Is this a waving white flag from the Federal Reserve? Recent banking crises have seen regional banks collapse and the European Central Bank struggle both to ensure liquidity and offset losses from low-yielding Treasury securities. Meanwhile, the Fed and Swiss National Bank were stuck between inflation and systemic collapse due to both issues derived from a high interest rate environment. On Sunday, the Fed announced a new banking programme that opens the path for banks to lend their Treasury bonds for liquidity, essentially lending a debt. JP Morgan analysts expect a $2 trillion maximum liquidity injection into the banking system from the programme. This liquidity opportunity, along with the $54 billion credit line to Credit Suisse, means that inflation is here to stay. However, it is only a Band-Aid and not a quantitative easing move from either central bank, as the Fed is adamant about watching PCE fall and the ECB just raised its rate to 3.5%.
Wall Street's major indexes rose on Thursday, led by gains in financials and technology. JP Morgan Chase and Morgan Stanley deposited up to $30 billion into First Republic Bank, stabilising the lender and boosting its shares by 9.98%. The number of Americans filing new claims for unemployment benefits fell more than expected, indicating continued labour market strength.
Gold stood strong in the Asian trading session amid an uproar of liquidity injections by the Fed, devaluing the dollar and pushing investors into safer assets. Some analysts suggest commodities are in a Supercycle, and gold is expected to outperform due to structurally undersupplied commodities, with historical analysis suggesting that gold will at least double in value.
Oil prices rose slightly on Friday due to potential supply cuts by OPEC+ on top of an economic slowdown from the ongoing banking crisis. Oil is about to experience its worst week of the year, with Brent oil futures and West Texas Intermediate crude futures set to lose nearly 11%.
The US dollar weakened as risk sentiment improved after authorities and banks eased stress on the financial system. The Federal Reserve's upcoming monetary policy meeting is in focus as investors hope for a potential slowdown in the aggressive rate-hike campaign to ease tension in financial sector.