Banks & Big-Tech Breakdown On Bad Data, Fed Flip-Flop Sparks Dovish Dive In Rates

This is a technical recession signal, not one based on any economic data.

It all got very serious.

John Flood, Goldman's senior analyst, noted:

First time since a long while that I remember bad economic data being bad for stock prices.

The US macro data has been a series of disappointments (with ISM Services today )...

Source: Bloomberg

The labor market is now back in reality (after yesterday's JOLTS print and today's ADP disappointment).

Source: Bloomberg

Fed's Mester was clearly tapped on the shoulder by the Fed overnight.


  • MESTER : FED will need to get rates up 'A LITTLE BETTER'




It's too early to say whether the FED will raise rates in May


The market does not wait for the rest The Fed to join the ride.

Charlie McElligott, a Nomura employee, noted that the

Market is aggressively betting on lower rates before year end

As year-end SOFR Skews soar (higher price and lower yield )...

Source: Bloomberg

Markets are now pricing in a terminal interest rate of around 4.9% by May (with a 40% chance of achieving 5% and then done), followed four rate cuts (returning to 4.00% at year's end )...

Source: Bloomberg

The Fed's year-end rate expectation is now below 4.00%.

Over 112bps Below The Fed's DotPlot...

Source: Bloomberg

Before we leave the short-term interest rate land, let's take a look at some of the other options.

Powell's favorite recession indicator (the spread between the 18m forward 3m and spot 3m yields), hit a record low today

Inverted by 165bps )...

Source: Bloomberg

Recession called!

The Dow was able to maintain gains today, thanks to MRK JNJ and UNH – all very defensive companies – while Small Caps and Nasdaq, both heavy on finance and mega-cap technology, suffered, with the S&P dropping below 4,100.

0DTE traders are active today, but they only followed the market. No lead or fade. While VIX closed the day slightly higher (from yesterday’s puke to the close), the VIX was sold lower from above 20 intraday.

Source: Bloomberg

Since the beginning of Q2, cyclicals have lagged behind.

Source: Bloomberg

Regional Bank shares fell further today, reaching new post-SVB lows

The big banks are also in decline (but still above the post-SVB levels )...

Source: Bloomberg

Western Alliance Bancorp was the focus of attention. They released data, but did not show their deposits (which scared some). Around 1300ET they released data that showed a slight drop in the amount of money from $53.6bn on Dec 31st to $46.7bn on Mar 31st. (An 11% decrease).

The whole curve is down 3-4bps, even though today's short end of the curve is whippy )...

Source: Bloomberg

Today, the 2Y Yield dropped to as low as 3.64 before rebounding back towards 3.80

Source: Bloomberg

The 10-Year yield fell to its lowest closing since Sept 2022...

Source: Bloomberg

In spite of all the dovish adjustments made, the dollar reversed its losses from yesterday today but is still lower for the week.

Source: Bloomberg

Crypto was very choppy, as liquidity is still extremely low. Bitcoin surged to $28,800, before crashing to $27.800. It then bounced back to above $28,000 and ended basically unchanged.

Source: Bloomberg

The oil prices are marginally lower (despite major draws), with WTI fluctuating between $80 and $81, holding all of the post-OPEC+ increases.

Spot Gold reached a new high of $2030 today

As Goldman's Chris Hussey pointed out earlier, we began this market wrap with data and will end it with deposits.

After putting the March Banking Crisis on pause, regional banks are coming back into focus in this week

Some banks have lost another 5%-10% in their market capitalization due to renewed scrutiny on deposit flows. It is also unclear what the combined effect of increased funding costs and stricter lending standards will be for profitability.

WAL spooked the markets today (and showed a 1% decline in its deposits for Q1)

Goldman expects deposit inflows into large banks,

Both consumers and corporate treasurers are shifting deposits from smaller banks to large cap banks, money fund, and directly into UST.

The rates of large and regional banks' savings on deposits have not changed materially.

Since the 3Q21 trough, CD rates have been close to their peak rates in 2Q19.

Any efforts to increase deposit betas can create a

Bank profitability, lending and GDP growth are moderately affected by a headwind.

The margin pressure would also pressure implicitly the equity prices at regional banks, which are the ones that would be most affected by it.

This banking crisis is not over.