The Fed didn’t cause SVB to fail, but its aggressive interest-rate increases over the past year exposed the risky side of the bank’s business and may have doomed it to failure. Now the Fed is under pressure to stop raising rates, at least until the fallout from the SVB collapse is more clear. Some worry more banks could succumb if the Fed sticks to its plan. Ye the still-strong increase in core inflation in February makes it harder for the Fed to pause now. Just last week, Fed Chairman Jerome Powell even hinted that another jumbo rate hike was on the table. Senior central bank officials could make a game time decision. “The Fed and other hawkish central banks now have tough decisions ahead,” senior economist Priscilla Thiagamoorthy at BMO Capital Markets said before the CPI report. “Continue with more rate hikes to extinguish the inflation inferno or pause the process, at least briefly, to ensure financial stability.” The Dow Jones Industrial Average DJIA, 1.09% and S&P 500 SPX, 1.63% were set to open higher in Tuesday trades. Emergency steps by U.S. regulators to backstop the financial system appear to have turned the tide after last Friday’s selloff. NN: The system is broken… but the latest 1 trillion dollar bail out of loses in treasuries held by banks that are underwater will buy them time and even more inflation.
US Core CPI Tops Estimates, Pressuring Fed as It Weighs Hike…… Inflation at 6% well over Feds 2% target
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Underlying gauge rose 0.5% in February, most in five months
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Shelter accounted for more than 70% of overall monthly gain
Underlying US consumer prices rose in February by the most in five months, forcing a tough choice for Federal Reserve officials weighing still-rapid inflation against banking turmoil in their next interest-rate decision.
The consumer price index, excluding food and energy, increased 0.5% last month and 5.5% from a year earlier, according to Bureau of Labor Statistics data out Tuesday. Economists see the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure.
Underlying US Inflation Heated Up in February
Core consumer price index exceeded forecast in test for Federal Reserve
The overall CPI climbed 0.4% in February — over 70% of which was due to shelter — and 6% from a year earlier. The median estimates in a Bloomberg survey of economists called for a 0.4% monthly advance in the overall and core CPI measures. The figures reaffirm that the Fed’s quest to tame inflation will be a bumpy one as the economy has largely proven resilient to a year’s worth of interest-rate hikes so far. The challenge for the Fed now is how to prioritize inflation that is still far too high with growing financial stability risks in the unraveling of Silicon Valley Bank. Just before the crisis came to fruition last week, Chair Jerome Powell had opened the door to re-accelerating the pace of rate hikes, but many economists now say the central bank will either stick with a smaller increase or pause entirely when it meets next week.
“We got into this mess because a lot of central banks and a lot of economists, the Fed started to believe that inflation was largely dead,” Ethan Harris, head of global research at Bank of America Corp., said on Bloomberg Television. “Now we’re seeing a massive catch-up.”
Two-year Treasury yields, which are sensitive to Fed policy, rose to session highs while the S&P 500 opened higher and the dollar fluctuated. Swaps traders maintained bets that the Fed will lift interest rates by 25 basis points at its meeting this month. Outside of shelter, recreation, household furnishings and airfares also contributed to the monthly advance in the core measure. Grocery prices rose at the slowest monthly pace since May 2021, including the biggest decline in egg prices since the early months of the pandemic. The CPI, excluding food and energy, increased 0.5% last month and 5.5% from a year earlier, according to Bureau of Labor Statistics data. Mike McKee breaks down the numbers on “Bloomberg Surveillance.” The goods disinflation that has driven the slide in overall inflation in recent months has lost steam. Excluding food and energy, goods prices were unchanged in February. Used-car prices — a key driver of slower price growth in recent months — dropped the most in nearly a year. Compared to last year, they declined 13.6%, the most since 1960. Energy prices declined, due to big drops in natural gas and fuel oil prices. Meanwhile, electricity costs rose.
Shelter costs, which are the biggest services component and make up about a third of the overall CPI index, rose 0.8% last month.
Hotel stays contributed to the jump, with the largest monthly advance since October.
The rent of shelter and owners’ equivalent rent categories each surged by record annual amounts of at least 8%.
Stripping out energy and housing, services prices were up 0.5%, the most since September, according to Bloomberg calculations. Powell and his colleagues have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, though they compute it based on a separate index.
What Bloomberg Economics Says…
“February’s CPI report shows that inflation is not vanishing quickly, and there remains a compelling need for the Fed to continue raising rates. A 25-bp move would be appropriate at the March FOMC meeting, followed by a couple more until the Fed reaches a terminal rate of 5.25%.”
