Week in review
The US reported mixed labor market data. On the one hand, the February non-farm payroll figure came in significantly hotter than expected: the number of newly employed Americans stood at 311,000 vs 205,000 forecast, however, still lower than the past year’s monthly average. Additionally, the unemployment rate rose from 3.4% to 3.6% due to higher participation rate, a further indication of labor market tightness. On the other hand, the wage growth came in slower than expected at 4.6% (vs 4.7% forecast), thus, providing a positive surprise for markets. Importantly, moderation in the growth of wages is just as important aspect for Fed as reduction in the payroll figure.
The second largest bank failure in US history sparked fears on potential financial chaos in broader economy. The California-based Silicon Valley Bank was unable to pay deposits after the call on short-term liabilities forced the tech-focused lender to realize losses on vast array of depreciated fixed income securities. The news had a significant impact on general equity markets, while banks have suffered the most: the S&P 500 financial sector lost 8.5% w/w, with near 100% of the 100 largest sector companies losing ground last week. In response, the Federal Reserve announced emergency funding for SVB as well as a new lending facility to ensure that banks are capable of meeting deposit obligations and the idiosyncratic illiquidity does not translate into an economy-wide issue.
Meanwhile, as equities tumbled on the fears of SVB’s potential market-wide implications, bond markets rallied, as hawkish Fed is now less likely on the March meeting. The market implied probability of a 50 bps hike fell from c.70% from week before to 47% as of now (with 53% of a 25bps hike).
Week ahead
Macroeconomics: The list of this week’s major macroeconomic news includes CPI, PPI, and retail sales from the US and ECB interest rate decision and CPI from the Euro Area.
Earnings: The list of this week’s major earnings releases includes FedEx (FDX), Dollar General (DG), Adobe (ADBE), BMW (BMWYY), and Volkswagen (VWAGY).
