There was a sense of déjà vu in the markets today with First National Bank’s latest deposit woes causing traders to wonder whether it too will suffer the same ultimate face of other regional banks before it such as SVB. But while the markets got the jitters on renewed banking crisis fears, so far such troubles look to be confined to the regional level banks rather than affecting the bigger names in the US banking sector if earnings season thus far is anything to go by.
With the Dow off 1% and the Nasdaq shedding nearly 2%, caution was the order of the day across Asian markets as traders not only digest the latest corporate earnings but also some key upcoming macro data this week in the form of GDP and core PCE, both of which could have a bearing on which tone the Fed takes at its policy meeting next week.
The general market mood did get a reprieve in the form of pleasing earnings results from Microsoft and Alphabet and this saw US futures ticking higher. The two tech giants reported results after the US closing bell, and gains in the cloud side of each company was a key driver of the forecast-beating results. However, it wasn’t all good news on the earnings front, with the UPS earnings miss and sales drop reminding traders that questions remain over the health of the consumer sector.
With banking woes again at the forefront of traders’ minds, the USD, Yen and gold all received good buying flows as part of a safe-haven play. Meanwhile, US treasury yields took a dive on the banking sector headlines as well as some less-than-stellar US economic data (US consumer confidence fell to a 9-month low, US Richmond Fed Manufacturing Index also dropped). While the FOMC is still expected to hike next week, recent events (First National Bank, macro data) have opened the door for Fed Chairman Powell to possibly adopt a more dovish tone regarding the future interest rate outlook.
A softer read on Australian inflation today saw the Aussie Dollar take a step back. The currency had already been under the pump from the risk-off sentiment that prevailed across markets, with traders favouring safe-haven assets rather than the higher-risk AUD. The CPI came in at 7% y/y and 1.4% for the quarter, which both represented an easing. But with inflation still well above the RBA’s target band, it remains to be seen if this latest inflation dip is enough for the central bank to continue their rate pause next week.
Overall, if banking sector dramas persist and recession fears keep rearing up, we could be in for a particularly choppy-looking trading period ahead of key rate decisions from central banks around the globe next week. If we happen to see interest rate hikes occurring against the backdrop of renewed global growth concerns, this scenario would be less-than-ideal for risk appetite to say the least.