US Close: Stocks rally as bank jitters ease, No surprises from Yellen, ECB hikes, Oil rebounds, profit-taking time for gold, Bitcoin edges higher

US stocks are rallying as Wall Street worries over the banking sector are easing after the big banks offer support to First Republic and as the SNB gave Credit Suisse a lifeline.  Banking jitters are fading quickly for now and that has everyone scrambling back into risky assets. 

Yellen

Treasury Secretary Janet Yellen’s testimony to the Senate did not yield any surprises.  She defended the proposed budget and reiterated that there will be a careful look at what happened with SVB. Yellen noted that the US cannot pick and choose which bills to pay on time and that the debt ceiling must be raised.  She emphasized that the US has always paid their bills and made her case on why the US must not default. 

ECB

This was obviously not an easy decision for the ECB. Reuters reported that policymakers were debating either to keep rates on hold or follow through on the half-point rate hike that they were signaling last week.  After seeing a lifeline given to Credit Suisse, policymakers felt comfortable with raising rates by a half-point.  The ECB refrained from offering any rate guidance as they continue to monitor the health of the banking sector.  Lagarde discussed how the risks for growth are tilted to the downside as further turmoil could hit credit conditions and dampen confidence.

The euro settled slightly higher on the day against the dollar. 

Oil

Crude prices turned positive as risk appetite returned to Wall Street after reports of efforts to help the troubled banking stocks.  Earlier oil was sharply lower after the ECB decided to stick with their pre-committed hike.  Monetary policy continues to get more restrictive as central banks continue to deliver more rate hikes.  Global recession risks have never been greater and that is bad news for the crude demand outlook.  The initial move lower for crude however might not last as traders might grow confident this will be the last rate hike for the ECB and that next week the Fed will stop after delivering one more. 

Gold

Profit-taking kicked in for gold as banking turmoil eased after JPMorgan, Morgan Stanley and other big banks reportedly are considering a potential deal with First Republic Bank.  Gold traders quickly realized that the path towards $1950 was not happening and locked in profits.  Gold’s rally over the past week was rather impressive but might be out of steam.  Wall Street is going to keep its eye on the banking sector but for this news cycle it appears optimism is growing that this banking crisis will be contained.  If the news flow is more about efforts to support Credit Suisse and First Republic , then we might see risk appetite attempt a comeback here and that could have gold give up some of the recent rally. 

Cryptos

Bitcoin is higher as Wall Street grows confident that efforts are being made to contain this banking turmoil and as central banks globally are continuing with their respective tightening cycles. The ECB went ahead with their half-point rate rise and expectations are improving for the Fed to deliver one more hike. If the Fed might is done tightening after the March 22nd meeting, that will keep the economy in slowdown mode and support expectations that we should start seeing labor market weakness in the Spring.

Despite losing a couple important crypto banks, the plunge in yields is welcome news for many crypto startups.   As the economy heads towards a recession, the cryptoverse could look more attractive than equities. It appears the downside risks are greater for the S&P 500 than they are for Bitcoin. 

Ethereum got a little boost after news that developers have agreed upon a target date for Shanghai hard fork update that will allow staked Ethereum withdrawals.  The long-awaited merge was done in September, so this target date has been in the making for quite some time.  

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