— Anna Wong and Stuart Paul, economists
The Fed is also keenly attune to wage growth and how it may be fanning inflation. A separate report Tuesday showed real average hourly earnings fell 0.1% in February from a month ago, and were down 1.3% from a year earlier. The annual measure has been negative every month for almost two years. Tuesday’s report is one of the last major releases the Fed will have in hand before its March 21-22 meeting. Policymakers will also scrutinize Wednesday’s wholesale inflation and retail sales data, plus other figures on housing, manufacturing and consumer inflation expectations. NN: inflation is still climbing in the parts of the report that counts and the FED closely watches. The longer this goes the harder inflation will be to contain.
OPEC sees robust global oil demand growth in 2023 after 2022 Chinese contraction
Oil extends losses, WTI down over 2.5%…. SO! its a bargain buy more!!
Crude oil prices fell as the sudden collapse of Silicon Valley bank sparked fears of contagion.
The prices of oil continued to tumble on Tuesday as the latest events taking place in the United States banking sector revived fears over the crude demand outlook. Investors are seemingly concerned that the financial crisis might spill over to a wider range of sectors, which, in turn, could bring about the collapse of the biggest economy in the world. BlagMask Pod Cast:
Do not let them PANIC you
Biden says “Your deposits are safe,”
President Joe Biden spoke out Monday morning in an effort to reassure Americans there is no need for panic after federal agencies stepped in following the failures of two big banks over the weekend.
“Americans can rest assured that our banking system is safe. Your deposits are safe. Let me also assure you, we will not stop at this. We’ll do whatever is needed,” Biden said from the White House.
The federal government said Sunday that all depositors at Silicon Valley Bank and Signature Bank will be protected and be able to get access to their money Monday morning, with the funds coming from special fund set up by the nation’s banks and from the sale of the banks’ assets, not from taxpayers. “No losses will be borne by the taxpayers,”
Biden repeated Monday.”Because of the actions that our regulators already taken, every American should feel confident that their deposits will be there if and when they need them,” he continued. “
Second, the management of these banks will be fired. If the bank is taken over by FDIC, the people running the bank should not work there anymore.”
“Third, investors in the banks will not be protected. They knowingly took a risk, and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.
Fourth, are important questions of how these banks got into the circumstance in the first place. We must get the full accounting of what happened and why those responsible can be held accountable,” he said.
Biden also pledged that he would take action to “reduce the risks of this happening again,” pointing the finger at the Trump administration for, according to Biden, rolling back some of the requirements the Obama administration put in place during their administration. “Unfortunately, the last administration rolled back some of these requirements. I’m going to ask Congress and the banking regulators to strength the rules for banks, to make it less likely this kind of bank failure would happen again, and to protect American jobs and small businesses,” Biden said. His comments echoed what he said in a statement Sunday, “I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe. The solution also ensures that taxpayer dollars are not put at risk.” “The American people and American businesses can have confidence that their bank deposits will be there when they need them. I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again,” he said. His comments came just before the U.S. markets and banks open and before he heads on a previously scheduled trip to California. He did not take any questions. NN: Do not lit them shit you…This is a trillion dollar emergency bailout……..
US Backstops Bank Deposits to Avert Crisis After SVB Failure
US authorities took extraordinary measures to shore up confidence in the financial system after the collapse of Silicon Valley Bank, introducing a new backstop for banks that Federal Reserve officials said was big enough to protect the nation’s deposits. The Sunday announcement by the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. followed a frantic weekend that saw the surprise closure of New York’s Signature Bank along with mounting concerns about spillover effects to other regional lenders and the wider economy. Regulators acted on a number of fronts to contain the potential fallout:
- 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 central bank relaxed terms for lending through its discount window, its main direct lending facility.
With a senior Treasury official cautioning there were other banks that appeared to be in similar situations to SVB and Signature, regulators’ top concern was assuring businesses and households they were made whole on their deposits.
That may help avoid any additional bank runs that could heighten the risk of a recession, at a time when the Fed continues to raise interest rates to rein in inflation. In the UK, HSBC Holdings Plc began Monday by announcing it was acquiring the UK arm of Silicon Valley Bank, the culmination of a weekend where ministers and bankers explored various ways to avert the SVB unit’s collapse.
The steps taken by regulators drove US stock futures and Treasuries higher in the hope the shock can be contained.
