Banks in Trouble!

Does This Change Everything?

Preface

Amid the struggle of America’s second-tier banks, Moody’s has gone ahead and downgraded the entire US banking system from stable to negative. This comes after they reclassified Signature Bank’s debt as “junk” and put half a dozen regional banks on notice that they’ll also be reviewed. Moody’s cited a rapidly deteriorating operating environment as the reason for said downgrades.

It’s not a good time to be a banking executive. In fact it seems that in the case of Silicon Valley Bank and Signature Bank, there was a flagrant disregard of stakeholder interests. From excessive staff retreats to ‘social equity’ training and generous donations to woke causes, they were doing it all.

And where there’s smoke, there’s usually fire.

On Tuesday, Credit Suisse bank said it had identified “material weaknesses” related to its financial reporting in 2021 and 2022. This sent shares plummeting 24% the following day. The Swiss central bank then agreed to loan the bank up to 50 billion francs (about $54 billion USD) to restore confidence, but CS shares remain more than 16% lower than they were on Monday.

Renewed exposure concerns weighed heavily on global banks, as even shares of big hitters JPMorgan and Citigroup took a significant hit.

As we know, the banking sector is what holds all other sectors of the economy together. There’s a lingering risk of further staff layoffs across industries even as central banks jump to the rescue with bailout efforts.

The US Federal Reserve was already under intense bipartisan scrutiny over its aggressive rate hike program leading up to this. In my view, that pressure will force the Fed to slow down. I still don’t think we’ll see a pivot on rates soon, but if the stock market deteriorates, it’s not completely off the table.

Here’s some additional analysis as food for thought.

Latest Economic Data

US Inflation Rate (CPI YoY)

• 6.0% vs 6.0% consensus and 6.4% prior

The annual inflation rate in the US slowed to 6% in February of 2023, the lowest since September of 2021. Food prices grew at a slower rate (9.5% vs 10.1%) while the cost of used cars and trucks continued to decline (-13.6% vs -11.6%) (Source).

US Core Inflation Rate (Core CPI YoY)

• 5.5% vs 5.5% consensus and 5.6% prior

The core consumer price inflation rate in the United States, which excludes volatile items such as food and energy, eased for a fifth consecutive month to 5.5 percent year-on-year in February of 2023, the lowest since December 2021 (Source).

Retail Sales (MoM)

• -0.4% vs -0.3% consensus and 3.2% prior

Retail sales in the US were down 0.4% month-over-month in February of 2023, following an upwardly revised 3.2% surge in January which was the biggest gain since March of 2021. The biggest decreases were seen in sales at furniture stores (-2.5%), food services and drinking places (-2.2%) (Source)

Producer Price Inflation (YoY)

• 4.6% vs 5.4% consensus and 5.7% prior

The Producer Price Index for final demand in the United States increased by 4.6 percent from a year earlier in February 2023, easing from a 5.7 percent rise in the previous month and missing market expectations of 5.4 percent (Source).

Core Producer Price Inflation (YoY)

• 4.4% vs 5.2% consensus and 5% prior

Core producer inflation in the United States decreased to 4.4% in February of 2023, the lowest since March 2021, and well below market forecasts of 5.2%. It compares to the downwardly revised 5% increase in the previous month (Source).

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Technical Analysis Corner

Bitcoin Daily Chart

Now that some of the banking FUD has cleared, Bitcoin has been able to test the top of its current range. Price had been hovering below that resistance and is making a new attempt to punch through. If we get a daily (and preferably weekly) close above 25.2k and OBV holds above the turquoise line, I’m bullish on continuation toward 28-32k in the coming weeks.  

Bitcoin 4H Chart

Price has managed to break through the value area high on the 4H timeframe, which is right around 25k. There’s still a potential scenario where we pull back to the HVN at 23k, but if we get acceptance above the VAH (25k) with price able to stay above it for several candles, that will set up a springboard for continuation higher.

S&P500 Daily Chart

After all the recent FUD, including an ongoing banking crisis, the S&P500 put in a strong day. It was able to close back above the 200-day moving average and downtrend diagonal. Next step is to reclaim the 50MA (green line) and take out the lower high at 407.45. If bulls can manage that, they’ll be back in control.

Additionally, the market is anticipating a 25bps rate increase from the FOMC next week. The market should react positively to either a 0 or 25bps as there had been fears of 50 or even 75bps until last week

BTC vs DXY 3-Day Chart

And finally the one that’s been holding out on us until possibly now. There’s still lots of time left in the 3-day and weekly candles, but it’s possible we could confirm a breakout on BTC/DXY with a strong close. I wouldn’t be basing any high-timeframe trades off this until the actual close, however.

Jay Charles

Editor in Chief, The Trading Tank.

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