By Geoffrey Smith
Investing.com -- Just in case there's not enough volatility in your life, the U.S. releases consumer inflation data at 08:30 ET (12:30 GMT). Whether it will behave well enough to calm investors' nerves rattled by three bank failures in the past week is anyone's guess. Stocks are up a little ahead of the all-important number, but the market is not buying back regional banks' stocks with any conviction yet, and expectations for central bank action over the next two weeks have turned decidedly dovish. And crude oil prices hit their lowest level so far in 2023 as the outlook for the economy darkens. Here's what you need to know in financial markets on Tuesday, March 14th.
1. Just when you thought it was safe to get back in the water...
The U.S. releases consumer inflation data for February at 08:30 ET into a febrile market still absorbing the implications of last week’s bank collapses and the authorities’ attempts at the weekend to stop them spreading.
Inflation, which is still three times the Federal Reserve’s 2% target despite trending down for six months already, has the potential to stop the central bank from easing financial conditions. That’s especially true if it surprises to the upside again, as it did in January.
Analysts expect the headline rate to slow to 6.0% from 6.4% as last year’s energy spike starts to raise the base level for comparisons, but the consensus forecast for a chunky monthly gain of 0.4% suggests inflationary pressures haven’t abated yet.
2. Bank stocks stage tepid recovery as Moody’s warns; 2nd attempt to sell SVB eyed
Regional bank stocks are staging only a half-hearted recovery after a thorough shellacking on Monday, as depositors fled for the safety of too-big-to-fail institutions, unimpressed by the Federal Reserve’s first attempt to calm nerves.
Moody’s put First Republic (NYSE:FRC) and a handful of other regional banks on watch for a credit rating downgrade overnight, citing their vulnerability to deposit runs, something that appears to have been heightened by the age of smartphone banking. First Republic was up 22% in premarket trading, but that’s clawing back only a fraction of the 60%+ that was lost on Monday.
Elsewhere, The Wall Street Journal reported that the Fed is considering a second attempt at finding a buyer for Silicon Valley Bank. The Financial Times reports that venture capital groups including General Catalyst, Andreessen Horowitz, and Khosla Ventures are looking at putting together a bid for parts of the bank, possibly with the help of Apollo Global Management (NYSE:APO).
Peter Thiel’s Founders Fund, which advised its portfolio companies to pull their money from SVB last week, isn’t party to the talks, the FT observed.
3. Stocks set to open higher, waiting for CPI
U.S. stock markets are set to open a little higher but are essentially on hold ahead of the all-important CPI number. With the Fed in blackout mode ahead of next week’s meeting, it will be down to private-sector economists to ruminate on what it means for interest rates.
At least one bank thinks the Fed will now have to cut rates next week, after the disappointing response to Sunday’s intervention. Nomura analysts see a 25 basis point cut AND an end to the Fed’s run-off of securities from its bond portfolio (aka quantitative tightening).
By 06:45 ET, Dow Jones futures were up 116 points, or 0.4%, while S&P 500 futures and Nasdaq 100 futures were up in parallel. Stocks likely to be in focus later include Volkswagen (ETR:VOWG_p), which announced a big increase in its planned investments into electric mobility over the next five years, and Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), which won a landmark ruling in California in classifying drivers as contractors, rather than employees. Homebuilder Lennar (NYSE:LEN) reports earnings after the close.
4. U.K. jobs market cools; budget eyed
The pound and euro gave up some of their recent gains against the dollar after data suggested that the British and euro zone economies, too, may be cooling a little. U.K. wage growth slowed from record levels in February, while Spain’s inflation data came in below expectations.
That’s likely to be too little, too late to affect the ECB’s policy meeting this week (where a 50 basis point increase is still expected) and the Bank of England’s next week, where the market is split between a 25 and 50 basis point hike.
However, the numbers do give the respective central banks reasons to think twice about how they guide expectations for the rest of the year. The ECB, in particular, is likely to be mindful of its catastrophic decision to keep raising rates well after the first signs of financial collapse in 2007.
In the U.K., meanwhile, the pound is on edge ahead of Wednesday’s budget announcement from Treasury chief Jeremy Hunt. Reports have suggested that the budget will keep its focus on fiscal consolidation, leaving until next year the task of buying back lost popularity with tax cuts.
5. Crude hits 2023 low as outlook darkens
Crude oil prices fell to their lowest levels of the year so far amid concerns for the U.S. and global economy, stemming from the volatility in the financial sector.
By 06:50 ET, U.S. crude futures were down 2.2% at $73.15 a barrel, slightly off their intraday low of $72.69, while Brent was down 1.8% at $79.30 a barrel, the first time in five weeks it’s traded below $80.
The American Petroleum Institute releases weekly inventory data for the U.S. at 16:30 ET, as usual.