US Treasury Secretary Janet Yellen said the actions taken Sunday will protect “all depositors,” signaling aid to those whose accounts exceed the typical $250,000 threshold for FDIC insurance. Fed officials said on a briefing call that their new facility was invoked under the Fed’s emergency authority allowing for the establishment of a broad-based program under “unusual and exigent circumstances,” which requires Treasury approval. It was unanimously approved by the Fed board. The Treasury will “make available up to $25 billion from the Exchange Stabilization Fund as a backstop” for the bank funding program but the Fed doesn’t expect to draw on the funds, officials said. Under the new program, which provides loans of up to one year, collateral will be valued at par, or 100 cents on the dollar. That means banks can get bigger loans than usual for securities that are worth less than that — such as Treasuries that have declined in value as the Fed raised interest rates.
Normally, under the Fed’s main lending program, known as the discount window, the Fed typically lends money at a discount against the assets provided as collateral, a practice known as haircuts. The central bank said the loans under the discount window, which are up to 90 days, will now be subject to the same collateral margins as the new bank funding facility.
The Fed’s emergency lending program is “an admission not only of systemic risk but that the risks are so unusual and exigent that failure to invoke this liquidity could create a financial crisis,” said Peter Conti-Brown, associate professor at the University of Pennsylvania’s Wharton School.
US regulators emphasized that taxpayers won’t be on the hook for protecting SVB and Signature deposits, and Treasury and Fed officials rejected the idea that the banks are being bailed out — showcasing the potential political sensitivities of the weekend moves. The regulators said shareholders and certain unsecured debtholders will be wiped out, while management was fired.President Joe Biden, in a statement Sunday night, said the solution “protects American workers and small businesses, and keeps our financial system safe.” For the Fed, the collapse of two powerhouse regional banks will test their resolve as they decide their next move on rates. Chair Jerome Powell just last week opened the door to a re-acceleration to a 50 basis-point hike at the Fed’s March 21-22 meeting. Financial ructions may raise the bar for such a move, however. While economists at JPMorgan Chase & Co. retained their forecast for a quarter-point rate hike by the Fed in March, their counterparts at Goldman Sachs Group Inc. said they no longer expect the Fed to raise rates. Treasury two-year yields at one point headed for their steepest three-day decline since October 1987, when the Black Monday equities rout stunned markets. Just as that shock interrupted a tightening cycle, traders are now rapidly shifting back to betting on Fed rate cuts for the second half of this year. More broadly, SVB’s meltdown offered an illustration of the costs of the Fed’s most aggressive moentary tightening campaign since the early 1980s. The lender had plowed money into longer-term bonds during the pandemic, the market values of which dropped as yields then soared. Meantime, SVB’s funding costs surged as the Fed kept jacking up its benchmark rate. “While the Fed wants tighter financial conditions to restrain aggregate demand, they don’t want that to occur in a non-linear fashion that can quickly spiral out of control,” Michael Feroli, chief US economist at JPMorgan Chase, wrote in a note to clients. “If they indeed have used the right tool to address financial contagion risks (time will tell), then they can also use the right tool to continue to address inflation risks — higher interest rates.” The contagion has not been contained. Signature Bank of New York just failed. Here is a tidbit for you. Guess who is on the board of directors. None other then Barney LGTB Frank of Dodd Frank fame. BlackMask Pod Cast:
Dominoes Still Falling
Fed: Silicon Valley Bank depositors to be bailed out…… This after Yellen said not considering bailout of Silicon Valley Bank
The United States Federal Reserve issued on Sunday a statement together with the Treasury and the Federal Deposit Insurance Corporation (FDIC) stating that all depositors of the Silicon Valley Bank will be protected and “no losses will be borne by the taxpayer.” The regulators said this will apply to Signature Bank as well, which has also been closed. Depositors will have access to their funds starting on March 13. In addition, the Treasury said it will provide additional funding of up to $25 billion “to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.” The funds will be placed in a new Bank Term Funding Program (BTFP) and offered as loans of up to one year. The Fed stated that it “does not anticipate that it will be necessary to draw on these backstop funds.” It insisted that the capital and liquidity positions of the US banking system are strong and the US financial system is resilient. NB: So strong it needed a bailout!!
