US Close: A cooling wage/hot payroll report, Banking System Fears, Rate Hike bets slashed, SVB fails, Oil rebounds, Gold shines bright, Crypto breaks below $20k

US stocks settled lower in a volatile session as traders digested a cooling wage/ robust job growth report and SVB contagion risks. This was supposed to be an easy Friday with one massive jobs report, but SVB, a large bank with exposure across a range of sectors failed and triggered distress for several other smaller banks. 

At the end of the day, traders are seeing this cooling/hot payroll report as confirmation that Fed policy is restrictive and that the their tightening work is almost done.  If we didn’t have SVB’s failure and contagion risk the case for a half-point rate hike would be valid. The focus will fall on SVB contagion risks and Tuesday’s inflation report.  As long as we don’t see a scorching hot inflation report, the Fed should continue with its quarter rate point hiking pace.  

US data

The US economy added 311, 000 jobs in February, more than both the consensus estimate of 225,000 and the whisper number of 250,000.  The NFP report had a strong headline beat, but the rest of the report supported the idea that the labor market is ready to cool.  Wage pressures came in much softer than forecasts and the unemployment rate rose from 3.4% to 3.6%. 

Fed rate hike odds went on a rollercoaster ride post NFP as traders now have the March 22^nd meeting as a coin flip between a 25bp rise or half-point increase and are also pricing in a rate cut by the end of the year.  The peak is in place and it seems traders got a preview about how this tightening cycle will start to drag down economic growth. 

SVB

SVB Financial Capital’s demise is bad news for many small tech companies as they were a go-to lender in silicon valley.  After Venture Capitalists decided to pull their money, SVB ended up losing ~$2 billion from selling securities as they rushed to secure funds, which is what triggered this bank run.    

Startups and debt refinancing are some of the biggest financial risks that traders are analyzing, but this pressure on small banks appears it should remain contained and not weigh on the big banks.

The KBW bank index had its worst drop since early in the pandemic and the contagion fears dragged down Comerica, Keycorp, and US Bancorp. 

Signature Bank

Investors are skeptical to hold anything crypto related in this market environment.  Banks vulnerable to financial instability risk and crypto exposure are easy targets and that has some traders eyeing Signature Bank. There are not a lot of publicly trade banks with significant crypto exposure, so the ones that have some are seeing selling pressure. 

Oil

Crude prices are rallying after a mixed jobs report sent the dollar lower as optimism grew that the Fed won’t have to be as aggressive with the end of its rate hiking campaign. Oil is quietly rallying as parts of Wall Street enter panic mode following small banking contagion risks.  It appears that parts of the economy are breaking and that is good news for bets that the Fed won’t have to accelerate their tightening pace.  

Gold

Gold is surging as Fed rate hike bets get scaled down and as SVB contagion risks trigger some safe-haven buying. The bond market is now starting to price in rate cuts by the end of the year and that is triggering a major collapse with yields.  The two-year yield posted its biggest two day decline since 2008. 

Gold is becoming everyone’s favorite trade again and that could continue as liquidity risk concerns won’t be quickly answered for that corner on Wall Street.   

Bitcoin

All the headlines just turned bearish for Bitcoin.  The list of bearish crypto drivers are plentiful: Fallout from SVB as many crypto companies depend on small banks, mining might be harder if the White House pushes through a new 30% tax, NY crypto crackdown now covers KuCoin and after Huobi token’s flash crash. 

Bitcoin was in a comfortable trading range and that just broke, which has many investors nervous that we could see a retest of the October lows. Bitcoin fell below the $20,000 level and has many traders nervous over what might happen over the weekend.  Crypto volatility appears to be back as Bitcoin’s range has been breached.  The $18,400 level is key support, but if that breaks momentum selling could look to target a retest of the October lows.  

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