week in US came above market estimate, crashing hopes of any early pause or pivot by US Fed.

European Market at fresh recent high

Inflation in European nation remains high, economic concern are higher in Europe as compare to US and other parts of the world.  In our earlier article we have discussed European nations were heavily depending on Natural gas & Crude oil on Russia.  Europe was also dependent on China for other manufacturing goods.  

Equichain Wealth Advisors: Market View & Opinion

We believe, downside from current level is limited unless there is serious recessionary situation, market is prepared and factoring soft landing and in such circumstance.

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Global Market – US Economic data & European market at fresh recent highs.pdf
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Global Market – Crude Oil, German bond yield & US Economic data

Global Market- Crude oil, German bond yield @ 2.34% and US Economic data.

This week we will discuss rise in crude oil, German bond yield above 2% and also seen rise in US bond yield.  This week key US Economic data are CPI & Core CPI inflation data, Retail sales & PPI & Core PPI data.

1) Russia plans to cut its oil output by 500,000 barrels a day from March 2023
2) Oil May Hit $100 Amid China Reopening, Iran’s OPEC Official Says

German 2-year yields touch the highest since 2008.

Increase in Germany bond yield shows sign of rising concern as inflation remains a major concern in near term.  EURO zone is behind the curve as far as raising interest rate is concern compared to US Fed & BOE.  Further tightening of bond yield could be negative for equity & other risk-on asset class.

Equichain Wealth Advisors: Market View & Opinion

In speech this week US Fed chair Jerome Powell reiterated the need for couple of 2 more rate hike before pause and maintain high interest rate for some period of time.  Inflation would continue its downtrend where as any major disappointment in retails sales could negative for market.

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Global market -Crude Oil, German bond yield & US Economic data.pdf
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