A year ago today marks are dark day for one banking equity analyst at JPMorgan.

The topic was Silicon Valley Bank, the once high-flying bank that catered to tech startups. It often lent founders huge sums at rates as low as zero per cent so long as they parent company continued to do business with SVB. That obvious conflict of interest hasn’t yet resulted in shareholder lawsuits or IRS trouble (that I know of) but it wasn’t that kind of self-dealing that unwound the bank. Instead it was a reach for yield with bank capital that blew up as rates rose.

In any case, once questions began a run on the bank started. And as the old saying goes: „What do you do when there’s a lineup outside your bank? …Get in it.“

The bank was doomed but JPMorgan analyst Steven Alexopoulos didn’t know it. He lowered his target to $177 from $270 in this note.

Addressing Questions Including What to Do with SIVB Shares Post the Sell-Off and Industry Read-Through
SIVB shares declined 60% in response to the intra-quarter update as well as a number of strategic actions being announced. While the mid-quarter update from the company pointed to an incremental $5B of deposit outflows anticipated during 1Q23, on the surface this did not appear dramatic enough to warrant the company having also announced that it had sold $21B of AFS securities (which triggered a $1.8B loss being recognized). With the company also increasing its term borrowings by $15B (to $30B), these actions to dramatically boost liquidity we believe sends the message (from SVB management) that it’s a much more prudent strategy to have more robust liquidity levels on hand given a still uncertain environment ahead rather than adjusting to liquidity needs on a „just in time“ basis. While we fully acknowledge that we did not see these aggressive actions coming to boost liquidity (as well as common raise), given that the cash burn from startup clients as well as pace of investments by VC firms each remain moving targets, on an overall basis we see this as a very prudent strategy from the company. Turning to the stock, while the mid-quarter fundamental update would have resulted in a -15% reduction to our 2023e EPS, very sharp selling pressure on the stock accelerated once the stock started trading below TBV. In fact, for those that were not around during GFC, when a bank completes a common equity raise below TBV, the lower the stock goes the more dilutive the raise is to TBV. The cure for this downward spiral is for the company to complete the raise and satisfy the market that enough capital is now in hand. With this fully being our expectation, with capital as well as liquidity positions bolstered we see the intense selling pressure abating. Although SIVB shares closed at $106, with the capital raise still pending, shares closed at $82.50 in the post-trading session. If we were to assume that the common equity raise was completed in the $80 range, our 2023e TBV is in the $177 range, which based on the $82.50 close in the post-trading session would imply a valuation of only 0.5x 2023e TBV. While it’s likely in our view that SVB stock opens much higher than the post-trading session close should the news emerge that the common equity raise was completed, we would be buyers of SIVB shares at this highly attractive valuation. SVB is a world class and highly valuable global franchise and the option to purchase the shares below TBV we believe more than adequately compensates investors for the risk being taken. To this end, we are revising our price target down from $270 to $177 which assumes the shares trade in line with 2023e TBV. With our revised price target implying considerable upside potential, we are maintaining our Overweight rating.

What happened next to the „highly attractive valuation“?

It fell apart almost instantly and the FDIC was forced to step in the next day — March 10, 2023 — leaving shareholders zeroed out.

How did it work out for Alexoploulus? Evidently not too badly as he remains an equity analyst covering mid and small-cap banks at JPM.

What now? Held-to-maturity bonds remain a big problem in the US banking sector but it’s been swept under the rub by account that doesn’t require marking to market. That’s all-and-good, until someone needs to raise money.

This article was written by Adam Button at www.forexlive.com.

