In the name of God, the most gracious, the most merciful
And prayers and peace be upon the most honorable of the prophets and messengers, our master Muhammad and his family and all his companions
Economic data under the microscope
Last week, the Consumer Price Index, which expresses inflation rates, was released with the same expectations at 6%, which is still far from the target or the natural rate that the Fed seeks at 2%.
Additionally, Initial Jobless Claims fell to 192,000 last week, below expectations of 205,000. It is also down from the previous week, in a sign that the labor market remains brisk despite signs that inflation is starting to moderate somewhat.
previous equation
The Fed previously had nothing to do but fight inflation by achieving a soft recession by continuing to tighten monetary policy by raising interest rates while increasing unemployment to reduce consumer spending until its goal is achieved.
The new equation
The markets are developing a new equation, which is the collapse of the Silicon Valley Bank, and the main reason for its collapse was the increase in the interest rate, which led to a rise in US bond yields, which was reflected in the value of the bonds by declining, and the bank had a large possession of bonds, which lost their value with the tightening of monetary policy
The Federal Reserve between inflation and the banking crisis
The markets are awaiting the upcoming Federal Reserve meeting on March 22, which will be issued in the interest rate rate in light of the serious equation, as the Federal Reserve is in a confrontation between fighting inflation on the one hand and the crisis of American banks and banks and the fears of investors on the other.
Fighting inflation requires further tightening of monetary policy and the continuation of raising interest rates, and Jerome Powell made promises that there is still a long way to go with inflation and monetary tightening policies.
As for the banking crisis, and since the one accused of raising interest rates, this needs a turning point for the accommodative policy to support the banking system in the United States of America.
Numbers taken into account
Figures released by the Federal Reserve show how quickly and pervasively anxiety in the banking sector has prompted it to erase its 6-month gain in reducing the balance sheet to $300 billion over the past week.
US banks flocked to borrow nearly $153 billion from the Fed’s borrowing window last week, and banks got an extra $11.9 billion from the Fed’s new bank financing program.
Analyst predictions:
Bank use of the new BTFP bank financing program is expected to rise sharply in the coming weeks as many banks have completed the process of registering with the Federal Reserve to benefit from the program.
Here comes the question
Will the Fed continue to focus on inflation and ignore what is happening in the banking system in order to win the trust of investors? Or will he hold the stick from the middle? Or will it turn to the facilitative policy and give a shock to the markets?
The crisis may continue:
There are reasons indicating that the crisis will continue with us because of fears and the spread of infection to other small banks
– Credit Suisse is the largest bank in the European market in Switzerland and its request for assistance with a loan of $ 54 billion from the Swiss Central Bank
– The continuation of raising interest rates by the Federal Reserve represents a constant threat to small banks, which has become a rise in interest rates, which is tantamount to a high cost of funds for startups, and thus caused the closure of initial offerings for many startups.
– Increasing expectations that short sellers will continue attacking the banking sector stocks, which are known as short selling, which makes banking stocks anticipate further declines.
– Fears are growing that the continuation of raising interest rates will lead to the US economy entering a deep recession
– There are researches that say that the collapse may affect about 168 US banks, despite the interventions to stop the collapse.
Federal decisions between inflation and the banking crisis:
As we know, the markets are waiting for a very, very important event, which is the Federal Reserve meeting to determine its monetary policy and interest rate pricing, which will be issued on March 22, 2023. There are several scenarios we have:
First scenario:
The interest rate is cut by 25 basis points, and it is a shocking point for the markets if the Fed does it, if it focuses on supporting the banking sector and ignores inflation temporarily, but here it will lose its credibility because it was on a permanent promise that it would continue to fight inflation. What is greater than inflation and that he has nothing to hide from the banking sector
Second scenario
Fixing interest without change, according to what Goldman Sachs (NYSE:) sees, and believes that it is the most prominent possibility, and it is also a great shock to the markets, because it is considered a sudden turning point from a strict tone to one in which uncertainty increases, and it will lose its credibility as well.
Third scenario
The Fed’s monitoring tool indicates that the Fed will raise interest rates by 25 basis points so as not to lose its credibility, and it is likely in the markets by 80%.
What the Fed should do:
He must set his tone diplomatically and maintain his credibility by raising the interest rate by 25 basis points and giving investors confidence that they are on their way to containing the crisis.
Most of the beneficiaries of the crisis:
– It is the first beneficiary of the fact that the investor’s confidence has become shaky regarding the banking and banking system, so investors resort to safe havens, primarily gold, as well as silver, of course.
– Cryptocurrencies after the possibility of the return of the Federal Reserve’s quantitative easing cuts, in addition to the banking crisis shaking the confidence of investors and that they will put their wealth in assets such as
This was a comprehensive and complete report of the latest developments, expectations, and what awaits the markets
Attached is the illustrated report of my technical expectations for gold, the dollar, silver, US indices, as well as cryptocurrencies
my regards
Dr.. Muhammad Al-Ghobari
