By Bill Hornbarger, Chief Investment Officer
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Three Things to Watch
- The headline event for the week is the two-day Federal Open Market Committee meeting on Tuesday and Wednesday. At its last meeting, the Fed downshifted to a 25 basis point increase and in the wake of the developments in the banking sector, futures indicate approximately 70% odds of a quarter point increase and 30% odds of no change. Just a few weeks ago, futures had indicated the most probable outcome was expected to be a 50 basis point increase.
- The housing market will also be in the spotlight with reports on existing home sales on Tuesday, new home sales on Thursday, and mortgage applications on Wednesday. Single-family existing home sales have declined a record 12 consecutive months as higher mortgage rates have slowed the housing market. Existing home sales are expected to jump 5% while new home sales are forecast to fall 3% from the previous month.
- Both stock and bond market volatility has increased noticeably since the news of Silicon Valley Bank broke. The bond market in particular will draw extra scrutiny as bond volatility spiked to levels not seen since the Global Financial Crisis and yields have fallen dramatically despite uncomfortable inflation and a Fed that still seems intent on raising rates.
Three Things to Know
- UBS agreed to buy rival Credit Suisse with help from the Swiss government. The deal was valued at $3.2 billion (a 73% discount to market value) and in a rare move, equity holders received priority treatment to certain bondholders. (Source: CNBC)
- Over the past week, Fed funds futures for the September 2023 contract traded with an implied yield between 3.91% and 4.47%, indicating the Fed will be lowering rates later this year. (Source: BFE, Bloomberg)
- The recent rally in bonds should have significantly reduced stress in the banking system. The value of all bonds has increased $2.1 trillion since the banking stress erupted 10 days ago. (Source: @Schuldensuehner, Bloomberg)
The above information reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security mentioned.