FXCM US.BANKS basket charts lower trough amid banking confidence crisis
Banking Stress
The banking sector is under stress. It started with the demise of Silvergate Bank and then gained a momentum with the failure of SVB and Signature Bank last week. However, it was exacerbated yesterday with news of a growing crisis at Credit Suisse, Switzerland's second-largest lender.
The catalyst was the news that Saudi National Bank wouldn't invest more capital into the beleaguered bank in order to keep its stake below 10%. However, there were other worries too. In its delayed annual report, there was an admission of "material weaknesses" in its financial controls.
Other banks felt the pressure. Société Générale was down 12% and UBS declined over 6%. In the US, Morgan Stanley dropped just over 5% with JPMorgan Chase down 4.7%.
Credit Suisse will exercise an option to borrow 50 billion Swiss francs from the SNB. This follows assurances from Swiss authorities that Credit Suisse met capital and liquidity requirements and that it could access central bank liquidity if needed.
FXCM's US Banks Basket
FXCM's US Banks basket (US.BANKS) comprises an equal weighting in JP Morgan Chase (JPM.us), Bank of America (BAC.us), Wells Fargo (WFC.us), Citigroup (C.us) and Capital One Financial Corp (COF.us).
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From October 2021 to February 2022 US.BANKS charted a higher trough followed by a higher peak and was in an uptrend. However, last week saw a significant sell down (blue arrow) as the news of the Silicon Valley Bank failure broke and it dropped 9.85%.This week gapped down on the open and effectively charted a lower trough (LT). This has taken US.BANKS out of uptrend.
It is yet to chart a downtrend, but its RSI has dropped to the bearish side of 50. The longer it maintains this side, the greater the pressure on the basket.
Fed Meeting
The banking concerns affect the Federal reserve. It has been hiking rates aggressively to stave off inflation. Prices have shown signs of moderation, but the higher interest rates have impacted banks, as their bond portfolios have declined. The Fed is meeting over 21-22 March and will deliver its interest rate decision on 22 March. The CME FedWatch Tool indicates that markets have priced in a 62% probability of a 25 bps hike.
Russell Shor
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.
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