People line up outside the closed headquarters of the Silicon Valley Bank (SVB) on March 10, 2023 in Santa Clara, California.
Justin Sullivan | Getty Images
This report comes from today’s CNBC Daily Open, our new newsletter for international markets. CNBC Daily Open brings investors up to speed with everything they need to know, wherever they are. Do you like what you see? You can subscribe here.
Two bank collapses spark a wave of activity from financial regulators.
- The Federal Reserve will set up a Bank Term Funding Program that will lend money to the SVB. This will ensure that people can access their deposits in excess of $250,000 and prevent widespread economic fallout.
- Subsequently, on Monday morning, regulators closed Signature Bank — one of the cryptocurrency industry’s leading banks — due to systemic risks. All deposits will be made in one go, according to federal regulators.
- As for the US jobs number released Friday – remember? — it revealed that US nonfarm job growth slowed to 311,000 in February, down from January’s 504,000 but still above the forecast of 225,000. As signs that the labor market could cool, the unemployment rate was higher than expected, while wage growth slowed.
- PRO A major inflation report and possible fallout from SVB issues will be what investors look forward to next week. “It will be a major market mover and set the tone of the market,” said Michael Arone, chief investment strategist at State Street Global Advisors.
February’s jobs report should have been Friday’s news event. Then a bank crash happened. Hard to beat that in terms of impact. There’s a lot to unpack today, so be patient.
Let’s start with the original protagonist of the day, the jobs report. On the face of it, it doesn’t bode well for those worried about inflation. The number of jobs created exceeded the Dow Jones estimate. But go below the surface and cracks in the foundation become visible. Average hourly earnings did not rise as much as predicted, while the unemployment rate rose to 3.6%, above expectations of 3.4%. In short: some good news, some bad news, if you are an investor. “There’s something for everyone,” as Liz Ann Sonders, chief strategist at Charles Schwab, put it.
On its own, the jobs data was mixed enough for the Federal Reserve to consider raising interest rates by half a percentage point. But wait – a bank has crashed! And not just any regional bank, but Silicon Valley Bank, the go-to for venture-backed tech startups. We can regard the SVB as the first (high-profile) victim of the higher interest rate.
But the good thing – if there can be anything good about a bank collapse – is that regulators decided to step in to protect deposits. The move suggests the Fed recognizes the potential of broader contagion in the economy and may slow its hikes so it doesn’t inadvertently take down more banks. (Example: At the time of this newsletter’s publication on Monday morning, financial regulators announced they were closing a second bank, New York-based Signature Bank.)
That may explain why markets fell less sharply on Friday than earlier in the week, when Fed Chairman Jerome Powell suggested higher rates are on the table. On Friday, the Dow Jones Industrial Average lost 1.07%, the S&P 500 fell 1.45% and the Nasdaq Composite lost 1.76%.
Of course, markets can still absorb the shock waves before they sell out. But I suspect that the hope of lower rates following the collapse of the SVB may keep markets afloat. Similarly, CNBC’s Jim Cramer argued that nothing is more deflationary than the collapse of an indebted bank — which the Fed could hold back. Yields on 2-year government bonds – a reflection of investors’ interest rate expectations – fell 46 basis points in two days, the biggest move since the 2008 financial crisis.
Subscribe here to have this report sent straight to your inbox each morning before markets open.
Leave a Reply