2023-03-24

The Fed's interest rate hike was in line with expectations, and the statement after the meeting removed the wording "may be suitable for sustained interest rate hikes" and replaced it with "some additional policy tightening may be appropriate". Federal Reserve officials predict that future interest rate levels will be halted after another rate hike in May, indicating that the interest rate hike week is nearing its end. At the beginning of this month, Federal Reserve Chairman Powell warned that inflation was still high and hinted at another aggressive rate hike, with the ultimate interest rate set to be higher than previously expected. However, after discussing interest rates the day before yesterday, it suddenly turned sour. The reason for this is that the hidden danger of a banking crisis is still present.

Two weeks ago, Silicon Valley Bank and Signature Bank went bankrupt in succession, all because the Federal Reserve had raised interest rates by 4.5% in the previous year, and the bond price fell sharply. As a result, the low interest bonds held by Silicon Valley Bank suffered serious losses, and the liquidity on hand was insufficient, so they were forced to sell bonds at a low price to cash in, making the risk-free US bonds into risky assets. Although the Federal Reserve took over two failed banks and introduced new loan arrangements to the banking system, allowing banks to obtain funds to meet depositors' withdrawals, temporarily easing depositors' anxiety. However, as the crisis spread to Credit Suisse Bank in Europe, Credit Suisse was finally acquired by UBS. The market was wary of the soundness of the bank and worried that the bank still had some potential Time bomb waiting to be detonated.

It is reported that 186 regional banks in the United States may have risks similar to those of Silicon Valley Bank, increasing the vulnerability of the banking system. If depositors lack confidence in the bank and withdraw their deposits one after another, it will be enough to cause a run on these 186 banks, which will then affect large banks and trigger systemic financial risks, with dire consequences. Therefore, the Federal Reserve has been in a dilemma of raising or suspending interest rates this time. If there is no interest rate increase or even a rate cut, it will send a signal to the market that the banking crisis is severe enough to interrupt the pace of the Federal Reserve's interest rate hike, which will only exacerbate market panic. If radical interest rate hikes are initiated again, it will only further expand the book losses of the bonds held by banks, triggering a greater squeeze crisis. Powell admitted that he considered suspending the interest rate increase before the interest rate discussion, but finally decided to maintain a modest interest rate increase of 0.25%. He believed that this was a signal to the market that the risk of Bank failure had been basically controlled before he dared to continue to raise interest rates to curb inflation.

With the Federal Reserve hinting that interest rates are about to peak and returning to early year views on the economic outlook, the US dollar will continue to weaken, theoretically benefiting the stock market. However, the problem is that the banking crisis has not been resolved and market sentiment remains uneasy. Even if depositors no longer flock to small and medium-sized banks to withdraw their deposits, banks believe that in order to maintain sufficient liquidity, they will tighten their approval for car, building mortgages, and other consumer loans in the future, ultimately affecting economic growth and increasing the risk of economic recession.

Based on the panic sentiment in the market towards the banking crisis this time, some analysts believe that the bank meltdown is equivalent to a tightening effect of raising interest rates by half a percentage point, which has caused the Federal Reserve to slow down the pace of interest rate hikes. Even if Powell promises not to cut rates this year, it cannot be ruled out that the market has allowed the panic sentiment to continue to ferment, forcing the Federal Reserve to cut interest rates early, and then the market's concerns about economic recession will rise again.

The US interest rate has peaked, the US foreign exchange rate has fallen, and funds may flow back to emerging markets in Asia. Coupled with China's measures to stabilize the economy, it is believed to help the economy recover quickly, further attracting funds to flow into Hong Kong stocks and A-shares, which is beneficial for Hong Kong stocks. However, in the face of the haze of US and European banks exploding, market sentiment is as fragile as a frightened bird, and it is feared that the future will fluctuate significantly with the market conditions in the US and Europe.

The Fed's interest rate hike was in line with expectations, and the statement after the meeting removed the wording "may be suitable for sustained interest rate hikes" and replaced it with "some additional policy tightening may be appropriate". Federal Reserve officials predict that future interest rate levels will be halted after another rate hike in May, indicating that the interest rate hike week is nearing its end. At the beginning of this month, Federal Reserve Chairman Powell warned that inflation was still high and hinted at another aggressive rate hike, with the ultimate interest rate set to be higher than previously expected. However, after discussing interest rates the day before yesterday, it suddenly turned sour. The reason for this is that the hidden danger of a banking crisis is still present.

Two weeks ago, Silicon Valley Bank and Signature Bank went bankrupt in succession, all because the Federal Reserve had raised interest rates by 4.5% in the previous year, and the bond price fell sharply. As a result, the low interest bonds held by Silicon Valley Bank suffered serious losses, and the liquidity on hand was insufficient, so they were forced to sell bonds at a low price to cash in, making the risk-free US bonds into risky assets. Although the Federal Reserve took over two failed banks and introduced new loan arrangements to the banking system, allowing banks to obtain funds to meet depositors' withdrawals, temporarily easing depositors' anxiety. However, as the crisis spread to Credit Suisse Bank in Europe, Credit Suisse was finally acquired by UBS. The market was wary of the soundness of the bank and worried that the bank still had some potential Time bomb waiting to be detonated.

It is reported that 186 regional banks in the United States may have risks similar to those of Silicon Valley Bank, increasing the vulnerability of the banking system. If depositors lack confidence in the bank and withdraw their deposits one after another, it will be enough to cause a run on these 186 banks, which will then affect large banks and trigger systemic financial risks, with dire consequences. Therefore, the Federal Reserve has been in a dilemma of raising or suspending interest rates this time. If there is no interest rate increase or even a rate cut, it will send a signal to the market that the banking crisis is severe enough to interrupt the pace of the Federal Reserve's interest rate hike, which will only exacerbate market panic. If radical interest rate hikes are initiated again, it will only further expand the book losses of the bonds held by banks, triggering a greater squeeze crisis. Powell admitted that he considered suspending the interest rate increase before the interest rate discussion, but finally decided to maintain a modest interest rate increase of 0.25%. He believed that this was a signal to the market that the risk of Bank failure had been basically controlled before he dared to continue to raise interest rates to curb inflation.

With the Federal Reserve hinting that interest rates are about to peak and returning to early year views on the economic outlook, the US dollar will continue to weaken, theoretically benefiting the stock market. However, the problem is that the banking crisis has not been resolved and market sentiment remains uneasy. Even if depositors no longer flock to small and medium-sized banks to withdraw their deposits, banks believe that in order to maintain sufficient liquidity, they will tighten their approval for car, building mortgages, and other consumer loans in the future, ultimately affecting economic growth and increasing the risk of economic recession.

Based on the panic sentiment in the market towards the banking crisis this time, some analysts believe that the bank meltdown is equivalent to a tightening effect of raising interest rates by half a percentage point, which has caused the Federal Reserve to slow down the pace of interest rate hikes. Even if Powell promises not to cut rates this year, it cannot be ruled out that the market has allowed the panic sentiment to continue to ferment, forcing the Federal Reserve to cut interest rates early, and then the market's concerns about economic recession will rise again.

The US interest rate has peaked, the US foreign exchange rate has fallen, and funds may flow back to emerging markets in Asia. Coupled with China's measures to stabilize the economy, it is believed to help the economy recover quickly, further attracting funds to flow into Hong Kong stocks and A-shares, which is beneficial for Hong Kong stocks. However, in the face of the haze of US and European banks exploding, market sentiment is as fragile as a frightened bird, and it is feared that the future will fluctuate significantly with the market conditions in the US and Europe.