- US government could back First Republic (FRC) rescue deal. Bloomberg
- Ericsson (ERIC) pleaded guilty in bribery case. Bloomberg
- Marvel (MRVL) to eliminate 4% of workforce. Bloomberg
- SEC decides to postpone vote on private equity rule (BX, CG). WSJ
- Lazard (LAZ) is helping First Republic (FRC) with options. WSJ
- China approves first messenger RNA vaccine for COVID (PFE, BNTX, MRNA, NVAX, JNJ). Reuters
Todays Open Interest Change
Leading up to the Federal Reserve's March 21-22 monetary policy meeting, traders had been expecting the FOMC to ratchet up its key interest rate by 50 basis points because the economy appeared to be surprisingly robust. But then three U.S. banks failed - Silvergate Capital (SI), SVB (SIVB) and Signature Bank (SBNY) - and a fourth is teetering (check out the latest headlines related to First Republic (FRC)). That may have Fed policymakers rethinking their expectation for a rate hike today and their upcoming rate path, while the whole episode came during the Fed's blackout period, creating even more uncertainty about what may lie ahead.
Backdrop: As a reminder, the Fed has increased its key rate for eight straight meetings, bringing the federal funds rate target range to 4.50%-4.75%, from 0.0%-0.25% in the past year, in its drive to push down inflation. Meanwhile, the core PCE price index, the central bank's preferred inflation gauge, showed a jump of 4.7% Y/Y in February, up from 4.6% in January, but easing from 5.2% in March 2022. Don't forget that efforts to shrink the bank's balance sheet were upended last week, as financial institutions borrowed a whopping $153B from the Fed's discount window (and $12B from the newly created Bank Term Funding Program), though assets from emergency lending tend to fall as soon as a crisis subsides, compared to holdings added under quantitative easing.
With regards to whether to hike or not, the decision won't be easy. Inflation still remains very high and a pause now could signal there are deeper problems within the banking system. On the other hand, there are fears that the Fed is moving too far, too fast with its aggressive rate increases, and some see the current banking crisis as a direct result of tighter monetary policy. Ultimately, things will boil down to whether the financial stability problem has been limited to a handful of regional banks that has been successfully contained, or if something systematic has broken - with the possibility of the crisis morphing into something larger.
By the numbers: According to the latest Wall Street Breakfast survey, around 70% of the 1,740 respondents expect the central bank to go for a smaller 25 basis point hike, though 20% believe that the Fed will pause its hiking cycle (and about 10% still see the possibility of a 50 bps increase). Any surprises will surely jolt markets, so pay attention to the Fed's dot plot - which will be published alongside its policy decision at 2 PM ET - as well as Jerome Powell's press conference a half hour later. SA contributor James Baker expects the central bank chair to "emphasize the continuing strength in the employment, the Fed's intention to make money available to any bank needing funds to meet deposit withdrawals, and the Fed's continuing commitment to bring inflation down." (84 comments)
U.S. officials are prepared to take more actions if needed to ensure liquidity in the banking sector, Treasury Secretary Janet Yellen said yesterday during an American Bankers Association meeting in Washington, D.C. She defended federal regulators' actions to protect the depositors of Silicon Valley Bank (SIVB) and Signature Bank (SBNY), saying "our intervention was necessary to protect the broader U.S. banking system." While conditions have improved with aggregate outflows stabilizing, "similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion." Yellen also cited a need to re-examine current regulatory and supervisory regimes, and expressed worries over a last-minute deal to resolve the debt ceiling. (3 comments)
Google (GOOG, GOOGL) has released its artificial intelligence chatbot for public use as it responds to the growing threat from rival projects at Microsoft (MSFT) and OpenAI. The Bard chatbot will be available to a limited number of users on a waitlist picked from those in the U.S. and the U.K., before Google offers it in more countries. The company is also learning from missteps of OpenAI's ChatGPT and its own demonstration of Bard, by limiting the amount of interaction that can occur between Bard and users. Calling the situation a "code red" in February, Google AI chief Jeff Dean said the tech giant was moving "more conservatively than a small startup" since it has much more "reputational risk" in providing erroneous information. (31 comments)
Shares of Nike (NKE) jumped 4% in after-hours trading on Tuesday after topping earnings expectations and touting inventory management actions. However, the gains didn't hold, and the stock even ended the session down 2%. Management noted continued promotional activity that compressed margins by 330 basis points to 43.3% - disappointing against a 43.7% consensus expectation - and the sneaker giant said it would "continue to take a cautious approach in planning our business, leading with intentional financial and operational guardrails." Inventories were also up 16% to $8.9B compared with the year-ago period, while China continues to remain a sore spot for Nike, with sales declining 8% Y/Y across the region. (22 comments)
In Asia, Japan +1.9%. Hong Kong +1.7%. China +0.3%. India +0.2%.
In Europe, at midday, London -0.1%. Paris +0.3%. Frankfurt +0.5%.
Futures at 6:30, Dow flat. S&P -0.1%. Nasdaq -0.2%. Crude -0.4% to $69.41. Gold +0.3% to $1947.20. Bitcoin +0.3% to $28,205.
Ten-year Treasury Yield unchanged at 3.60%
Today's Economic Calendar
7:00 MBA Mortgage Applications
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference
Companies reporting earnings today »
What else is happening...
Sticker shock: UK inflation rate unexpectedly rebounds to 10.4%.
PIMCO said to lose $340M from Credit Suisse (CS) AT1 debt writeoff.
GameStop (GME) surges after meme player records a surprise profit.
DWAC on watch with Trump expected to be formally indicted today.
Vote of confidence ahead of court ruling on SEC-(XRP-USD) case.
Ford (F) brings an all-electric Explorer to European markets.
Dodge (STLA) unveils its last super-fast gasoline muscle car.
Intel (INTC) shakes up leadership, announces new foundry leader.
These stocks are picking up Bed Bath & Beyond's (BBBY) lost market share.
Home improvement? Check out the latest housing stats on sales and prices.
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