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Your Quiver | Tuesday, March 14, 2023

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Sunny Side Up

US Core CPI increased by +0.5% in Feb and +5.5% y/y, so underlying inflation is going in the wrong direction for the Fed. Shelter comprised 70% of the gain due to hotel costs. Recreation, household furnishings and airfares also drove the increase. Good news is that grocery prices rose at the lowest level since May 2021. Those eggs just got a bit cheaper, so you can have some sunny side up this morning. Given the turmoil that the fast rate hikes have caused on the banking industry, it’s going to be hard to make the case for a 50bps hike in March, but it looks like 25bps would be a likely outcome.

Late to the Party

Moody’s placed First Republic and 5 other lenders on review for downgrade. Aren’t Moody’s and S&P supposed to signal caution for investors before the storm? A bit late to the party, in my opinion.

Movin' On Up

Thanks, BBG, for giving us that title to smile at this morning. Monday’s price action in front-end yields represented an 8+ standard deviation move. The MOVE (Treasury rate vol) closed on Mon at its highest level since 2009. Traders probably had to unwind shorts, driving some of this move, no pun intended. Realized and implied vol were up, and given that fixed income vol usually affects markets, it’s lucky that we didn’t see it carry over more into US equities yesterday and today.

The Real Winner

Who’s the real winner in the past few days? Volatility. The FOMC’s quiet period and Friday’s triple witch expiration, could worsen any incremental volatility that does materialize. Oh, and other answers to that question? JPM, Citi and WF getting in all those deposits fleeing from regional banks. One of our financial partners has a special fast-track to bring assets over from wealthy First Republic clients. The smart ones are wasting no time to take advantage of rough waters.

Cold Swedish Meatball

That’s what Alecta’s $1.1bn+ loss in US banks is looking like right now. Sweden’s largest pension fund for 2.6mm people switched bets into US regionals First Republic, SVB and Signature Bank since 2017, from two local lenders. Sweden’s financial watchdog summoned mgmt to do some ‘splaining.

More 'Splaining

Bloomberg put out a list of firms that added to SVB exposure before its collapse, although these were 4Q numbers that were most likely traded around since that time. Others like RBS and Axiom exited and are feeling pretty good right now.

Overnight Action

Asian equities fell. Japan, Korea, and Australia all closed sharply off Mon’s levels, with banks driving the decline. Hang Seng fell worse than Mainland peers. European indexes remain mostly in positive territory, with German stocks outperforming FTSE. CS identified a “material weakness” in its internal control over financial reporting, which doesn’t sound that great when we’re watching banks here in the US implode.