The U.S. Treasury and Federal Reserve released a joint statement detailing measures to stabilize the banking system and ensure that depositors at SVB would have access to their deposits on Monday.
Investor Reactions to Bank Stabilization Measures
Investors reacted positively to the announcement, sending U.S. S&P 500 stock futures up 1.2% and Nasdaq futures rising 1.3%. However, there is still uncertainty about the financial system's stability and what structures could be vulnerable following a decade of low-interest rates.
Impact of Bank Collapse on Interest Rates
The concern about financial stability has led to speculation that the Fed will now be reluctant to raise interest rates by a large margin this month. Fed fund futures had surged, implying only a 28% chance of a half-point hike, compared to around 70% before the SVB news broke last week. The shift to safety has also seen a dive in yields on two-year Treasuries and pricing in rate cuts by the end of the year.
Consumer Price Figures and ECB Meeting
Much will depend on what the U.S. consumer price figures reveal on Tuesday, with a high reading potentially putting pressure on the Fed to hike rates even with the financial system under strain. The European Central Bank is expected to lift its rates by 50 basis points and flag more tightening ahead at its meeting on Thursday, but it will now have to consider financial stability.
Impact on Currency and Commodity Markets
In currency markets, the dollar dipped 0.7% on the safe-haven Japanese yen and 0.3% on the Swiss franc. The euro was a fraction firmer at $1.0687. Gold climbed 0.8% to $1,882 an ounce, and oil prices increased, with Brent up 10 cents at $82.88 a barrel and U.S. crude rising 26 cents to $76.94 per barrel.
