Stock market volatility continues as investors debate the implications of ever-tighter financial conditions. The Bank of England yesterday was the latest to hike rates but also indicated that it may be ready to pause at the next meeting.

The Federal Reserve similarly seems to be leaning toward a pause after maybe one more 25 basis-point hike at the May 2-3 meeting. Still, the Fed's decision to hike rates by 25 basis-points this week was the ninth consecutive interest rate increase in the last year, which has seen rates go from near zero to almost 5%. These higher rates are not being paid out to depositors at many bigger banks, however, so savers have been moving cash elsewhere...primarily money markets and bonds.

At the same time, banks are sitting on bonds that have lost billions of dollars as well as loans that are earning interest rates far below current market value. This is severely impacting banks' cash flows and limiting the amount of new loans they can make, which obviously limits how much new cash flow they can generate.

Investors and economists alike are already extremely nervous about the crunch possibly snowballing into an even bigger crisis, especially if loan defaults begin to soar. The idea that global central banks may not be finished with their tightening campaigns despite the banking turmoil is only compounding those fears.

Wall Street insiders believe some sort of deposit "guarantee" could be worked out with US lawmakers and regulators over the next couple of weeks which could go a long way in helping calm some of the overriding anxiety. It could also help money flow back into the financial sector and give a boost to the overall market, which has been weighed down heavily by investors ditching banks-particularly smaller, regional institutions-and other financials that are sensitive to interest rates.

Bulls are hoping the next couple of week will also bring some positive news about the Fed's inflation fight. The PCE Prices Index, one of the Fed's favorite inflation gauges, is due next Friday, March 31. That will be followed by the all-important March Employment Situation the following Friday, April 7.

The Fed doesn't meet again until May, meaning another month of inflation data before the next policy decision. However, the April Employment Situation isn't released until after the May meeting so there is a lot riding on the March report.

Other key data next week includes the S&P Case-Shiller Home Price Index and Consumer Confidence on Tuesday; Pending Home Sales on Wednesday; the final estimate for Q4 GDP on Thursday; and Consumer Sentiment on Friday. Notable earnings next week include lululemon, McCormick, Micron Technology, and Walgreens, which all report on Tuesday.

Energy Insiders Thinking Retail Diesel Price May Soon Get Back Under $4 Per Gallon: Diesel has been dropping “far longer than gasoline…so while the price of gasoline has been occasionally rising, diesel, for the entirety of 2023 has been in decline” — a trend that could continue “until diesel eventually falls below $4 per gallon in the weeks ahead,” says Patrick De Haan, head of petroleum analysis at GasBuddy. The fuel reached its highest recorded average of $5.816 on June 19, 2022, AAA data show. This week, U.S. retail diesel prices averaged $4.279 a gallon, down from $5.04 a year ago. U.S. government data show diesel demand in the first 10 weeks of this year down -12.6% from the comparable period in 2022. The steep drop in demand is mostly due to slowing growth in parts of the economy, especially for heavy industry and construction. This slowdown is further pressured by higher interest rates and the recent bank failures increasing expectations for a recession. 've also been hearing that cheaper Russian diesel is now flowing into places that have been traditionally importing US diesel, i.e. Brazil. This means perhaps less US diesel will be getting exported. Meaning more supply will be kept here at home and perhaps prices will come down even further. Source Market Watch

Social Media Bank Run on SVB a ‘Complete Game Changer’: It’s been two weeks since the Silicon Valley Bank run that spurred a banking crisis. It took about 36 hours from SVB posting its troubled financials to it being shuttered by regulators. While the implosion exposed shortcomings in existing financial regulations, it also highlighted the role of social media in snowballing rumors and spreading panic. “It’s a complete game changer from what we’ve seen before,” Citigroup CEO Jane Fraser said in an interview Wednesday about what social media and mobile banking did to fuel the crisis. To be sure, banking crises have happened numerous times in the past. But the speed at which this one escalated was unlike any other. Depositors were able to access their funds online via their phones, which may have made it easier for a $42 billion bank run to happen within hours. SVB’s failure was the second largest in banking history, but perhaps the first one since mobile banking and social media became mainstream. Ultimately, no bank is safe from a run, Pershing Square CEO Bill Ackman argued. And it’s unclear if there’s a way to slow the spread of stories (especially the big, bad ones) on social media. But it highlights the new reality that regulators are under extra pressure to act fast—faster than they previously had to when a banking crisis of SVB’s scale unfolded. Source Fortune

