It’s been a relatively calm start to the week, with investors seemingly relieved that the weekend brought no fresh turmoil in the banking sector.
That was clearly the fear going into it on Friday, with Deutsche Bank being hit particularly hard amid concerns it could be next in the firing line even if the fundamentals didn’t necessarily back that up.
Anxiety is going to remain until we have a few weeks of calm and despite the small frenzy on Friday, I think we can say that the first of those is now behind us. That isn’t to say that I think the storm has passed, just that the panic of the last few weeks may subside and allow for a more rational market to re-emerge. Or perhaps I’m being too hopeful for a Monday.
The authorities were once again hard at work over the weekend trying to clean up the mess of the last few weeks. This weekend it was a large portion of SVB that was sold to First Citizens Bank, with the FDIC retaining the remaining securities and other assets.
The important thing is that the various institutions in the US and Europe continue to display the ability to rapidly and decisively deal with the fallout from the recent turbulence and contain it before it worsens. That includes regaining the confidence of the markets which has been shaken.
While nerves are evident, there’s no doubt that the response so far has prevented the situation from becoming much worse and confidence will gradually improve as long as no other banks fall into difficulties. That’s obviously a big if at this point.
Oil recovers as the dust continues to settle
Oil prices are rebounding a little on Monday, up a little more than 1% in line with the broader risk rally. It’s been a volatile few weeks for crude, caught up in the banking storm as investors are forced to scale back their expectations for the economy which, in turn, has weighed heavily on demand prospects.
But with sentiment slowly improving and yields inching cautiously higher, so too are oil prices. It may take some time for the dust to settle and prices to fully reflect the new outlook after such a turbulent period which should ensure volatility remains for now.
Double top forming in gold?
Gold prices are slipping amid higher yields and an improvement in risk appetite. The yellow metal briefly surpassed $2,000 again on Friday before ending the day lower and we appear to be seeing further profit-taking today. If turbulence in the banks subsides, we could see gold give back some of its recent gains and from a technical perspective, the two failed runs at $2,000 has left us with a possible double top forming, with the neckline around $1,935.
For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/
Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