Week Ahead 11-15th March

• Sat: Chinese Inflation (Feb)
• Sun: Japanese GDP (R)
• Mon: Eurogroup Meeting; Norwegian CPI (Feb)
• Tue: NBH Announcement, EIA STEO, OPEC OMR; UK Labour Market Report (Jan/Feb), US CPI (Feb)
• Wed: UK GDP (Jan)
• Thu: IEA OMR; Swedish CPIF (Feb), US PPI (Feb) and Retail Sales (Feb)
• Fri: Quad Witching, PBoC MLF, Japan’s Rengo (labour union) 1st Pay Tally; US UoM Prelim (Mar),

Note: Previews are listed in day order

Chinese Inflation (Sat):

Global markets will be closed during the release of the latest Chinese inflation data, but nonetheless China is expected to come out of its consumer deflationary trend with the Y/Y CPI expected at +0.3% (prev. -0.8%) and the M/M at +0.7% (prev. +0.3%). PPI is expected to remain in deflation at -2.5% Y/Y (prev. -2.5%). The data will be watched to gauge demand in the world’s second-largest economy. Using the latest Caixin PMI commentary as a proxy, the release suggested that “Cost pressures at the composite level picked up, but were mild overall, while prices charged by Chinese companies rose only marginally”, and the “pressure of low prices was more evident in manufacturing”. Data last month marked the fourth consecutive month of declines in consumer prices, as well as the sharpest drop since September 2009, with food prices causing the largest drag – in part due to a 17% slide in port prices coupled with a 12.7% fall in Fresh Vegetables. The inflation release also follows the recent CPCC Two-Sessions in which several economic targets were released, with the CPI target maintained at “around 3%”.

Japanese Revised GDP (Sun):

Although the metrics are revisions, all data will be watched by the BoJ heading into the March 19th confab. Current forecasts see Q4 GDP Q/Q revised higher to +0.3% from -0.1%, with the Q/Q annualised seen at +1.1% from -0.4%. Desks point the revision higher to better-than-expected activity data in December. The data comes at a time when hawkish calls are growing for the world’s most dovish G10 bank. Analysts at ING highlight that the GDP revision could be an “important development as it could give the Bank of Japan more confidence in the economic recovery.” It’s also worth noting that the first pay tally from the Rengo Trade Union Confederation (Japan’s largest labour organisation) is due on March 15th as part of the annual “shuntō” wage negotiations.

Norwegian CPI (Mon):

Core inflation (CPI-ATE), the Norges Bank’s main measure, is forecast by SEB to come in at 5.4% Y/Y (prev. 5.3%) slightly below the Norges Bank’s own expectation of 5.5%. An incremental acceleration from the prior shouldn’t cause any significant deviation from the downward trend in prices, though services remain the component to watch for signs of any acceleration. The February figures come before the March 21st meeting where market expectations ascribe just over a 90% chance of no-change with the remainder pointing to a cut. In January, the Norges Bank kept rates unchanged and guided them to remain at 4.50% “for some time ahead”. As a reminder, the January numbers were slightly firmer than expected and sparked some very marginal strength in the NOK at the time.

UK Labour Market Report (Tue):

Expectations are for the unemployment rate in the 3M period to January to hold steady at 3.8% with no consensus published yet for the other metrics. The prior release saw a decline in wage growth on both a headline and an ex-bonus basis. Analysts at Investec caution that significant reliability issues remain for the labour market data given low survey response rates, whilst also making the observation that it is “quite remarkable” that unemployment fell in the three-month period to December despite the UK being in a recession during H2. This time around, the desk expects a marginal uptick in the unemployment rate to 3.9% driven by an uptick in the participation rate. On the wages front, Investec “have pencilled in a continued moderation in monthly wage growth”, however, it expects that annual pay growth will remain elevated at +5.7% 3M/YY with the ex-bonus at +6.2%. From a policy perspective, the first 25bps rate cut is near-enough fully priced in by the time of the August meeting with a total of 61bps of easing by year-end. An out-of-consensus release could have some sway on market pricing. However, the extent of any repricing will be limited by the wish of policymakers seeing further progress on services inflation.

US CPI (Tue):

The rate of headline CPI is expected to rise +0.4% M/M in February (prev. +0.3%), while the core rate of inflation is expected to rise +0.3% M/M (prev. +0.4%). Traders upped hawkish bets on the expected path for policy rates following January’s pick-up in CPI and will look to the February data to help refine expectations of when the Fed is likely to cut rates. Currently, the market has discounted the prospects of three rate cuts this year and assigns a decent probability of a fourth. Policymakers have been looking through a single months‘ data, and are focussed on recent trend rates; in January, the rate of 3-month annualised core CPI rose to 3.9% (from 3.3%), while the 6-month annualised rate rose to 3.5% (from 3.2%). Fed Chair Powell this week told lawmakers that while inflation remains above 2%, it has eased substantially of late. Still, Powell stated that it would not be appropriate to reduce the policy rate until policymakers had greater confidence that inflation was moving sustainably towards 2%, adding that they were not looking for inflation to move all the way down to 2%, instead, the sustainability of the move was more important in assessing the outlook. He also said that the Fed was not looking for ‚better‘ inflation readings than we have had recently, but was looking for more of what we have seen.

