Daily Market Outlook, March 10, 2023

SVB Sheds 60%, Souring Risk Sentiment On Banking Contagion Fears

Asian markets followed Wall Streets slump as the banking sector witnessed its biggest sell off since the pandemic crisis crash, the selling in the banking sector was driven by a 60% slashing in the value of Silicon Valley Bank(SVB), markets are sensing that SVB could be the next shoe to drop in the Crypto carnage that started with FTX fraud leading to the Silvergate scandal that now appears to be enveloping the venture capital(VC) community, prominent VC player Peter Thiel has advised his funded companies to pull funds from SVB immediately, leading to another high profile figure in the space, Bill Ackman of Pershing Square to comment that a failure of SVB could destroy the VC communities lifeblood capital as such he suggested the government should consider a bailout for the beleaguered bank. The US banking sector saw over 50Bln in value erased in yesterday’s US trading session as contagion concerns saw investors fleeing the sector with JPMorgan losing over 5%, this banking sector aversion spread into the Asian trading session with Asian investors paring exposure to the sector in unison with their US counterparts.

Aside from banking sector concerns investors are mulling the US labour employment report due this afternoon, after the upside surprise witnessed in January, the February report is eagerly awaited, investors are anxious that another strong print will cement a 50bps rate rise for the March FOMC meeting, as Fed Chair Powell intimated earlier this week that if the US economic data remains persistently strong pushing inflation pressures higher then the central bank would be open to lift rates to higher levels for longer. The hope for interest rate doves is that the recent spell of strength in economic activity has been driven by unseasonably mild weather and that the return to a more normal climate of late will be reflected in the data. Look for February employment growth to have slowed to 200k, with the unemployment rate to continue to hover around record lows of 3.4%, a number stronger than this will leave the Fed focused on a 50bps move in March adding to pressures on equity markets. US wage growth will also be eyed, of late this input appears to be decelerating, if this trend continues then markets may hope that this will be sufficient to lead the Fed to focus on this being a favourable inflationary read letting the FOMC lean towards a 25bps move in March, however, if this input also come in hotter than expected then the 50bps move will be all but locked in, adding to investor woes into the weekend.