SVB fallout, inflation, retail sales: 3/13/2023 - 3/17/2023
The failure of Silicon Valley Bank and how investors react in the week ahead will be the market's top focus, though key economic data on inflation and retail sales ought not to be overlooked.
Markets
Dow Jones: 31,909.64 (-1.07%) 📉
S&P 500: 3,861.59 (-1.45%) 📉
Nasdaq: 11,138.89 (-1.76%) 📉
*Stock numbers as of market close on March 10th
Two key economic data points ahead of the Federal Reserve's next policy meeting will greet investors in the week ahead as the eyes of the investing public — and beyond — will remain locked on the latest developments in the fallout from Silicon Valley Bank's collapse last week.
The February Consumer Price Index (CPI) on Tuesday and the February read on retail sales out Wednesday morning will likely firm up investor expectations for the Fed's next policy move.
Consensus forecasts are calling for CPI to rise 6% over last year on a headline basis and 5.5% on a "core" basis in February, according to data from Trading Economics. A 6% increase in inflation would mark the slowest annual increase in consumer prices since September 2021.
Investor focus on the Fed's next steps in the inflation fight, however, has been usurped as the top focus for investors in recent days with Friday's shock collapse of Silicon Valley Bank and fears over what the second-largest bank failure in U.S. history could mean for the broader financial system.
On Sunday evening, financial regulators said SVB depositors would have access to all of their money starting Monday, March 13.
In a joint statement, the heads of the Federal Reserve, Treasury Department, and FDIC said: "After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."
U.S. futures opened higher on Sunday evening.
TD Cowen analyst Jaret Seiberg wrote Friday that the firm does "not see this as the start of a broader threat to the safety and soundness of the banking system."
"Much like Silvergate SI 0.00%↑, Silicon Valley had a unique business model that was less dependent on retail deposits than a traditional bank," Seiberg added. "This left the bank more exposed to interest rate risk as its funding got more expensive, but its assets were not repricing higher."
Kabir Caprihan, an analyst at JPMorgan, echoed much of this sentiment, writing: "At the outset, we don’t believe Silicon Valley Bank's collapse to be systemic, but it does reflect some of the structural issues that we highlighted in our outlook and what drove our Underweight on regional banks."
The scale and particular challenges that took down Silicon Valley Bank are unique — its exposure to the cash-burning tech world most punished by investors during the Fed's rate-hiking campaign being at the top of this list. But the general story of a surge in deposits in 2021, outflows in recent months, and losses in securities portfolios will likely challenge some regional banks in the near term.
Across the Atlantic, UK finance minister Jeremy Hunt said the British government has been working to ensure any UK firms facing cash needs from SVB's failure "are able to meet their cashflow requirements to pay their staff."
Semafor reported over the weekend that hedge funds have been reaching out to startups with cash stuck at Silicon Valley Bank with offers to buy their deposits at a discount, as some companies face a cash crunch with payroll looming and a potentially long road ahead to being made whole on money deposited with the failed bank.
This comes as regulators feel out buyers for Silicon Valley Bank and the wealth management, investment, and securities business housed under the bank's former parent company, SVB Financial (SIVB). Bloomberg reported Saturday that the failed Silicon Valley Bank employees would remain employed for 45 days before being let go.
"The circumstances of the Silicon Valley Bank collapse are unique enough that it probably won't trigger a widespread financial contagion," wrote Paul Ashworth, chief North America economist at Capital Economics. "Nevertheless, it is a timely reminder that when the Fed is singularly focused on squeezing inflation by jacking up interest rates – it often ends up breaking things."
Events Calendar
Monday, March 13
GitLab GTLB 0.00%↑
Tuesday, March 14
Consumer Price Index, year-over-year, February (+6% expected vs. +6.4% in January)
Consumer Price Index, month-over-month, February (+0.4% expected vs. +0.5% in January)
"Core" CPI, year-over-year, February (+5.5% expected vs. 5.6% in January)
"Core" CPI, month-over-month, February (+0.4% expected vs. +0.4% in January)
Lennar LEN 0.00%↑; Guess GES 0.00%↑; SentinelOne S 0.00%↑; StoneCo STNE 0.00%↑
Wednesday, March 15
MBA Mortgage Applications; Producer prices, year-over-year, February (+5.4% expected vs. 6% in January)
Producer prices, month-over-month, February (+0.3% expected vs. +0.7% in January)
"Core" PPI, month-over-month, February (+0.4% expected vs. 0.4% in January)
Retail sales, month-over-month, February (-0.3% expected vs. +3% in January)
NAHB Home Builder Sentiment, March (42 expected vs. 42 in February)
Adobe ADBE 0.00%↑; Oatly OTLY 0.00%↑; UiPath PATH 0.00%↑; Five Below FIVE 0.00%↑
Thursday, March 16
Building permits, February (1.238 million annualized rate vs. 1.339 million in January)
Housing starts, February (1.31 million annualized rate vs. 1.309 million in January)
Initial jobless claims (205,000 expected vs. 211,000 last week)
Philly Fed manufacturing survey
FedEx FDX 0.00%↑; Dollar General DG 0.00%↑; G-III Apparel GIII 0.00%↑; Jabil JBL 0.00%↑; Signet Jewelers SIG 0.00%↑; Academy Sports ASO 0.00%↑; Williams-Sonoma WSM 0.00%↑; Traeger COOK 0.00%↑
Friday, March 17
Industrial production, February (+0.4% expected vs. 0% in January)
University of Michigan consumer sentiment, preliminary March reading
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Very well researched, Akash. Found it very news-worthy.