Market focus shifts from CPI to US banks’ performance

By: Miguel A. Rodriguez

09:28, 15 March 2023

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After two days of fearing for the worst, the intervention of US authorities to safeguard the financial system and bank clients has taken effect and worries have been seen to subside.

Wall Street's main indexes rose on Tuesday as US consumer prices increased as anticipated, supporting bets on a more gradual rate hike and even perhaps a pause by the Federal Reserve (Fed) at its upcoming meeting. 

The Consumer Price Index (CPI) for the US increased 0.4% in February from 0.5% a month earlier, according to the statistics.  

Excluding food and energy, the CPI increased 0.5% after rising 0.4% in January. In the 12 months to February, the core CPI climbed 5.5% after increasing 5.6% in January. 

All this points to the fact that inflation numbers are demonstrating how consumer price levels continue to fall, although not as quickly as the Fed would prefer. 

With all this being said, unlike other occasions, the market's attention was diverted from CPI data to US banks’ performance following the collapse of Silicon Valley Bank (SVB). 

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Recently, shares have been impacted by the bankruptcy of SVB and Signature Bank as well as by concerns that additional banks may be dragged down by the crisis brought on by the Fed’s significant increases in interest rates. 

Now, following these events, investors anticipate that the Fed may loosen its monetary policy in response to the threat of a financial crisis. The market is now open to the possibility that the Fed may choose to postpone its meeting next week in view of the CPI data. The yield on treasury bonds and the interest rate futures market, which are both currently discounting interest rate reductions for the end of the year, both reflect this possibility.  

Related Article: FOMC Meeting 

Following two days of volatility, the market returned to tranquillity yesterday as no bad news surfaced regarding more banks that might have been impacted by the crisis. The US government’s measures to protect the financial system and the interest of bank clients, have had the intended effect, and market concern is subsiding.  

Bank shares recovered part of their losses from previous days. The ground regained by small regional banks was significant but some larger banks, like Citigroup which gained about 7% yesterday, was also noteworthy.  

Today, crucial economic data, such as Retail Sales, which showed strength in domestic spending last month and fuelled anticipation of rapid Fed rate hikes, will be released. A weak or lower-than-expected result may give further weight to forecasts that claim the Fed’s rate hiking cycle is about to come to an end.  


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Sources: Bloomberg, Reuters 

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