Monday March 13th, 2023

The US$ recoups early losses, oil prices slip, equity markets are down, and US yields ease as future rate views are tempered. The US$ extends a 2nd day of losses and Treasury yields extend declines as investors dialed back rate expectations following the collapse of Silicon Valley Bank (SVB). SVB failed after a bank run on March 10th, resulting in the largest bank failure since the 2008 financial crisis and the second largest in US history. With a quiet economic docket today, investors are expected to be sidelined monitoring the SVB impact on markets and will be focusing on Tuesday’s key US Inflation report.

In other news. After Silicon Valley Bank failure, US acts to shore up banking system confidence (Reuters). HSBC buys Silicon Valley Bank UK for 1 pound in deal which “protects customers and taxpayers”. UK approves increased submarine-related exports to Taiwan, risking upsetting China. Ukraine, Russia locked in brutal battle in Bakhmut as casualties mount on both sides. China’s President Xi planes Russia visit as soon as next week. Mask-free Monday comes to Japan as government eases covid guidelines. Eurozone banks index is down 3.1% Reuters news.

In Currency markets. The US$ tumbled in early trading as markets expect the Fed to pivot on its interest rate direction after the failure of SVB. Commodity currencies rebound on the prospect of central banks stalling hawkish sentiment. CNY is up 0.1%, while Asian are up 0.35% on average vs US$. Trading currencies are mixed with MXN down 0.15%, while SEK is up 0.35%, CHF & NOK firm 0.6%, NZD & JPY strengthen 0.85%, ZAR gains 0.95%, and AUD rallies 1.15% vs US$.

Oil prices slip in early trading on souring risk sentiment despite a weakening US$ and ongoing China demand optimism. C$ rebounds from its biggest weekly drop since September in early trading on a weakening US$ following the collapse of SVB and expectations that the Fed will dial back their hawkish stance on future rate hikes. Expect market to consolidate ahead of Tuesdays US inflation report. Support lowers to 1.3715 while resistance resets to 1.3820.

EURCAD slips in early trading as markets expect the ECB adjust its dovish tone in response to the SVB failure. Support resets to 1.4600 while resistance rises to 1.4725.

Euro stalls at 1.0725 as regulators execute their SVB contagion plans. The US$ is the primary driver today as investors react to the 2nd largest US bank failure and start to focus on to Tuesday’s US inflation report. The US$ eased on the prospect of a pivot from the Fed, but this is likely to also impact the ECB hawkish tone which will likely cap any short-term Euro rally. Today look for the choppy waters to settle after the Fed & UK government contain the fall out of the SVB collapse. Focus will be on Thursday ECB rate decision. Support rises to 1.0580 while resistance resets to 1.0725.

GBPEUR edges higher with expectations the ECB will pivot its hawkish rate stance. Support holds at 1.1200 (.8928) while resistance remains at 1.1400 (.8772).

GBP pares gains as the US$ recovers as markets respond positively to SVB UK action. Ahead of Wednesday’s UK budget the chancellor appears pleased that HSBC purchases SVB UK removing the need for a taxpayer bailout. We expect markets to steady after the Fed agrees to support all US deposits and SVB UK sale is completed. Focus will shift to the key US inflation report on Tuesday. Support resets to 1.1980 while resistance rises to 1.2100.