Credit Suisse, UBS Among Banks Facing DOJ Russia-Sanctions Probe: Credit Suisse Group AG and UBS Group AG are among the banks under scrutiny in a US Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions, according to people familiar with the matter. The Swiss banks were included in a recent wave of subpoenas sent out by the US government, the people said. The information requests were sent before the crisis that engulfed Credit Suisse and resulted in UBS’s proposed takeover of its rival. The Justice Department inquiries are focused on identifying which bank employees dealt with sanctioned clients and how those clients were vetted over the past several years, according to one of the people. Those bankers and advisers may then be subject to further investigation to determine if they broke any laws. Banks can face serious penalties for violating US sanctions. BNP Paribas in 2014 agreed to pay nearly $9 billion after pleading guilty to US charges for processing transactions for sanctioned Sudanese, Iranian and Cuban entities. Source Bloomberg

The Surprising Link Between Unemployment and Recessions: The U.S. labor market is having a strong start to 2023, adding 504,000 nonfarm payrolls in January, and 311,000 in February. Both figures surpassed analyst expectations by a wide margin, and in January, the unemployment rate hit a 53-year low of 3.4%. With the recent release of February’s numbers, unemployment is now reported at a slightly higher 3.6%. A low unemployment rate is a classic sign of a strong economy. However, as this visualization shows, unemployment often reaches a cyclical low point right before a recession materializes. So why do recessions tend to begin after unemployment bottoms out? The economic cycle refers to the economy’s natural tendency to fluctuate between periods of growth and recession. This can be thought of similarly to the four seasons in a year. An economy expands (spring), reaches a peak (summer), begins to contract (fall), then hits a trough (winter). With this in mind, it’s reasonable to assume that a cyclical low in the unemployment rate (peak employment) is simply a sign that the economy has reached a high point. Source Visualization.

Walmart Laying Off Hundreds of Workers at E-Commerce Facilities: Walmart is laying off hundreds of employees at e-commerce fulfillment centers across the country. In a statement, the company said it made the cuts “to better prepare for the future needs of customers.” The company confirmed to Reuters that it is eliminating hundreds of jobs at five fulfillment centers in Pedricktown, New Jersey; Fort Worth, Texas; Chino, California; Davenport, Florida; and Bethlehem, Pennsylvania. It told Reuters it was reducing its workforce because of a reduction or elimination in evening and weekend shifts. Walmart anticipates slower sales growth and lower profits in the coming fiscal year. Online sales have continued to grow, though at a slower pace than during the peak of the pandemic. E-commerce sales for Walmart’s U.S. business rose +12% in the most recent fiscal year, which ended Jan. 31. That compares to +11% growth in fiscal 2022 and +79% in fiscal 2021. Source CNBC

Meet Topgolf for Baseball: "Home of the 7 MPH Fastball": The success of Topgolf is spawning a new category of “sports entertainment” startups. The baseball entertainment venue “Home Run Dugout” is poised to open its second location in Katy, Texas, on March 30th. Like Topgolf, Home Run Dugout combines sports, food, and entertainment in one upscale setting and boasts Hall of Famer Nolan Ryan as a strategic investor. Unlike the batting cages of old where you donned a rented helmet and tossed tokens into a batting machine, the 46,000-square-foot facility will feature “indoor soft-toss baseball” and several amenities, including three bars, a full-service restaurant, 12 virtual-batting bays, live music, and a dog park. Co-founded by Nick Hermandorfer and Tyler Bambrick, Home Run Dugout won’t take aim at hardcore hardball and softball players — the new venue bills itself as the “Home of the 7 MPH Fastball.” Source FrontOfficeSports

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