At the beginning of the Asian market on March 20 (Monday), U.S. oil traded around $67.04 per barrel; oil prices fell nearly 3% last Friday, and concerns about the banking industry led to the largest weekly drop in oil prices in more than two years. Lower U.S. stocks also weighed on oil prices, as worries about an economic recession weighed on the market.
During the day, we will focus on the risks of the banking industry in the global market and the geopolitical situation.
Bearish factors affecting oil prices
[US stocks closed sharply lower, worried about the spread of banking turmoil]
U.S. stocks ended lower on Friday, capping a turbulent week dominated by the unfolding banking crisis and dark clouds of recession. All three major indexes closed sharply lower, with financials posting the biggest losses among the major S&P 500 sectors.
The benchmark S&P 500 edged higher last week, but the Nasdaq and Dow Jones Industrial Average both posted weekly losses.
Silicon Valley Bank Financial Group announced it would seek bankruptcy protection, the latest development in the banking turmoil. The collapse of that bank and Signature Bank last week raised fears of contagion spreading across the global banking system.
“(The selling) is a bit of an overreaction, however, some concerns about overall liquidity and a potential liquidity crunch are valid,” said Oliver Pursche, senior vice president at Wealthspire Advisors.
Those concerns have spread to Europe, with Credit Suisse shares tumbling on liquidity concerns, prompting policy makers to rush to reassure markets.
Pursche added, “It’s not just a run on Silicon Valley Bank or First Republic Bank, it’s about the real capital and balance sheet impact of a rate hike, and you’re seeing that affecting a big institution like Credit Suisse, which makes people feeling anxious.”
Over the past two weeks, the S&P banking sector and the KBW regional bank index have tumbled 4.6% and 5.4%, respectively, their worst two-week losses since March 2020.
First Republic plunged 32.8% after it announced it would suspend its dividend, reversing the sharp gains it made last Thursday on the massive financial institution’s unprecedented $30 billion rescue package. Among its peers, PacWest Bancorp slumped 19.0 percent and Western Alliance slumped 15.1 percent. Credit Suisse depositary receipts traded in the United States closed sharply down 6.9%.
Investors will now turn their eyes to the Federal Reserve’s two-day monetary policy meeting this week. Investors have adjusted their expectations for how much and how long the Fed will raise interest rates in light of recent developments in the banking sector and data pointing to economic weakness.
Pursche said, “This mini-banking crisis has increased the chances of a recession and accelerated the timetable for an economic slowdown. The Fed should naturally revisit its course of action, but it is still very clear that while inflation is slowing, It’s still very concerning and needs to be brought under control.”
According to the CME Group’s FedWatch tool, financial markets are currently pricing in a 60.5% chance that the Fed will raise its key target rate by 25 basis points, and a 39.5% chance that it will stay on hold.
[U.S. consumer confidence fell for the first time in four months in March]
U.S. consumer confidence fell in March for the first time in four months, but households expect inflation to subside over the coming year and beyond, which could offer some comfort to the Fed in the face of financial market instability. The initial value of the University of Michigan’s consumer confidence index in March was 63.4, which was expected to be 67.0, and it was 67 in the previous month. One-year inflation expectations in the survey fell to 3.8%, the lowest since April 2021, from 4.1% in February. Other data showed that manufacturing output rose in February. The Fed said manufacturing output rose 0.1% month-on-month in February, compared to expectations for a 0.2% decline. Output fell 1.0% year-on-year in February.
[The probability of the Fed raising interest rates by 25 basis points in March is 65.7%]
According to CME “Fed Watch”: The probability of the Fed maintaining interest rates unchanged in March is 34.3%, and the probability of raising interest rates by 25 basis points to the range of 4.75%-5.00% is 65.7%; the probability of maintaining interest rates unchanged by May is 26.1% , the probability of a cumulative rate hike of 25 basis points is 58.2%, and the probability of a cumulative rate hike of 50 basis points is 15.8%.
[US media: 186 banks in the United States face the risk of “explosion”]
According to foreign media reports on the 18th, a research report shows that a total of 186 banks in the United States have risks similar to Silicon Valley Bank. $100 million in deposits with federal deposit insurance are at risk. The report also revealed that the “U.S. Midsize Bank Alliance,” an industry body representing U.S. mid-sized banks, has called on the U.S. Federal Deposit Insurance Corporation to provide deposit insurance for all deposits within the next two years, saying that taking this measure “can immediately stop the deposit outflow of small banks.” , promote banking stability and restore confidence.
Bullish factors affecting oil prices
[OECD raises global growth outlook]
The OECD said the outlook for the global economy had improved from a few months ago as the inflation shock eased, but rising interest rates would keep risks elevated. The group raised its growth forecasts for major economies. The OECD said in its economic outlook that after growing 3.2 percent last year, the global economy is expected to grow 2.6 percent this year as central bank tightening takes full effect, up from the 2.2 percent predicted in November, as energy and food prices fell and China eased. COVID-19 restrictions.
[U.S. economists say the Fed should stop raising interest rates]
Economist Judy Shelton: I think he (the chairman of the Federal Reserve) should stop raising interest rates, and the Fed should stop raising interest rates. Because in the past year, they have normalized interest rate hikes in the blink of an eye, but the Fed’s continuous rate hikes are not the best solution to effectively reduce the inflation rate. The Federal Reserve should check the assumptions output by their analytical model. Their analytical model cannot regard “the higher the interest rate, the lower the inflation” as the truth, and use the habitual irreversible rate hike or rate cut to guide the economy. bear the loss.
Overall, demand recovery and expectations that the Federal Reserve may suspend interest rate hikes this week supported oil prices, but concerns about the spread of banking turmoil and the decline in U.S. stocks dragged down oil prices. While the market focused on the Fed’s decision this week, it remained cautious about banking industry risks; In the short-term within the day, the volatile and bearish view is maintained, and oil prices may test the $65/barrel mark again.
At 8:10 Beijing time, U.S. crude oil was trading at $67.04 a barrel.