May the 4th be with you; Regionals need A New Hope

• Attack of the oil shorts; Demand outlook slashed as recession risks grow by the day
• Gold bulls Awaken; Bank contagion fears drive safe-haven flows
• Bitcoin’s regulatory saga; banking jitters unable to fuel larger rally

It doesn’t seem like it was a long time ago that we had a full-blown global banking crisis that set Wall Street back for many years.  Today, US stocks are falling as bank turmoil is leading to the rapid collapse of PacWest and Western Alliance. Sticky inflation and a slowly cooling labor market will make it difficult for the Fed to cut rates anytime soon.  Financial stability concerns are not going away anytime soon and that will continue to fuel calls that we are headed towards a recession that will be much more hard hitting than the mild one some are expecting.     

Regionals crumble

The US banking sector is in shambles as regional banks get crushed as expectations remain high that we will see more banking failures.  Selling financials is an easy trade as interest rates are too high and will probably remain there thanks to the Fed, which will also continue to drive financial stability concerns. Wall Street will pick on the banks that have too much of their total deposits being uninsured, which means more banks are at risk. 

Western Alliance and PacWest are getting crushed as we won’t be seeing universal deposit done anytime soon.  You need Congress approval to get something like that done and in this political environment, that seems unlikely unless we severe market stress. 

Oil

Crude prices remain heavy on weakening demand from Asia and as US banking turmoil will eventually cripple the world’s largest economy. Saudi Arabia’s price reduction wasn’t as large as some were expecting, but it still confirms slowdown fears.  Saudi Aramco lowered the price for Arab light grade by 25 cents to $2.55 a barrel, less than the Bloomberg forecast of $0.45.

This banking crisis might make the oil market start pricing a much worse recession for the US, which is bad news for the crude demand outlook.  If equities continue to plunge here, oil might struggle finding support around the mid-$60s.  The outlook for the economy is getting uglier by the day and that is making it easier for energy traders to jump on the momentum selling that is hitting WTI crude.

Gold

The force is strong for gold bulls given all the banking turmoil and rising risks that the US will have a tough recession.  The real economy is going to get knocked down a lot given what we are seeing with financials and that will keep demand elevated for safe-havens.  Gold is going to shine given this macro backdrop and possibly eye a move above the $2100 if the de-risking mood on Wall Street remains over the next few sessions. 

Bitcoin

Bitcoin isn’t seeing the same amount of flows as it did early during all the banking drama with SVB.  It is getting very ugly for financials and that should spell trouble for the broader economy.  Bitcoin is higher on the day, but struggling to make a move above the $30,000 level.  Bitcoin appears anchored until it gets regulatory clarity.  

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