Fed decision, banking fallout, and Credit Suisse: 3/20/2023 - 3/24/2023
The Federal Reserve's latest policy decision will come Wednesday afternoon as investors have endured what have been two of the most turbulent weeks for the financial sector since the 2008 crisis.
Markets
Dow Jones: 31,861.98 (-1.19%) 📉
S&P 500: 3,916.64 (-1.10%) 📉
Nasdaq: 11,630.51 (-0.74%) 📉
*Stock numbers as of market close on March 17th
March has long been expected to be a pivotal month for the Federal Reserve.
And after the month's first two weeks brought the central bank a year's worth of headlines, in the coming week, what investors had expected to be the main event finally arrived.
On Wednesday, the Fed will announce its latest monetary policy decision at 2 p.m. ET, with Fed Chair Jerome Powell will follow this announcement with a press conference at 2:30 p.m. ET. Alongside its policy decision, the Fed will also publish updated forecasts for inflation, unemployment, economic growth, and interest rates for the balance of this year and beyond.
After Powell testified before the Senate Banking Committee on March 7 that the Fed would likely raise rates "higher than previously anticipated" in response to stubborn inflation, investors were all but certain the Fed would raise the target range for its benchmark interest rate by 0.50% on March 22.
Two days later, a developing banking crisis overshadowed the Fed's plans. By Sunday night, March 12, the Fed was part of a government-led backstop of deposits across the U.S. financial system. Investors are now roughly split on whether the Fed will raise rates at all on Wednesday.
"We still expect the Fed to raise its policy rate by 25 basis points next week but also convey a less strident inflation-fighting message than thought a few weeks ago aimed at calming market anxiety," wrote Bob Schwartz, senior economist at Oxford Economics, to clients on Friday.
"While the banking woes will certainly command attention, we believe that it is not systemic but more of a liquidity issue that the Fed can contain with its lending facilities," Schwartz added. "The wildcard going forward will be the reaction in the financial markets, as maintaining financial stability is one of the mandates of the Fed."
Last week, government officials, regulators, and private sector leaders in the banking world sought to stabilize the U.S. financial system after the rapid collapse of Silicon Valley Bank and the seizure of Signature Bank.
The week's key development came Thursday afternoon when a consortium of 11 U.S. banking giants announced they would funnel some $30 billion in deposits to First Republic FRC 0.00%↑, which investors and regulators feared would be the next institution to fail.
Even with last week's capital injection, shares of First Republic lost over 70%; on Friday alone, the stock fell some 33%.
Over the weekend, U.S. investors kept an eye on Europe, where the latest reporting from the Financial Times suggested UBS UBS 0.00%↑ had agreed to a $2 billion deal to take over Credit Suisse CS 0.00%↑. Credit Suisse shares trading in New York closed Friday's session at $2.01.
While developments from the Federal Reserve and the global banking world will remain the top focus for investors, a smattering of economic and earnings reports will garner attention throughout the week.
Existing home sales data out Tuesday and Wednesday morning's weekly update on mortgage applications will offer readings on the housing sector, which has been an unexpected beneficiary of the banking crisis given the collapse in Treasury yields and the resulting drop in mortgage rates.
Investors will also keep a close eye on Thursday morning's reading on services and manufacturing activity from S&P Global.
On the earnings side, results from Foot Locker FL 0.00%↑ on Monday, Nike NKE 0.00%↑ on Tuesday, and Darden Restaurants DRI 0.00%↑ on Thursday will offer updates on the state of the U.S. consumer.
Events Calendar
Monday, March 20
Foot Locker FL 0.00%↑, Pinduoduo PDD 0.00%↑
Tuesday, March 21
Nike NKE 0.00%↑, GameStop GME 0.00%↑, Tencent Music TME 0.00%↑, AAR Corp. AIR 0.00%↑
Wednesday, March 22
Ollie's Bargain Outlet OLLI 0.00%↑, Chewy CHWY 0.00%↑, Petco WOOF 0.00%↑, Winnebago WGO 0.00%↑, Steelcase SCS 0.00%↑, Worthington Industries WOR 0.00%↑, KB Home KBH 0.00%↑
Thursday, March 23
General Mills GIS 0.00%↑, Darden Restaurants DRI 0.00%↑, Accenture ACN 0.00%↑, FactSet FDS 0.00%↑
Friday, March 24
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Wednesday will be a big day!
My guess is they will let the digital currency friendly banks take over the others, or just let the ones who are not open to the digital concept, collapse.