Yellen not considering bailout of Silicon Valley Bank
mUnited States Treasury Secretary Janet Yellen told CBS News on Sunday that a major bailout of the Silicon Valley Bank after its collapse on Friday is not something the US government is considering doing. In the interview, she discussed the possibility of how the regulators would respond to protect depositors and said that she is working on designing “appropriate policies to address the situation.” “Let me be clear that during the financial crisis, there were investors and owners of systemically large banks who were bailed out…and the reforms that have been put in place mean we’re not going to do that again,” she said. NN: Their was panic over the weekend and another bailout. SVB has the same exposure to rate increases as every other bank in the world. All they did was buy a little more time. You have seen this before. Soon the other shoe will drop.
Yellen not considering bailout of Silicon Valley Bank…..
United States Treasury Secretary Janet Yellen told CBS News on Sunday that a major bailout of the Silicon Valley Bank after its collapse on Friday is not something the US government is considering doing. In the interview, she discussed the possibility of how the regulators would respond to protect depositors and said that she is working on designing “appropriate policies to address the situation.” “Let me be clear that during the financial crisis, there were investors and owners of systemically large banks who were bailed out…and the reforms that have been put in place mean we’re not going to do that again,” she said.
Fed, FDIC to create backstop for uninsured Silicon Valley Bank deposits
The United States Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) are considering a backstop for uninsured deposits at Silicon Valley Bank, CNBC reported, citing a source. The move is aimed at restoring confidence in the banking system and reassuring depositors that their funds are safe. Under the Federal Deposit Insurance Act, the FDIC has the authority to provide insurance coverage for uninsured deposits in exceptional cases. This can help protect them from losses. The news comes after it was reported that the regulators have taken steps to auction the bank and mitigate the ripple effects from the institution’s collapse. United States regulators are auctioning Silicon Valley Bank (SVB) in order to find a buyer quickly after the institution collapsed on Friday, the Wall Street Journal reported citing people familiar with the matter. The Federal Deposit Insurance Corp. (FDIC) has taken over SVB due to its inability to raise sufficient capital to support its operations. To repay depositors, the regulators are looking to sell the bank to interested buyers through an auction process. It is not uncommon for regulators to use auctions as it allows them to maximize the value of the assets.
Summers Warns Consequences ‘Severe’ If SVB Deposits Not Released…. SVB fallout spreads around the world
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Former Treasury chief says SVB collapse not a systemic risk
Former Treasury Secretary Lawrence Summers warned that there will be “severe” consequences for the innovation sector of the US economy if regulators don’t smoothly work out the collapse of Silicon Valley Bank. “It certainly is going to have very substantial consequences for Silicon Valley — and for the economy of the whole venture sector, which has been dynamic — unless the government is able to assure that this situation is worked through,” Summers said on Bloomberg Television’s “Wall Street Week” with David Westin. Earlier Friday, regulators stepped in and seized the bank known as SVB after it mounted an unsuccessful attempt to raise capital and saw a cash exodus from the tech startups that had fueled its rise. The lender had plowed the tens of billions of dollars it took in from venture-capital-backed startups into longer-term bonds, a move that led to massive losses. The Federal Deposit Insurance Corp., which has been appointed as SVB’s receiver, only insures bank deposits of up to $250,000. But a large share of the money deposited at SVB was uninsured: more than 93% of domestic deposits as of Dec. 31, according to a regulatory filing. “There are dozens, if not hundreds, of startups that were planning to use that cash to meet their payroll next week,” according to Summers, a Harvard University professor and paid contributor to Bloomberg Television. “If that’s not able to happen, the consequences really will be quite severe for our innovation system.” Summers said he hoped that regulators will be “aggressive about containing the problem and containing possible contagion.” “I don’t think this is a time for moral-hazard lectures or for talk about teaching people lessons,” he said. “We have enough strains and challenges in the economy without adding the collateral consequences of a breakdown in an important sector of the economy.” The sudden implosion of SVB delivered a deep blow to a sector already reeling from layoffs, falling stock prices and diminishing funding for startups. The bank is most known for its financing in the venture capital community but also serves as a financial supermarket for tech executives, providing mortgages on mansions, personal lines of credit and financing for vineyards. Treasury Secretary Janet Yellen earlier in the day convened a meeting of top regulators, after which she issued a statement saying that the US banking system “remains resilient” and that regulators “have effective tools” to address developments around Silicon Valley Bank. For his part, Summers said, “I don’t think this is likely to be a broadly systemic problem.” The hammering of SVB’s stock triggered a broader selloff in US lenders, with the KBW Bank Index tumbling 16% for the week — the worst selloff since the March 2020 Covid shock to the financial system. Summers said it doesn’t now look like the biggest banks had the kind of mismatch between the kind of deposits SVB had and “the ways in which they had invested their money in longer-term bonds.” Earlier Friday, Summers said that “there may be a need for some consolidation” in the banking sector as a result of the latest developments. That could then pose a test for regulators, he said. A number of Democrats have pushed to limit bank mergers. For example, Senate Banking Committee Chair Sherrod Brown last year called for “ensuring that bank mergers, if approved, serve American families, small businesses, and communities – not Wall Street and big corporations.”