UK GDP (Wed):

Expectations are for a 0.2% expansion in M/M GDP for January vs. the 0.1% contraction seen in December. The December release saw a 0.1% M/M contraction vs. the 0.2% expansion in November with the monthly data coinciding with the Q4 metrics which showed the UK entered into a technical recession at the end of 2024. For the upcoming report, Pantheon Macro is of the view that the January data will show the UK “leaving last year’s minor recession firmly behind”. The consultancy adds that the 3.4% jump in January retail sales will explain “almost all” of the 0.2% M/M expansion it expects for the January data. Furthermore, Pantheon is of the view that strength in the upcoming release will not be a “flash in the pan” given that PMI data has continued to recover since October with the February composite metric of 53.0 consistent with 0.25% Q/Q growth. From a policy perspective, a favourable release will likely put the UK on track to exceed the BoE’s mild 0.1% forecast for Q1 Q/Q GDP. However, it is unlikely to shift market pricing materially given the Bank’s ongoing focus on real wages and services inflation.

Swedish CPIF (Thu):

January’s headline CPIF Y/Y climbed slightly more than forecast while the ex-energy metric printed at 4.4% declining 0.1pp more than the Riksbank had forecast from the 5.3% prior. At the February MPU, the Riksbank placed significant emphasis on the need to see inflation stabilising near the target before being able to cut, while stating that a H1-2024 policy reduction “cannot be ruled out”. Expectations for the 26th March MPR (new format) imply just a 10% chance of a cut, justified by the view that it is unlikely the Riksbank would elect to ease at its first opportunity to provide fresh forecasts and in light of Jansson’s remarks in the minutes. However, assuming inflation continues to moderate and print roughly in line with expectations, a May cut remains possible with around a 60% implied probability. Thereafter, June is fully priced and has 31bps of easing currently implied. Overall, the February CPIF print will be used to frame whether a May or June cut is more likely, though the March forecasts and timelier data by that point will draw greater focus.

US Retail Sales (Thu):

US retail sales are expected to rise +0.3% M/M (prev. -0.8%), and the ex-autos measure is seen rising +0.3% M/M too (prev. -0.6%). Bank of America’s Consumer Checkpoint update for February notes that weather conditions were largely to blame for the weakness in January, but where the weather was better, spending was resilient, and in the later part of January, total card spending per household rebounded across the country. The bank notes that while consumer confidence has rebounded recently, it remains relatively weak given the consumer has been resilient over the last year and the labour market has been solid, likely a result of ’sticker shock‘ from higher prices. But ahead, BofA says that „as the rate of inflation comes down, this sticker shock should begin to fade, particularly as after-tax wages and salaries growth remains healthy for low and middle-income households in our data,“ adding that „consumers‘ savings buffers remain elevated and shows no significant sign that people are tapping into their longer-term retirement savings.“

PBoC MLF (Fri):

The PBoC will conduct its Medium-term Lending Facility operation next Friday with the central bank likely to maintain the 1-year MLF rate at the current level of 2.50%. As a reminder, the PBoC unsurprisingly kept its 1-year MLF rate unchanged last month during a CNY 500bln operation vs CNY 499bln of MLF loans maturing to „maintain banking system liquidity reasonably ample“. Furthermore, the central bank’s unwillingness to adjust its shorter-term funding rates is evident in the lack of adjustment to the 7-day reverse repo rate since August last year, while the central bank also surprised markets last month with its benchmark Loan Prime Rates in which it maintained the 1-year LPR at 3.45% (exp. 5bps cut), but delivered a deeper than anticipated cut for the 5-year LPR which was lowered by 25bps to 3.95% (exp. 10bps reduction), with the latter the reference rate for mortgages in China. This was viewed as a targeted measure to support China’s troubled property sector alongside the various efforts that had previously been announced to revive demand in the industry which has been in a crisis since 2020 and was once a key driver of the country’s economic growth. Furthermore, the central bank has continued to signal future action as PBoC Governor Pan recently noted that the PBoC still has sufficient room for monetary policy and that there is still room for cutting RRR. Analysis at ING suggests “Given that the tone on monetary policy at the Two Sessions was kept unchanged – continuing to highlight “prudent monetary policy” – the probability of a cut next week has fallen somewhat.”

