The US government took decisive action to prevent a further fallout in the banking sector and that has seen markets turn around the negative sentiment from the end of last week. Risk assets are rallying while the dollar is slumping as market players grow less certain of rate hike odds. 2-year Treasury yields have come down drastically in the past three days:
The SVB situation is the main story in markets right now but we might not get any new headlines in European morning trade, with it being the middle of the night in the US.
But the important news have already been released, with lawmakers and policymakers pulling off all the stops to prevent contagion risk.
- FDIC and the Fed introduce a systemic risk exception for SVB (and also Signature Bank), which means all depositors of said institution(s) will be made whole
- The Fed creates a new funding facility i.e. Bank Term Funding Program (BTFP) which allows banks to lend against Treasuries, agency debt at par for up to one year
- The Fed reduces haircuts on collateral offered at its discount window - the same margins apply for the BTFP - so that allows for more lendable value for banks via the window
That is helping to calm markets, with S&P 500 futures up 1.8% while the dollar is down across the board with EUR/USD up 0.7% to just above 1.0700 and USD/JPY down 0.5% to 134.30 currently.
It's all about sentiment and headlines before the attention turns towards the US CPI data tomorrow.
0900 GMT - SNB sight deposits w.e. 10 March
That's all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.
