However, the Fed seems to have been impacted the most as concerns about credit tightening have averted the rise in the projected peak for the hiking cycle that Powell had announced only a few weeks ago. Nevertheless, we continue to doubt the rate cuts that have been priced in by the markets for this year, as inflation in the US remains persistent.

Banking turmoil

This week saw additional efforts to stabilize the banking system across the globe.

On Sunday, six central banks – the Bank of Canada, the Bank of England, the Bank of Japan, the ECB, the Fed and the SNB – announced a coordinated action to enhance the provision of US dollar liquidity through an increase of the frequency of US dollar swap line operations to daily from weekly, at least through the end of April. The network of swap lines is a set of standing facilities that serve as a liquidity backstop for global funding markets.

First Republic Bank is the third casualty in the US banking turmoil. The similarity to Silicon Valley Bank, being a midsize bank with wealthy clients and largely uninsured deposits, makes it a prime suspect in the eyes of depositors and investors. A $30 billion deposit injection by 11 large US banks, led by JPMorgan Chase and facilitated by the Treasury Department, only provided temporary relief for First Republic. Note that these large banks received major inflows of deposits from midsize banks such as First Republic, so they are basically sending the hot money back. However, First Republic's stock is still trading at low levels.