Central Banks Prop Up Banking Systems, German PPI

The EUR/USD pair continued to turn moderately higher, reaching again levels closer to 1.065. Though the common European currency itself was still not performing per se strongly against other majors like the Australian dollar (AUD) and New Zealand dollar (NZD) as this move was rather fuelled by the weaker dollar. The concerns about the state of banks in many regions meanwhile could derail the central banks’ efforts to get inflation under control, just as the opened dollar swap lines with other major central banks in order to assure markets that liquidity is readily available. Looking at the yield curve for U.S. Treasuries hardly any rate hike from the current 4.5%-4.75% federal funds rate target range can be expected and T-Notes with a maturity of one year or longer are pricing in already some rate cuts. Should the ECB follow the same tune and intend to save the banking system at the possible expense of fighting inflation, even stronger indicators for coming rate cuts could be observed in the bond markets with for example the entire yield curve of German federal government bonds now trading at yields below the three per cent ECB deposit facility rate.

The German producer price index (PPI) has been coming down again only very slowly with a monthly rate of deflation in February amounting to only 0.3% and thus the year-on-year rate of inflation being estimated at 15.8%.

Gold had one of the best daily performance so far seen during 2023 on Friday as the price of the precious metal rallied higher by 3.5% to a new 11-months high as the prices remained elevated by Monday morning. Fundamentally the relatively stable dollar coupled with collapsing yields like the 10-year U.S. T-Note benchmark which declined towards 3.33% by Monday morning could have been bullish for the precious metal. Higher bond prices mean also that investors in non-yielding assets like gold have to forego less in terms of interest compared to times when yields are up. Also, the current crisis in banking which now caused a forced takeover of Credit Suisse might drive demand in assets which are deemed to be ‘safe havens’ at times of turmoil.

Silver prices also rallied by close to four per cent on Friday, while other precious metals like platinum and palladium stagnated.

Oil prices continued to decline, reaching levels of less than $66 per barrel of WTI crude oil as the last week’s performance of the commodity for longs was the worst in almost three years since the early stages of the pandemic in 2020. While WTI crude oil prices declined on a weekly basis by almost 15% and Brent crude prices also plummeted by more than 12%, gasoline futures merely declined by a bit less than 6%.

The U.S. Baker Hughes Oil Rig Count remained almost unchanged as the number of operating oil rigs declined only by one to 589, which still is yet another year-to-date low.

As usual on Tuesday the American Petroleum Institute (API) publishes its Weekly Statistical Bulletin that increase also data on crude oil, gasoline and distillate stockpiles in the U.S. Then on Wednesday the Energy Information Administration (EIA) follows up with a similar dataset in its Weekly Petroleum Status Report.

Sentiment in the equities market was somewhat mixed with the US 500 further reversing lower by Monday morning, though still trading well within the range seen during the course of last week. The US Tech 100 index at the same time maintained its strong position after the gains accrued between Tuesday and Thursday and had to give up only a small portion of those gains on Friday and Monday.

The performance of different economic sectors was significantly divergent during the regular session with chip sector stocks (US Semiconductors ETF -0.37%) and tech (US Technology ETF -0.21%) performing fairly stable. On the other hand, banks (US Banks ETF -5.57%) and financial companies (US Financial Long x3 ETF -9.72%) were still facing severe pressure as it is not clear whether the current government and central bank interventions were sufficient to halt the banking sector after multiple banks starting with the SVB collapsed.

FedEx (+7.70%) was by far the best-performing component of the S&P 500 index following the release of the company’s quarterly results on Thursday evening. The company’s bottom line results for the fiscal Q3 were better than anticipated and the company raised its earnings guidance for 2023 to $14.6 to $15.2 per share from $13 to $14.

Only few major companies are expected to publish their respective results this week, including Tencent Music, HUYA, GameStop and Nike on Tuesday, Chewy on Wednesday and Accenture on Thursday.