Making sense of the markets this week: March 19, 2023

So, the important thing questions for many Canadians are: “Do I must care about this? Is my cash secure?” The solutions could also be: “Most likely not. As secure because the Canadian authorities could make it.”

The actions of SVB, regional banks within the U.S. and even Credit score Suisse, usually are not prone to have an effect on the common Canadian’s funds. There’s some noise on the sides relating to Canadian banks which have some property in America, however that’s fairly small potatoes. OFSI is watching intently to reassure everybody. And it’s stepped in to take management over SVB’s $864 million in Canadian property, as famous above within the first part. It’s additionally value trying on the Canadian Deposit Insurance coverage Company (CDIC), because it has you coated as much as $100,000 per account.

Personally, I really feel fairly assured in Canadian banks. Their earnings reviews from two weeks in the past had been very stable. Every of the massive six Canadian banks reported setting apart growing quantities of cash to cowl off threat for conditions similar to what we’ve seen with SVB and Credit score Suisse. There are some optimistic systemic explanation why Canada has not skilled a banking disaster in a very long time. Given the adverse headlines regarding all issues banking in the intervening time, it could be an opportune time to get some widespread publicity to Canadian banks by way of an exchange-traded fund (ETF), just like the Horizons Equal Weight Canada Banks Index ETF (HEWB/TSX).

Inflation within the U.S.: The place will we go from right here?

Amid all this banking chaos, the U.S. Federal Reserve has a giant choice to make subsequent week, in regard to rates of interest. Extra now, than at every other time previously few a long time, has the U.S. Fed been put between a rock and a tough place. If the central financial institution pauses on elevating charges, it’s fairly potential we may see a bull market in a number of property and see inflation ramp its manner again up. If it follows by means of on its hawkish warnings, we may see extra structural issues reminiscent of financial institution runs proceed.

To complicate issues extra, the just lately launched U.S. inflation numbers don’t go away choice makers with a straightforward path. Costs in February had been 6% increased than a 12 months in the past. That’s down a considerable chunk from January’s 6.4% inflation, and fortunately, manner down from June’s 9.1% inflation–nevertheless it’s nonetheless far above the U.S. Fed’s 2% aim.

Month-to-month core inflation (which strips out risky meals and vitality costs) really ticked upward from January’s 0.4% to February’s 0.5%. The housing sector was liable for this enhance.

Every week in the past, CME economists instructed a 30%-plus probability that the U.S. Fed could be contemplating a 0.50% price hike. Given the current occasions, that’s shortly circled. Now, not solely is a 0.25% price hike the favourited odds, however there’s a 28% probability that there could also be no price hike in any respect!

On the first indicators of the Fed reversing financial route, inventory markets rallied, mortgage charges dropped, and bond markets determined fairly shortly that rates of interest wouldn’t keep “increased for longer.” Maintain on tight for the place we’re headed from right here. For what it’s value, I proceed to consider that Canadian corporations and broad Canadian fairness index funds are a wonderful place to be proper now.