Japan Rengo First Tally (Fri):

Wage negotiations will be closely scrutinised by the BoJ for guidance on when to exit its negative interest rate policy, with the Rengo Trade Union Confederation’s first tally (Japan’s largest labour organisation) arguably the most watched event in the upcoming week. The talks are part of the annual “shuntō” wage talks, with preliminary reports suggesting Rengo’s wage demand this year is at 5.85% (4.49% in 2023) – exceeding 5.0% for the first occasion in 30 years. Rengo President Yoshino told a news conference Thursday that the requests by the unions were amid several factors including inflation, personnel shortages and a recovery in corporate earnings. In terms of the BoJ, recent sources via Bloomberg suggested the BoJ is said to have differing views among members on the timing of a rate move, whilst officials are said to get more confidence about stronger wage growth. Sources added that there is no consensus yet on whether the central bank should move at the end of its policy meeting on March 19th or wait until April, whilst members see pay increases outpacing last year’s gains. BoJ Governor Ueda said the bank will consider rolling back the massive stimulus programme once the positive cycle of wages and inflation is confirmed, while board member Nakagawa said they don’t necessarily need to wait for all of small, mid-sized firms‘ wage talks outcomes in deciding when to end negative rates. It’s important to ensure wages keep rising as a trend and sustain inflation around 2%. The latest sources via JiJi suggested the BoJ is considering a new quantitative monetary policy framework, although details are light.

This article originally appeared on Newsquawk.

This article was written by Newsquawk Analysis at www.forexlive.com.

Consumer price inflation data from China for February 2024 shows an exit from deflation

CPI +0.7% y/y

• expected +0.3%, prior -0.8% (that -0.8% in January was the sharpest the steepest fall in more than 14 years)
• for the m/m, comes in at +1.0% (prior +0.3%)
• first rise in the CPI since August of 2023
• core CPI +1.2% y/y (prior +0.4%)

PPI -2.7% y/y

• expected -2.5%, prior -2.5%
• for the m/m, comes in at -0.2%

Thats a very large jump in CPI from -0.8% y/y in January to +0.7% in February. Its not as if the yuan collapsed, which would ramp up the price of imports.

ADDED – China National Bureau of Statistics (NBS) on the CPIrise:

• „It was primarily food and service prices that rose more“
• „During the Spring Festival period, consumer demand for food products grew, in addition to rainy and snowy weather in some regions affecting supply“

—

Well, that ends the ‚deflation narrative‘ in China. This is welcome news, deflation weighs on the economy in multiple ways:

• When prices are falling, consumers may delay purchases in anticipation of even lower prices in the future. This reduction in spending can lead to decreased demand for goods and services, slowing down economic growth.
• Deflation increases the real value of debt, making it more expensive for borrowers to repay loans. This can lead to higher default rates and can stress financial institutions. Individuals and businesses may cut back on spending and investment as a result.
• As prices fall, revenues for companies decrease, but many of their costs (like loans, leases, and salaries) do not adjust downward as quickly. This can lead to lower profits, cutbacks in production, and layoffs, further contributing to the economic downturn.
• Wages tend to be sticky downwards, meaning they do not easily decrease even when there is deflation. This can lead to higher labor costs relative to revenues for businesses, forcing them to reduce their workforce or halt hiring.
• With falling prices, the return on investments can be lower than expected, or even negative. This can lead to a reduction in investments by businesses in areas like research and development, new projects, or expansion.
• The most dangerous aspect of deflation is the risk of a deflationary spiral. This occurs when falling prices lead to lower production, leading to higher unemployment, leading to lower demand, and thus further declines in prices. This vicious cycle can be very difficult to break and can lead to long-term economic stagnation.

