Tuesday, 14 March 2023 / Published in Commodity Insights

Many investors consider gold and silver to be the ultimate safe-haven hedge against economic uncertainties, market turmoil, and volatile trading sessions.

Gold appears to be having a comeback in March since the price has gained over $100 in the last few days to hit a six-week high of $1,915/oz or up 2% during Monday’s session on haven bets following the echo across global markets of the collapse of Silicon Valley Bank and Signature Bank.

Like Gold, the smaller sister Silver also climbed as high as $22/oz, or up 4% yesterday, coming off monthly lows of $20/oz hit early last week.

Investors have turned on the safety of bullion in the aftershock of the SVB’s fallout, along with the fall of the U.S. dollar amid a pullback in hawkish rate expectations by Federal Reserve.

The Federal Open Market Committee (FOMC) gathers on March 21-22 to decide the next monetary policy move in its fight against persistent inflation, and many investors expect that SVB collapse and the banking crisis could cause Federal Reserve to pause or soften interest rate hikes to prevent further economic damage.

Fed Fund futures prices show that a majority of traders now expect a 25-basis point hike by the Fed on the next FOMC meeting following initial expectations for a 50 bps hike.

As a result, the DXY-U.S. dollar index broke below the 104 level for the first time since mid-February, while both 2-y and 10-y bond yields tumbled as low as 3.80% and 3.40% on Monday on prospects for a less hawkish Fed in the coming months, benefiting the dollar-denominated and zero-yield gold and silver.

The impact of the SVB collapse has dramatically affected the banking sector, as investors sharply cut their exposure to regional bank stocks amid fears of contagion from a brewing banking crisis in the U.S. and moved some funds into the safety of bullion.

Silicon Valley Bank was the 16th largest bank in the US, worth more than $200bn, while its collapse is the second-biggest bank collapse in U.S. history.

Monday, 13 March 2023 / Published in Equities & Indices

U.S. stock futures and European markets were under pressure on Monday morning extending last week’s steep losses after the collapse of the Silicon Valley Bank (SVB) and Signature Bank despite efforts from the U.S. and UK authorities to avert a banking crisis and strengthening public confidence over the weekend.

Friday’s dramatic failure of SVB Financial Group, which focuses on tech startups, was the biggest bank collapse in the U.S. since the 2008 financial crisis.

SVB collapse threatened to have a significant impact on global technology companies, given the importance of the lender to some tech startups in Silicon Valley, and a possible failure posed an “existential threat” to the growth-sensitive sector.

Market reaction:

U.S. stock futures opened sharply higher on Sunday night after U.S. regulators unveiled a plan to stem the damage from Silicon Valley Bank’s collapse, while they turned negative during the European session amid fears of a contagion in the banking system.

Dow futures were down over 150 points, or 0.60%, erasing nearly 1% gains earlier in the session S&P 500 futures also erased gains and were last down 0.40%, while tech-focused Nasdaq-100 futures advanced only 0.2%, erasing nearly 2% earlier gains.

S&P 500 futures, 2-hour chart

The banking sector has been receiving the most of the selling pressure, with some of the world’s largest banks falling over 3% on pre-market, while regional banks fell even more, led by a 60% drop in First Republic.

Looking at the EU market, most of the indices were trading over 2% lower on Monday morning led by the banking, insurance, and financial sectors, following the losses on Wall Street futures.

Shares in HSBC fell nearly 4% after news that the British bank had stepped in to buy SVB UK for £1, Commerzbank slid around 12%, and Credit Suisse was down 9.4%, while the pan-European Stoxx 600 banking index fell more than 5%.

Due to the growing concern about financial stability, investors speculate the Fed would now be reluctant to rock the boat by lifting interest rates by a super-sized 50 basis points on March 21-22 – and might not even hike at all.

U.S. authority intervention:

On Sunday night, U.S. Treasury, Federal Reserve, and Federal Deposit Insurance Corp. jointly announced a range of measures to stabilize the banking system and said depositors at SVB would have access to their deposits on Monday.

The measures aimed at strengthening confidence in the banking sector after SVB’s failure spurred worry about spillover effects in the financial ecosystem. The moves were necessary as investors had been concerned about the health of the financial system after state regulators closed New York-based Signature Bank (SBNY.O) on Sunday, the second bank failure last week.

Regulators introduced a new backstop for banks that Federal Reserve officials said was big enough to protect the nation’s deposits:

• The FDIC said it will resolve SVB in a way that that “fully protects all depositors.” Similarly, “all depositors” at Signature will be made whole.

• The Fed also announced a new “Bank Term Funding Program” that offers one-year loans to banks under easier terms than it typically provides.

• The Fed also is relaxing terms for lending through its discount window, its main direct lending facility.

SVB UK sale on HSBC:

On Monday morning, Britain’s finance minister Jeremy Hunt said the government and the Bank of England had facilitated a private sale of the UK arm of Silicon Valley Bank to HSBC for £1, in a move which would protect deposits and the UK Banking system without taxpayer support.