Major stock indices ended a volatile week mixed.  Bank jitters continue to weigh on markets.  There were mixed data on inflation this week.  While consumer prices continue to rise, producer prices fell in February.  Industrial production was unchanged in February.  First time claims for unemployment remain low as the tight labor market threatens to push labor costs higher.  The dilemma for the Federal Reserve is to balance fighting inflation with ensuring financial stability.  It is largely expected to hike short term rates another quarter percent next week but may signal a pause in further rate hikes.

Three significant banks have failed.  In the case of the largest bank failure, Silicon Valley Bank, the FDIC took action to make all depositor’s whole, not just deposits subjected to the $250,000 FDIC limit.  In the week ending March 15^th there were $152.85B in loans made through the FED discount window.  This was a record, even higher than during the financial crisis.  The discount window is considered a last resort as the amount loaned is a discount from the current value of the collateral ensuring the FED will be made whole in the case of a default.  As using the discount window may have a stigma for a bank, the Federal Reserve also created the Bank Term Funding Program (BTFP), to provide emergency loans up to the par value of qualifying collateral.  The par value may be higher than the actual market value as many of the Treasury and other government backed bonds may be priced below par due to interest rate increases.  BTFP loans are for up to a year. 

11 large banks deposited $30BN into another regional bank to shore it up.  In Switzerland, long troubled Credit Suisse borrowed the equivalent of $54BN from the central bank to shore up liquidity.

What we know at this point, this is not a situation with bad loans, as was the 2008 subprime mortgage crisis.  This has more to do with bank liquidity.  Banks having longer dated bonds in their reserves have seen their reserves decline due to rising interest rates.  Silicon Valley Bank was in a unique situation by lending to startups in Silicon Valley and many of those startups used the bank for their sizable cash reserves.  When Silicon Valley Bank announced it sold bonds at a substantial loss to raise liquidity, several large venture capital firms recommended companies withdraw their funds, as they realized that large deposits were not covered by FDIC insurance.  This created a run on the bank.  The panic then became a self-fulfilling prophecy.

Treasury bond yields fell with the 30-year bond ending at 3.628% and the 10-Year note at 3.430%.  Freddie Mac reported that 30-year mortgage rates fell to 6.6%.  Crude oil fell to $66.33 a barrel and natural gas fell to $2.462 per MMBTUs.  The U.S. dollar index fell to 103.86 and gold rose to $1993.70 an ounce.

• China reported:
  • Industrial production for the first two months of 2023 were 2.4% higher than the same period last year.
  • Retail sales rose 3.5%
  • Fixed asset investment rose 5.5%
• The European Central Bank met and raised its benchmark interest rate 0.5% to 3.0% despite concerns about the banking system.  
• The Federal Reserve reported that industrial production was unchanged in February. 
  • Manufacturing increased 0.1%.
  • Mining, including oil and gas production, fell 0.6%.
  • Utility production rose 0.5%.
  • From a year ago industrial production fell 0.2%. 
• The Commerce Department reported:
  • Retail sales fell 0.4% in February down from an upwardly revised 3.2% increase in January.
  • Housing starts rose 9.8% in February, the first increase in five months.
    • Single family housing starts rose 1.1%.
    • Multi-family housing starts rose 24%.
    • Permits, a sign of future housing starts rose 13.8%.
    • Housing completions rose 12% to the highest level since 2007.
• The Labor Department reported:
  • The consumer-price index rose 0.4% in February, down from a 0.5% rise in January.
    • From a year ago, consumer prices have risen 6.0% down from 6.4% year over year in January.
    • Core prices, excluding volatile food and energy, have increased 5.5%, down from 5.6% in January from a year earlier.
    • Prices for home heating, medical services and used cars fell.
    • Prices for food, gasoline and shelter rose.

• • Producer prices fell 0.1% in February, compared with a  downwardly revised increase of 0.3% in January.
    • Core producer prices, excluding volatile food and energy rose 0.2%, compared to a downwardly revised 0.5% in January.
    • From a year earlier, producer prices have risen 4.6, compared to a downwardly revised 5.7% in January.

• • Seasonally adjusted first-time claims for unemployment were 192,000 down from a revised 212,000 in the prior week.

• • • The 4-week moving average of claims, designed to smooth out volatility, was 196,500 down from a revised 197,250 in the prior week.
    • For the full unemployment report go here:  https://www.dol.gov/ui/data.pdf .
• The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf .  Also, the EIA reported in the prior week:
  • Field production of crude oil was unchanged at 12.2MM BPD.
  • Natural gas storage fell 58BN cubic feet and is above the 5-year average at this time of year.
• Baker Hughes reported the number of active oil rigs fell 1 to 589.  The number of active natural gas rigs rose 9 to 162.

Please call us if you have any questions.

Thank you,

Loren C. Rex, CFP^®, MA                                                                     Erik A Smith, AIF®

Founder / Emeritus                                                                            President & C.E.O.                                  269-441-4143                                                                                    517-795-2025

Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.

These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.