Markets
As March Madness appears to be stabilizing, to my eye, this could eventually move into a story of the degradation of forward earnings power as opposed to the creditworthiness issue. Still, it’s hard not to be concerned about the medium-term availability of bank lending in the real economy. I think this is a new challenge that investors may have to navigate, and how the "real economy" adapts to that has yet to be seen. But, for now, it seems investors agree the patchwork of government lending facilities should help prevent an acute banking crisis.
The policy response to date has been to demonstrate that even uninsured deposits are safe by covering all deposits in the two recent major bank closures and increasing liquidity to banks to handle deposit outflows in the event they occur despite regulators’ efforts to reassure depositors.
Even though the plumbing sprung a leak and the foundation revealed a genuine crack, the resilience in stock markets is truly astounding. For now, markets are pricing in a large but craggy hit to growth primarily focused on small businesses. And the S&P 500 has absorbed this negativity well because most of its market cap is concentrated in businesses away from these stress points -- like Tech and large corporations. But no matter what happens, I suspect investors will have difficulty disagreeing with an up-in-quality bias.
Oil
The oil market turned excessively pessimistic due to a possible US credit impingement. But prices should recover well in most of the current growth scenarios unless there is an unlikely economically damaging US credit crunch, which would most likely turn global.
But after a VAR shock, it could be a slightly longer road to Brent $90 than we had expected in Q2. Still, with volatility easing, it should allow bullish fundamentals to better compete with headline stress.
Today, oil prices are trading higher into the New York open as broader risk gauges stabilize ( Gold lower, USDJPY higher). This is a good sign, especially after traders noted the steep fall in open interest in the OIL futures markets.
A few things that could limit the upward move in the NY session:
The China-brokered deal between Saudi and Iran has reduced the chances of terrorist-linked supply disruption and dramatically decreased the geopolitical risk premium continuously embedded in the Middle East crude prices.
China's industrial profits contracted 22.9% in the first two months of 2023 compared to a year ago, indicating that factories are yet to fully come out of the Covid-induced slump. So, oil traders will remain somewhat cautious about China's consumption recovery strength.
SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.
Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.
Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
Recommended Content
Editors’ Picks
EUR/USD remains depressed near 1.0700 ahead of Lagarde, US data

EUR/USD is trading close to 1.0700, on the defensive in the European session. The US Dollar is extending post-US NFP gains amid cautious optimism, as investors assess the Fed rates outlook. Eurozone Sentix data slumps to -17.1 in June. Lagarde, US data awaited.
GBP/USD drops below 1.2400 amid firmer US Dollar

GBP/USD is falling below 1.2400 amid a notable US Dollar demand, dragging the major lower for the second successive day on Monday. Markets repricing of the Fed interest rates outlook push the US Treasury bond yields higher, in turn, the US Dollar. US ISM Services PMI next of note.
Gold finds short-term cushion above $1,940, more downside looks solid

Gold price has found a short-term cushion near $1,943.00, however, more downside seems favored. Gold price witnessed an intense sell-off after a mean-reversion move to near the 200-period EMA at $1,977.32.
Pro-XRP attorney says Ripple has 25% chance of winning against SEC, Judge could announce verdict by September

Ripple has a 25% chance of winning its legal battle against the US SEC, according to pro-XRP attorney John Deaton. Over the weekend, Deaton shared his opinion on Ripple’s likelihood of both an outright win and a partial victory.
Services PMIs the next focus after last week’s bumper US jobs report

While US markets finished the week on a high, after another bumper jobs report and a positive week across the board, markets in Europe, while finishing the week on a high, struggled to match the exuberance of investors on the other side of the Atlantic.