The balance has been tipped, and the dominoes are falling. The recent shutdown of Silicon Valley Bank (SVB) is all the talk right now, and concerns that it will spread across industries are widespread, while legendary investor Michael J. Burry reiterates that he does not see true danger here. Following the shutdown, Signature Bank and First Republic Bank may be facing the same situation, as their stock prices are down 28% and 73%, respectively, since last week. The Nasdaq Bank Index also reported 21.36% losses in the same period. While it is not the end of the banking sector, it is certainly a major hurdle for the Federal Reserve to maintain the stability of the US dollar.
Wall Street fell on Monday as investors worried about the spread of the Silicon Valley Bank collapse. However, the Nasdaq composite ended higher due to hopes of the Federal Reserve easing up on interest rate hikes. Regulators restored investor confidence after SVB Financial's sudden shutdown, and defensive utilities rose as one of the best-performing sectors. The market expects the Fed to not raise rates this month and enter a pause period as the 6-month Treasury fell to 4.75%.
Gold is soaring as Silicon Valley Bank's crash sparks contagion fears and investors doubt the Fed's rate hike plans. The yellow metal has two tailwinds: risk aversion and lower interest rates. But gold needs to break some key levels to keep rising. Tuesday's inflation data will be crucial for gold. However, if the mood changes, gold could plunge sharply.
Both Brent crude and U.S. West Texas Intermediate crude dropped 3.3% due to a potential financial crisis following the collapse of Silicon Valley Bank. Additionally, signs of a weaker-than-expected economic recovery in China, reflected in the country's low February inflation rate, also contributed to the drop in oil prices. U.S. oil inventories and China's industrial production data on Tuesday are expected to be the main drivers of oil prices this week.
The dollar weakened on Monday as markets anticipated the Fed would slow or halt its interest rate hikes to curb economy-wide weakness after the collapse of Silicon Valley Bank. The Fed announced a new funding programme, the Bank Term Funding Program (BTFP), to eliminate an institution's need to sell high-quality securities in times of stress.