Bears Lurk As Bankers Hike

The Federal Reserve’s 25 bp hike is getting all the attention this week, but several other central banks recently made policy decisions worth noting. 📝

1. The European Central Bank (ECB) raised rates by 50 bps to 3.00%;
2. The Swiss National Bank raised rates by 50 bps to 1.50%;
3. The Bank of England raised rates by 25 bps to 4.25%;
4. The Bank of Canada held rates at 4.50%;
5. The Bank of Japan held rates at -0.1%; and
6. Banco Central do Brasil held rates at 13.75%.

The overarching theme among central banks is that they remain hyper-focused on bringing down inflation. They’re not letting the many market/economic distractions take them off track. With that said, many have slowed their pace of hikes and are nearing their projected terminal rate, where they intend to leave policy to observe how the economy reacts. Additionally, officials have become more optimistic about their economies’ ability to avoid a recession while inflation comes down. 🔮

Meanwhile, here in the U.S., concerns over the regional banking crisis remain. Bill Ackman and others have been highly critical of Treasury Secretary Janet Yellen’s recent comments. She said that complete deposit protection for all banks was not being considered. Instead, the government is choosing only to protect deposits at banks that pose a risk of contagion to the system. 🏦

And in Europe, Swiss regulators are facing backlash over UBS’ takeover of Credit Suisse. In particular, Additional Tier 1( AT1) bondholders feel that their investments should not be entirely written down. Others are more concerned about the risk this “mega-bank” could pose to the country, as it’s now twice the size of Switzerland’s economy.

So far, the market’s reactions have been mixed. However, policymakers are staying steady on their hiking path despite the looming bearish sentiment. So, whether it’s central bank decisions or news about private sector banks, the sector will remain in focus for the foreseeable future. 👀