Major U.S. Economic Reports Due this Week
TUESDAY, MARCH 22
Existing home sales
WEDNESDAY, MARCH 22
Fed interest-rate decision
Fed Chair Powell press conference
THURSDAY, MARCH 23
U.S. current account
Initial jobless claims
Continuing jobless claims
New home sales
FRIDAY, MARCH 24
Durable goods
S&P Global flash U.S. services PMI
S&P Global flash U.S. manufacturing PMI
A Look at Interest Rates
The week before last, the markets for Treasury securities were extremely volatile. After reaching 4.09% earlier this month, the interest rate on the 10-year U.S. treasury ($TNX) began the week around 3.50%, increased to 3.68% by the middle of the week, and then decreased to around 3.38% on Friday, March 17. On the verge of a 30-day low.
The upcoming increase in the interest rate was the topic of much discussion and speculation over the course of the previous week. According to the metrics used in the financial industry, there was a 75% chance as recently as March 9 that the increase in interest rates on March 22 would be +0.50%. By the 15th of March, there was only a 37% chance that rates would be increased in any way. Be aware that there is a 78% chance of an increase of +0.25%.
In the past eight years, during which time these statistics are available, a rate hike (or cut) has always occurred just before a meeting of the Federal Reserve whenever the probability of such an event was greater than 65 percent.
Credit Suisse and UBS
In the midst of yet another wild weekend, regulatory bodies continued their efforts to avert a banking crisis that is rapidly spreading across global markets. UBS (NYSE:UBS) has come to an agreement with its longtime competitor Credit Suisse (NYSE:CS) to acquire the latter for the price of $3.25 billion. This price represents less than half of Credit Suisse’s market valuation as of the end of trading on Friday. The deal was brokered by the Swiss authorities. If a deal hadn’t been reached, Credit Suisse (CS) probably would have failed this week, contributing to the spread of the financial contagion that began in the United States with the failure of Silvergate Capital, Silicon Valley Bank, and Signature Bank (First Republic is also facing trouble with additional cuts to its ratings).
After the emergency rescue, which would limit contagion throughout the financial system, market sentiment improved, only to take a turn for the worse as more information was processed and the situation became clearer. The Federal Reserve, the European Central Bank, and other major central banks took coordinated action to ensure dollar liquidity. The Swiss National Bank promised unrestricted access to liquidity facilities for both banks that were involved in the transaction. The potential for large losses for shareholders and bondholders prompted the coordinated action. UBS (UBS) and Credit Suisse (CS) opened down 11% and 59%, respectively, in premarket trading. The regulator FINMA added that approximately $17 billion worth of risky AT1 bonds held by Credit Suisse (CS) will become worthless to guarantee that private investors help bear some of the costs.
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