Same banks, New Hope

Equity markets rose sharply on Thursday as the trading session ran as the fear of the banking system collapsing eased sharply. This is after the First Republic received lifeline support from a consortium of banks, potentially staving off the spillover effect after the collapse of Silicon Valley Bank. First Republic will receive a fresh deposit of $30 billion from the group.

The move helps S&P 500 to finally move into the green territory and push Dow higher. meanwhile, Credit Suisse will borrow up to around $54B from the Swiss Central banks, bolstering its balance sheet.

Lingering concern unaddressed

There is still concern about the impact of higher interest pressure on the banking system as investors digest new information to better frame their expected monetary policy trajectory. While the Fed is keen to raise interest rates to tame inflation, the banking turmoil sounds alarm for a pause. A delicate balance is needed but often misplaced with multiple headwinds and mandates of the Fed.

So the question is if the Fed’s work is completed. It is not. As European Central Bank is proceeding with the 0.50% interest rate hike, we expect the FOMC also maintain interest rate hiking movement next week. A 0.25% rate hike is baked into the market with an 81.9% probability.

FOMC and Triple Witching day in Focus

Next week is going to be a sea of rides. Other than the FOMC meeting outcome, one can expect a potential wide ride due to the triple witching day, which happens around 4 times a year, where the stock options, index options and index future contracts expire on the same trading day.

Based on historical standards, markets tend to perform weaker on such days. According to some articles, for the previous 5 years, Dow fell by around 0.65% on the day, followed by Nasdaq retracing 0.4%, and S&P 500 shared the same fate of pulling back by 0.59%.

Hence, we cautioned all our friends to exercise caution and meditate on their positions in this wave of tides.

What’s on the menu today?

At 9.15 pm, we will receive the Industrial Production data, which is expected to climb by 3% on a year-to-year basis. This will be a good start to hint on a stabilising economy.

Next, at 10 pm, we welcome the Michigan Consumer Sentiment. We should see it remain at the same level, maintaining 67.0.

It is 17 March, 8.50 am in Singapore and 8.50 pm in New York. It has been a good recovery week. We continue to maintain losses since we have realised a large portion of the loss on our positions, but we are happy that the market is firmer.

I look forward to sharing with you our next update!