The implications of the Silicon Valley Bank on the markets
On March 10, 2023, in Santa Clara, California, a line of people forms in front of the headquarters of the shuttered Silicon Valley Bank (SVB).
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Two bank failures spark a flurry of activity from financial regulators.
The Federal Reserve will create a Bank Term Funding Program that will lend money to the SVB. This ensures that people can access their deposits beyond $250,000 and prevents widespread economic fallout.
Then, on Monday morning, regulators shut down Signature Bank — one of the key banks in the cryptocurrency industry — citing systemic risk. All deposits are made in full as per federal authorities.
As for the US job count released on Friday, remember that? – Nonfarm payroll growth in the United States was revealed to have slowed to 311,000 in February, down from January’s 504,000 but still ahead of the 225,000 forecast. In a sign that the labor market could be cooling, the unemployment rate was higher than expected while wage growth slowed.
PROFESSIONAL Investors should expect a key inflation report next week and possible implications of the SVB issues. “It will be a major market mover and will set the tone of the market,” said Michael Arone, chief investment strategist at State Street Global Advisors.
The February jobs report should be Friday’s news event. Then a bank crash happened. Hard to beat in terms of effect. There’s a lot to unpack today, so bear with me.
Of course, markets could still digest the shockwaves before selling off. But I suspect hopes of lower interest rates as a result of the SVB collapse could keep markets afloat. Likewise, CNBC’s Jim Cramer argued that nothing is more deflationary than the collapse of a debt-ridden bank – which could stall the Fed. Indeed, the 2-year Treasury yield – which reflects investors’ interest rate expectations – plunged 46 basis points in two days, the biggest move since the 2008 financial crisis.