Jump to content

Collapse of SVB shakes ASX 200


Recommended Posts

Responding to the RBA's dovish overtures, the ASX 200 spring boarded to a high of 7370.3, a level which now seems like just a distant memory after its rapid-fire 5% dive over the past five trading sessions.

 

BG_australia_aus_asx_3094886169651651919Source: Bloomberg

 
 Tony Sycamore | Market Analyst, Australia | Publication date: Tuesday 14 March 2023 

This time last week, the Reserve Bank Board delivered a dovish 25bp hike taking the cash to 3.60%. Speaking at a conference the following day, RBA Governor Philip Lowe opened the door to a pause.

Responding to the RBA's dovish overtures, the ASX 200 springboarded to a high of 7370.3, a level which now seems like a distant memory after its rapid-fire 5% dive over the past five trading sessions.

At this morning's 6950.6 low, the ASX 200 erased all of January's gains and, excluding dividends, is down over 1% for the year.

What has caused the sell-off?

The cause of the sell-off can be traced to the collapse of three regional US banks in recent days, an unintended consequence of the Fed's aggressive tightening cycle that provides yet another example that the Fed will tighten until something breaks.

Leaping to the Fed's defence, it took prompt and decisive action over the weekend to guarantee deposits above $250,000. Furthermore, the introduction of the Bank Term Fund Facility (which provides cheap funding to banks) has starkly contrasted with its sloth-like response during the banking crisis in 2008.

No doubt this is evidence that the Fed was unwilling to risk confidence in the banking sector to cascade further.

Why is a US banking collapse being felt so acutely on the ASX 200?

The ASX Financial sector accounts for about 28.8% of the ASX 200 with CBA, NAB, Westpac and ANZ, and Macquarie Bank dominating 23.5% alone.

Until the dust settles in the US, investors will continue to questions all banks around:

  • Rate hedging strategies
  • Possible capital raises
  • Net Interest Margin (NIM) compression
  • Wider credit spreads
  • Tighter lending standards.

 

What does it mean for the RBA's rate hiking cycle?

A potential banking crisis threat trumps high inflation any day of the week. Reflecting the repricing of the Fed's priorities, two-year yields in the U.S. are trading at 4% from 5.08% last week. After being 70% priced for a 50bp rate hike last week, there is now just 12bps priced for the upcoming FOMC meeting.

In Australia, the interest rate market is almost fully priced for a 25bp RBA rate cut by July.

Does Thursday's Australian jobs data even matter?

In January, Employment declined by 12k, its second fall in succession, missing market forecasts for a 20k rise. The unemployment rate rose from 3.5% to 3.7%, despite the participation rate dropping to 66.5%.

On Thursday, the market is looking for a gain in employment of 45k and for the unemployment rate to remain at 3.7%.

A softer-than-expected number would reinforce the case for an RBA pause and possibly a rate cut. In contrast, a hotter-than-expected jobs number will likely be looked through.

What about the technicals?

After its rampaging run higher in January, we had been expecting a pullback in the ASX 200 to the 7200/7000 support area to reset longs. Providing the ASX 200 can stage a prompt rebound back above the 200-day moving average at 7010 (like it did in early January), we will stay with the view that the pullback from the Feb 7567 high is countertrend and that a rebound will follow.

However, should the ASX 200 sustain its break below 7010/00 and then break the January 6905 low, it would signal a deeper decline to 6750 is set to unfold.

ASX 200 daily chart

 

 

SGX_Australia200_140323.pngSource: IG

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      23,076
    • Total Posts
      95,532
    • Total Members
      43,696
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    jimipop
    Joined 04/10/23 17:01
  • Posts

    • Summary: Still expecting another low for indices, the current move up part of a corrective rally. Normally I look for indices lead from stocks, however some stocks are displaying strength and some weakness so this mix bag is showing up in the Nasdaq 100 pattern as a probable wave four triangle at the current low. Trading Strategies: Nil Video Chapters 00:00 SP 500 (SPX)  05:02 NASDAQ (NDX) 08:26 Russell 2000 (RUT) 10:43 DAX 40 (DAX) 16:07 FTSE 100 UKX (UK100) 22:15 ASX 200 (XJO) 38:47 End Analyst Peter Mathers TradingLounge™ Australian Financial Services Licence - AFSL 317817 Source: tradinglounge com   Access Trial  
    • A lot of transformation is happening to BNB at the moment with the integration of bitcoin lightning network and Optimism especially with opBNB birth but that has not reflected in users confidence primarily because of the many negativities surrounding the platforms operations in North America and Australia. BGB on the other is gaining traction and value because a lot of investment is going into the development of the ecosystem recently with the injection of $100M and also improved partnership deals
    • I know we still have a lot to do to attract massive crypto adoption but steps like those taken by Binance and bitget in the wake of what happened to FTX is commendable in righting the wrongs of the lapses and loopholes that exist pre-FTX saga. But more still needs to be done to restore confidence to the level it was pre-2020 bear market like consistent regulatory framework and regular security updates by crypto platforms
×
×
  • Create New...
us