New York open: Senate banking committee in focus
As officials have more information than market participants at this stage, this week, investors will mostly focus on their public remarks, starting with the Fed Vice Chair for Supervision, who is testifying along with the Chair of the FDIC and Treasury Undersecretary before the Senate Banking Committee today starting at 10 am NY time.
The prepared testimony suggests the banking system remains “sound and resilient.” This will also allow senators to voice their opinions on broadening deposit guarantees.
More broadly, concerns about bank stress appear to have receded. If the narrative keeps trending in this direction, this could open up room for the Dollar to recover as the recent rate repricing would start to look more clearly overdone.
Beyond that, I think S&P will trade 5-10% lower over the next six months along a choppy path. Going back to square one: I had a hard time paying 18x for 0% expected earnings growth ...and that was before the foundation revealed a genuine crack. Again, the upside-tail seems very constrained -- either the regional banking story subsides, and the Fed needs to keep chopping wood, or the regional banking story doesn’t subside, then we lurch from issue to issue. Flow-of-funds ( into Money Markets) could be a bigger headwind than expected, especially if US household stock portfolios get into the money market rotation act.
If I’m wrong on the downside call, I suspect it’s because Fed officials panic and cut rates.
Oil (update)
After the dust settles and the smoke clears, crude prices will likely climb back to levels seen as pre-banking crisis and could possibly go even higher later in the year if we move into deficit. Also, the market has been running scared of the Fed for several months now. While we can debate its local relevancy for what the Fed does next, given everything else that’s happening, the odds of them returning to “ at all cost mode” is slim.
Not that the banks always get it right, but look at the forecast of major banks; they have trimmed them a bit, but they’re still at $95/lb or $100/bl for later this year. And OPEC+ can still make further cuts if it wants to.
Author
Stephen Innes
SPI Asset Management
With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.