This article was written by Eamonn Sheridan at www.forexlive.com.

• US February non-farm payrolls +275K vs +200K expected
• Canada February employment change 40.7K versus 20.0K estimate
• ECB sources report: Policymakers ‚overwhelmingly‘ favor June for first rate cut
• Fed’s Williams: Inflation expectations have come down quite a bit
• US Baker Hughes weekly oil rig count -2
• New York Fed Nowcast of Q1 GDP growth rises to 2.14% from 2.12% previously
• Canada Q4 capacity utilization rate 78.7% versus 79.7% last quarter

Markets:

• Gold up $18 to $2177
• US 10-year yields down 1.3 bps to 4.08%
• WTI crude oil down $1.07 to $77.86
• S&P 500 down 33 points, or 0.6%, to 5123
• JPY leads, CAD lags

I’m always leery of a pre-NFP front run and today is an example of why. The US dollar was soft and bonds bid for 24 hours before the report. When the data rolled out it was dovish. Yes, the headline beat but unemployment rose, revisions were much lower and wage growth was surprisingly soft. The initial reaction was for more USD selling but that was the extreme of the day. In the hours that followed the dollar weakness slowly reversed, with the help of a weak stock market.

The euro climbed up to 1.0980 on the NFP headlines but slowly slid back to 1.0930, which is slightly before the data was released. It didn’t get any help from the leak saying that only a few ECB members want to cut in April.

The pound was more resilient as it finished up 50 pips on the day but still gave back 50 pips from the highs in what could have been its strongest day since December. Still, it’s the best close of the year for the pond and breaks months of consolidation. That will be something to watch in the week ahead.

USD/JPY continues to be sold on BOJ hike speculation. That will be a key topic next week ahead of the March 19 decision as the leaks continue to roll in.

USD/CAD was a tough trade today. The Canadian jobs report was strong but so much is being driven by population growth that the market isn’t impressed. Later as the risk trade and oil stumbled, so did the loonie, erasing all the jobs moves and more.

Gold hit another all-time high but as it neared $2200, some aggressive selling hit. The turn in gold coincided with heavy profit taking in some high-flying stocks, particularly chipmakers with NVDA falling to $875 at the close from a record high of $974.

This article was written by Adam Button at www.forexlive.com.

Not today.

The major indices are closing lower, and also lower for the week. The declines come after both S&P and NASDAQ indices reached new all-time high intraday levels.

The final numbers are showing:

• Dow industrial average -68.68 points or -0.18% at 38722.70
• S&P index -33.67 points or -0.65% at 5123.68
• NASDAQ index -188.27 points or -1.16% at 16085.10.

The small-cap Russell 2000 also fell by -2.02 point or -0.10% at 2082.71

For the trading week

• Dow industrial average, -0.93%
• S&P index, -0.26%
• NASDAQ index, -1.17%

The Russell 2000 was the only positive with a gain of 0.304%

Nvidia fears extended close to the $1000 level reaching $974 before reversing sharply to the downside in closing at $875.35. The low for the day reached down to $865.06 for a huge range of close to $110.

Conversely Apple shares snapped a seven day decline with a gain of $1.75 or 1.04% to $170.70.

Other losers today included:

• Super Micro Computers -1.73%
• Palo Alto Networks -2.23%
• Dell -3.53%
• Meta -1.22%
• ARM holdings -6.65%
• Broadcom, -6.99%
• Intel -4.66%
• Crowdstrike -2.07%
• Costco -7.64%
• Micron -1.37%
• Taiwan Semiconductor , -1.90%

This article was written by Greg Michalowski at www.forexlive.com.

The oil market isn’t quite sure what it wants to do. This week, OPEC extended its production cut, the Saudis raised prices and US inventories tightened. But that wasn’t enough to get oil through $80 as it tried on Monday, Wednesday and today. Despite touching above $80 on a couple days, it failed to close above and never even matched last week’s intraday high of $80.85.

That’s not a great sign for crude, though the seasonals are still positive for March and April so there’s room for optimism. It pulled back to $77.84 today after failing at $79.99 so there are clearly technical players involved. We will see if signals from the physical market next week can re-assert themselves. Otherwise, a fall below $77.50 could be trouble.

