US Close: Regional Banks crushed, Chaotic Stock session as Fed Regulators intervened, Oil pummeled, Gold surges, Bitcoin posts best rally since FTX turmoil

US stocks had a chaotic day as bank stocks crumbled and interest rate sensitive sectors rallied as Treasury yields tumbled.

Over the weekend, Federal regulators rushed in to squash a growing liquidity crisis. Regulators decided to guarantee deposits at Silicon Valley Bank (SVB), shut down Signature Bank, and guaranteed all uninsured deposits.  The bank run on SVB was lightning fast as depositors were able to pull out everything with a few swipes on their iPhones or clicks of the mouse.  SVB was not holding risky investments, but Treasuries and it takes time to unwind those positions. 

The first bank run of the digital age led to the creation of a new Federal Reserve fund that will finance bank assets.  Officials also eased lending rules at the emergency discount window.  Federal regulators were successful in helping avoid a much more massive bank run and possibly an even more market turmoil.  

President Biden also attempted to calm Americans.  He noted that no losses will be borne by taxpayers, money will come from insurance fund fees. 

Another important story is that First Republic secured additional funding from the Fed and JPMorgan. Even after First Republic said they now have $70 billion in unused liquidity to fund operations, their share prices are still under tremendous pressure.  The pressure hitting all the regional banks is significant despite all the assurance made regarding deposits.   

Oil

Energy traders were not expecting the collapse of the 16^th-largest lender in America to trigger a major risk-aversion wave that would send Brent crude below the $80 a barrel level. The chaos in the bond market is also weighing on commodities.  Oil’s rollercoaster ride won’t be over anytime soon as Tuesday’s inflation report could upend the rally hitting Treasuries. 

Oil prices have remained heavy since traders were disappointed with China’s modest economic growth target.  The oil market looks like it should have strong support here unless financial stability concerns remain the primary market driver on Wall Street.   

Gold

Gold is still a safe-haven.  It took an unexpected bank run in the digital age and the largest three-day collapse with the 2-year Treasury yield since Black Monday for Wall Street to remember that in uncertain times,  some investors feel secure in holding gold. 

Gold’s breaking out as volatility is picking up, Treasuries are surging, and it seems there is too much headline risk. The 2-year Treasury yield is down 49 basis points to 4.095%, which means we are almost down a full-point since last week.  The entire Treasury curve is now below Fed’s target and that normally means a recession is coming. 

Gold’s time to shine is here and as long as it holds the $1900 level after Tuesday’s inflation report, bullish momentum could target the $1950 region. 

Bitcoin

Bitcoin is rallying as financial stability risks sent Treasury yields crashing. In a scramble to avoid another massive bank run, Federal regulators stepped in as some Americans grew skeptical of traditional banking.  Bitcoin’s rally coincides as some of the banks with crypto ties come under tremendous pressure.  Regulation is not just going to hit crypto, but also the banks.  It appears that the biggest one-day rise since the FTX turmoil is a sign that some investors believe that DeFi solutions support the case for holding cryptos. 

Bitcoin volatility should remain elevated and it will be interesting to see how much momentum will be left with today’s surge.  

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