(CercleFinance.com) – Thunderbolt on planet finance. On March 10, the surprise bankruptcy of Silicon Valley Bank (SVB), the 16th largest bank in the United States, shocked the markets, redrawing in a few hours the macroeconomic outlook and the cycle of raising bank interest rates. power stations…
Until then, the Fed’s rate hike trajectory was broadly sketchy and trending upwards. During his hearing in the Senate on March 7, Jerome Powell, the leader of the Fed, had moreover clearly hinted that the central bank should do more to fight against inflation whose decline was still proving too timid.
“If all the data were to indicate that a faster tightening is justified, we would be ready to increase the pace of rate hikes,” he warned. And to add ‘it is difficult to say that we have tightened the screw too much. The labor market is far from indicating a recession’.
However, the difficulties of SVB and the domino effect that followed – affecting Signature Bank, but also Silvergate Bank, brought back bad memories to many operators, requiring decisive and rapid support from the Fed.
‘This is clearly a trend reversal from the January rally. The market had anticipated both strong and steady disinflation and no damage to the real economy with strong employment, wages and consumption. Something had to change’, points out Frédéric Rollin, investment strategy advisor at PictetAM.
For him, ‘the foam we see today is a feature of monetary policy tightening and not a malfunction. There are two clear areas of excess/speculative bubbles in this cycle – cryptocurrencies and non-tech. profitable. It is not surprising that the three banks that failed last week had exposure to these sectors.
Market expectations now estimate at 48% the probability that the Fed will not raise its rates at its next meeting, scheduled for this week. “The possibility of a temporary pause (perhaps a single meeting) is being considered, but our base scenario remains +25bps in March,” Pictet said.
According to the banking group, the terminal rate will therefore be 5.25%. ‘We are already in a phase of slowing inflation, there is no need to go beyond this rate’, Judge Frédéric Rollin.
Pictet also believes that the risk of contagion from the banking crisis in Europe remains ‘limited’ because ‘it is more difficult for individual savers to access government bonds in Europe than in the United States. Deposits are more stable and market related losses are immediately valued’.
Finally, ‘the decisive support provided by the Federal Reserve and the Treasury, which announced emergency measures over the weekend, will allow banks to obtain liquidity in the coming year without having to sell assets like the SVB was forced to do. In addition, the authorities reimburse all depositors of the SVB, which reduces the risk of a run on the banks’, concludes the specialist.
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