This article was written by Adam Button at www.forexlive.com.

As the Friday trading day winds down, what are the key technical levels in play for the GBPUSD heading into the new trading week.

In the video above, I outline what to watch for technically in the trading week starting March 11.

This article was written by Greg Michalowski at www.forexlive.com.

The Japanese yen has been the big mover in European trading, as USD/JPY briefly dipped below 147.00 amid more hawkish BOJ murmurs during the session. Outside of that, the market moves so far today have been relatively contained for the most part.

The dollar remains vulnerable, down against the likes of the pound and aussie. But the euro is the laggard as ECB policymakers are out in droves to possibly put an April rate cut back on the table. I’m still skeptical but well, the commentary has been surprising to say the least. Then, we have gold sitting higher again and flirting with the $2,170 level on the day.

In other markets, equities are fairly tentative while Treasury yields are sitting slightly lower on the day. 10-year yields are down another 2 bps to 4.071% and that is keeping the dollar fairly subdued in the bigger picture for now.

It’s all about US jobs report coming up next to set the tone as we look to wrap things up this week. As mentioned earlier:

This looks to be a market that is wanting a release that will validate the moves this week i.e. softer dollar, stronger risk trades. That means it is going to take quite some convincing to turn sentiment around as we look towards the weekend. And barring any material change to the Fed outlook on the hawkish side, I reckon the play will be to fade any opposite reaction to the flows we have seen in the last few days. But we’ll see.

Here are a couple of previews ahead of the main event:

• Preview: February non-farm payrolls by the numbers. Eyes on earnings
• Goldman: What to expect from the US jobs report on Friday
• Here is what to watch for an extreme surprise in Friday’s US employment report

This article was written by Justin Low at www.forexlive.com.

USD

• The Fed left interest rates unchanged as
  expected at the last meeting and dropped the tightening bias in the statement.
• The US PCE came
  in line with expectations.
• The US ADP and
  the US Job Openings missed
  expectations, followed by weaker than expected US Jobless Claims.
• The latest US ISM
  Manufacturing PMI missed expectations by a big margin
  remaining in contraction with the US ISM Services
  PMI
  following suit but holding on in expansion.
• The US Consumer
  Confidence missed expectations across the board.
• The market expects the first rate cut in June.

AUD

• The
  RBA left interest rates unchanged as expected with the central bank
  maintaining the usual tightening bias and data dependent language.
• The
  recent Monthly CPI report missed expectations across
  the board which was a welcome development for the RBA.
• The
  latest labour market report missed expectations by a big
  margin.
• The
  wage price index surprised to the upside as wage
  growth in Australia remains strong.
• The
  latest Australian PMIs showed the Manufacturing PMI falling
  back into contraction while the Services PMI jumped back into expansion.
• The
  market expects the first rate cut in August.

AUDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that AUDUSD eventually
bounced around the key 0.65 support zone and
extended the rally into the swing high at 0.6623. A successful break above this
level should open the door for a rally into the 0.69 resistance next. We can
also notice that the price is a bit overstretched as depicted by the distance
from the blue 8 moving average. In such
instances, we can generally see a pullback into the moving average or some
consolidation before the next move.

AUDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that in case we get
a pullback, the buyers will have the first support around the 38.2% Fibonacci retracement level
where they will also find the red 21 moving average for confluence. The
sellers, on the other hand, will want to see the price breaking below the
Fibonacci level to increase the bearish bets into new lows.

AUDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see more
closely the recent price action with the pair now trading inside a rising
channel with the red 21 moving average acting as dynamic support. A break to
the downside should trigger a selloff into the Fibonacci level with the sellers
piling in with more conviction.

Upcoming Events

Today we conclude the week with the US NFP report.

This article was written by FL Contributors at www.forexlive.com.

• GDP +0.1% vs +0.1% y/y second estimate

This just confirms zero growth in the euro area in the last quarter, after having marginally contracted in Q3 2023. It was a very poor year to say the least for the Eurozone but at least a technical recession is avoided, by the thinnest of margins.

This article was written by Justin Low at www.forexlive.com.