In my final show from Australia, I consider the latest outlook for the financial system, ahead of decisions from the FED and Bank of England as markets try to navigate the uncertain signals coming to the surface. It may be calmer for now, but the question is, is this the calm before the storm?
And I will be back from the other side of the world in a few days as things progress with more shows on property and finance.
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Are we in the foothills of the next banking crisis? Quite possibly. Investor sentiment remained fragile on Friday despite massive rescue for the banking sector, leaving global equities under pressure while gold prices were poised for their largest one-week rally since March 2020.
The U.S. banking crisis began after two mid-sized lenders — Silicon Valley Bank and Signature Bank— were rescued by the Federal Deposit Insurance Corp last week as depositors yanked billions of dollars from them after fearing about their solvency. Silicon Valley eventually filed for bankruptcy protection over the past 24 hours. A third bank, First Republic, is also in trouble despite receiving a $30 billion cash infusion from a consortium of banks.
SVB Financial Group announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank which sparked fears of contagion throughout the global banking system.
On Friday, investors lost confidence in U.S. regional banks and Credit Suisse in Europe. Risk appetite waned after showing signs of recovery on Thursday. Credit Suisse’s chief executive said on Friday the bank was working hard to stem customer outflows, although this could take time. Credit Suisse shares resumed their decline.
Fed data on Thursday showed banks sought record amounts of emergency liquidity in recent days, which helped undo months of central bank effort to shrink the size of its balance sheet. Its latest discount window borrowing has further seen banks take $150 billion, which makes for a new record even topping the 2008 GFC.
“Last week the Fed’s balance sheet swelled by $300 billion, wiping out 4 months of QT in one week,” gold bug Peter Schiff wrote in part of a Twitter reaction. “By the end of the month the balance sheet could reach a new high. Rate hikes don’t matter. Inflation is headed much higher, thanks to bank bailouts.”
Markets are pricing in a 25 bps increase by the U.S. Federal Reserve when it meets next week, down from previous expectations for a 50 bps increase. At last glance, financial markets have priced in a 60.5% likelihood that the central bank will raise its key target rate by 25 basis points, and a 39.5% probability that it will let the current rate stand.
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Earlier in the week I was a guest on TNT Radio, and we discussed the emerging banking crisis, and what lays behind it. Events since reconfirms our view this is a serious structural issue triggered by Central Bank’s reversal on rates, which have put many financial services players under stress.
Significantly, Central Banks are now trying to prop the system up. More finger in the dyke stuff?
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For the final time in Australia, I caught up with Robbie Barwick from the Citizens Party. We looked at the progress towards the establishment of a Public Bank in the light of recent failures, and the inquiry into Regional Banking.
Importantly, there are just two more weeks to get your submission to the Inquiry. Have your say! and support the transformational policy.
Make a submission to regional bank closures inquiry
Submissions to the inquiry are due by 31 March. All communities, organisations, businesses, and individuals impacted by the banks’ war on cash are strongly urged to make a submission, including to support a government post office bank.
A submission can be a formal representation from an organisation, or as simple as a letter or email, which explains to the Committee your experience and views.
Elderly and vulnerable regional bank customers, who are disproportionately affected, are especially encouraged to hand-write or type physical letters and mail them to the Committee through the post.
Mail your submission to the Committee at this address:
Committee Secretary Senate Standing Committees on Rural and Regional Affairs and Transport PO Box 6100 Parliament House Canberra ACT 2600
Email your submission to the Committee at rrat.sen@aph.gov.au
Upload your submission, and get more information, at the inquiry website
For more information, phone the Committee on 02 6277 3511.
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The latest inflation data for the US underscored the ongoing inflation problem the FED has, and while the markets are hoping for a pause, or cut, on the latest numbers this is unlikely. The battle to control inflation is far from won.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
The Federal Reserve’s War On Inflation Will Continue! [Podcast]
The latest inflation data for the US underscored the ongoing inflation problem the FED has, and while the markets are hoping for a pause, or cut, on the latest numbers this is unlikely. The battle to control inflation is far from won.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Find more at https://digitalfinanceanalytics.com/blog/ where you can subscribe to our research alerts
So once again the banks get a helping hand from the FED, and depositors in the US are guaranteed to an unlimited extent. But what of moral hazard?
And the markets now do not expect further rate rises, despite the inflation pressures in play. Yet perhaps there is a bifurcation between liquidity and rates, so perhaps the markets are not reading things right.
And once again the FED and Treasury proved Free Market Capitalism is dead!
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
So once again the banks get a helping hand from the FED, and depositors in the US are guaranteed to an unlimited extent. But what of moral hazard?
And the markets now do not expect further rate rises, despite the inflation pressures in play. Yet perhaps there is a bifurcation between liquidity and rates, so perhaps the markets are not reading things right.
And once again the FED and Treasury proved Free Market Capitalism is dead!
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
