Bank Stocks in Focus as Crisis Looms Large Over Wall Street
March 27 2023 - 7:25AM
Finscreener.org
Investor sentiment is expected to
remain bearish in the near term following the
big-ticket collapses
of the Silicon Valley Bank
and Credit Suisse (NYSE:
CS). Shares of Germany’s largest bank,
Deutsche Bank (NYSE:
DB), also fell 8.5% last Friday as contracts
implemented to insure the entity against debt defaults spiked
higher.
The financial instruments called
credit default swaps allow investors to insure their debt holdings
by paying a premium. Last week, five-year CDS prices were up 85
basis points at 2.1%, indicating investors would pay around $2,100
each year to insure $1 million worth of bonds held by Deutsche
bank.
Shares of several bank stocks,
including JPMorgan (NYSE:
JPM) and
Morgan Stanley (NYSE: MS), were also down 1.5% and 2.2% lower,
respectively, on March 24.
Will gold prices surge in the upcoming
week?
Broader markets are trading lower
as the banking crisis will weigh heavily on credit growth and
economic activity as inflation remains elevated. The uncertainties
of regional lenders and smaller banks have also shifted deposits
into giants such as JPMorgan and Wells
Fargo (NYSE:
WFC).
But the implosion of banks in the
U.S. is also driving gold prices higher. Viewed as a store of value
and a hedge against inflation, prices of the precious metal have
surged 10% since SVB’s bank run.
The Federal Reserve is unlikely
to hike interest rates aggressively in the second half of 2023, and
this pivot will act as another tailwind for gold. Earlier this
month, gold prices breached the $2,000/ounce mark for the first
time in 12 months and are now imperiously close to all-time highs.
Gold demand surged last year as central banks brought 1,136 tons of
gold in 2022.
In an interview with CNBC, Craig
Erlam, a senior market analyst at foreign exchange company Oanda,
stated, “I think it’s very plausible that we see a strong
performance in gold over the coming months. The stars appear to be aligning for gold which could see
it break new highs before long.”
Home prices
S&P Global will publish
its Cas-Shiller National Home Price Index, and the FHFA or Federal
Housing Finance Agency will release the House Price Index for
January on Tuesday. The FHFA report tracks the prices of
single-family houses in the U.S.
Economists expect home prices to
fall by 0.9% in the month of January, which is the seventh
consecutive month of decline. On a year over year. basis prices are
forecast to rise 3.7%, marking the slowest annual growth rate in
almost three years.
Rising mortgage rates have cooled
down the housing market in the U.S. For instance, the fixed rate
for a 30-year mortgage is close to 6.4%, an increase of 200 basis
points compared to the year-ago period.
Will inflation numbers move lower?
The Bureau of Economic Analysis
will release the latest Personal Consumption Expenditures (PCE)
Price Index on Friday. The index is expected to have risen 0.5%
last month, with an annual gain of 5.1%.
The core prices, excluding
volatile food and energy costs, likely rose 0.4% from January and
4.7% YoY. The PCE Price Index is the Fed’s preferred gauge for
measuring inflationary pressures and tracking U.S. consumer
spending decisions. The Fed targets a 2% annual rate of PCE
inflation.
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