The whole situation involving SVB is the main story in markets to start the new week and bailout nation is taking flight again, even if lawmakers are out to say that they aren't exactly doing so. In case you missed the headlines:
- Federal Reserve announces emergency lending facility. Deposits to be guaranteed
- US Treasury official says banks not being bailed out, depositors are being protected
- "US official says banks not being bailed out" - nah, they're being bailed out, here's how
It's ridiculous that we have come to this again but that's the reality of how things work and we have to live with it somehow. There's already even chatter of who might be potential suitors for SVB with JP Morgan in the mix and it's not like all of this is unexpected really.
Anyway, the whole situation has resulted in markets now taking the view that the Fed will not want to add more stress to the banking system and shore up confidence - at least not immediately. In other words, market players are coming around to the notion that Powell & co. won't want to raise more alarm bells until this dies off.
Currently, we're not even seeing markets price in fully a 25 bps rate hike. That's a massive turnaround after having priced nearly 70% odds of a 50 bps rate hike under a week ago. Oh, how the tables have turned.
Fed fund futures are pointing to just a ~92% probability of a 25 bps rate hike next week and market-implied odds are sitting around ~85% at the moment. Ouch.
This has seen a massive plunge in 2-year Treasury yields, falling to 4.41% now and down from a high of 5.08% on 8 March last week.
Goldman Sachs seems to the be the first to shift towards a no rate hike call by the Fed. Will there be more to follow? Don't forget, we also still have another round of consumer price inflation data coming up tomorrow to add into consideration.