Summers warned that “one of the mistakes the authorities could make would be — out of a fear of consolidation coming from some kind of populist concern about concentration — blocking combinations that would ultimately operate in the direction of financial stability.”
“That’s something I think that we’re going to need to be attentive to going forward,” the former Treasury chief said. NN: Do not let them shit you this is a big Deal. Come NY Monday open they better have provided massive liquidity to high tech.. They risk a high tech melt down and it will spill over. The clock is ticking…..
Stock Market Miracle Collapses on Systemic Angst Spurred by SVB
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SVB, Silvergate collapses fan concerns over contagion risk
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Saving grace for stock bulls is that Fed will ease up hikes
This week’s events dented a main plank of the bull case for stocks — essentially that nobody was being hurt much by rising rates. Consumers and large firms, the story went, insulated themselves from Jerome Powell’s zeal by locking in loans back when yields were nothing. But banks have emerged as an exception to that hope as higher rates saddle lenders with paper losses on bond portfolios and lure depositors away. If too many defect, the paper losses can quickly turn into realized ones. For investors broadly the question becomes whether anxiety over the banking system is enough to fuel another major down-leg in a bear market that began 14 months ago. Skittish traders are aware that the financial crisis crash of 2008 didn’t see its worst stretch until about a year into the selloff, when the Lehman Brothers failure sent the S&P 500 down 30% starting in September of that year. Few are predicting that kind of carnage this time, though nothing puts bulls on higher alert than the suggestion of systemic risk. Brent Donnelly of Spectra Markets believes this week’s fall from 4,100 on the S&P 500 could be the start of a rapid selloff targeting 3,650 to 3,700 over the next week — a drop of more than 5% from the Friday close of 3,861.59. “It’s ready, shoot, aim right now. You can’t sit there as a depositor and ponder things — you just get out,” Donnelly said of investors in the SPDR S&P Regional Banking ETF. “If you’re long KRE, you just get out and then think about what to do.” Silicon Valley Bank became the biggest US bank to fail in more than a decade, toppled by a cash exodus from the tech startups it had catered to for 40 years. The collapse came days after crypto-friendly Silvergate Capital Corp. announced it would liquidate and wind down operations. The corresponding plunge in bank stocks and contagion fears dragged the S&P 500 4.5% lower this week, its worst performance since September. The index’s year-to-date gain is virtually gone, after hopes that the Fed might be nearing the end of its tightening cycle fueled a robust rally at the start of 2023. Now, traders are once again pricing in the possibility that the central bank might soon back off hikes and actually lower rates by year end. That lead to the two-year Treasury yield’s biggest two-day drop since 2008, after breaking through 5% for the first time since 2007 earlier in the week. But that recalibration is of little comfort to equity bulls this time around. “Especially in an inflationary environment, they keep moving until something breaks,” Michael Collins, PGIM Fixed Income senior portfolio manager, said Friday. “I would argue the risk of something breaking is now tilting to be a little bit higher than the risk of runaway inflation.”
Even if no systemic risk materializes, SVB’s travails were a reminder that banks may struggle to generate earnings even in a rising rate environment. That’s a potential headache for everyone, given the group is forecast by analysts to have the second-highest profit growth among S&P 500 industries this year. While higher rates are often thought to buttress interest income, the issue is complicated in 2023 by a steeply inverted yield curve that depresses yields on longer-dated assets versus short-term liabilities. Retaining deposits is hard when money market rates are as much as 50% higher than interest paid on savings accounts. And if deposits flee, banks may be forced to book what had only been paper losses on mortgage bond and Treasury holdings they are forced to sell. SVB ended up being the posterchild of that problem, given it served the breed of venture-capital backed firms and startups struggling with cash crunches as the Fed tightens the screws. “This is just another example of things breaking in an economy that has gotten very used to low interest rates for a decade and a half,” said Ellen Hazen, chief market strategist and portfolio manager at F.L. Putnam Investment Management. “When those rates start rising, both nominal and real, which is what has been happening for the last year, things are going to break, because there were entire business models built on free money.”