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Consumers seem to have their confidence back

DMO 29.03.2023 article image.jpg
Miguel A. Rodriguez
Miguel A. Rodriguez
29 March 2023

The market’s better risk sentiment yesterday brought Treasury yields up while technology stocks and the Dollar suffered.

US stock indices came under bearish pressure on Monday as Treasury yields rose after several days of uncertainty brought about by the banking crisis, which saw yields drop to record low levels. Technology sectors stocks were the ones to suffer the most as they dragged the Nasdaq index to losses of more than 1%. 

The 2-year Treasury yield rose above 4% to 4.05%, while the 10-year Treasury yield was at 3.573%. Following First Citizens BancShares Inc.'s agreement over the weekend to purchase portions of the collapsed Silicon Valley Bank, investors are less concerned about the banking industry. 

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The news on Monday increased bank stock prices and contributed to the Dow Jones' gains. 

Michael Barr, the Federal Reserve (Fed) vice president for supervision, appeared on the senate floor to give testimony in the first of several hearings on the failure of Silicon Valley Bank and Signature Bank. Barr claimed that while other incidents in regional banks cannot be ruled out, the Silicon Valley Bank catastrophe was solely the result of bad management by the bank's leadership, particularly with regard to risk control. 

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Following a return to better risk sentiment yesterday, the futures market now places more weight on the possibility that the Fed will raise interest rates by a quarter of a percentage point or leave them unchanged when it meets in May.  Just a day earlier, bets were placed on the Fed's potential decision to maintain interest rates. 

This shift in perspective was influenced by the CB Consumer Confidence statistic, which was published yesterday and came in stronger than anticipated despite the recent banking crisis. The reading was 104.2 as opposed to the March forecast of 101. 

Despite a rise in Treasury bond yields, the Dollar was losing ground yesterday in the foreign exchange market. 

The market's anticipation that the Bank of England will keep raising interest rates at its next meeting contributed to the GBP/USD gain of around 30 pips. 

Technically, a downtrend line that had been in place since the end of last year is breaking up. 

Gráfico

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Sources: Bloomberg, Reuters 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.