Fed Joins Five Other Central Banks in Move to Ease Liquidity Concerns in Global Markets

Another weekend of financial firefighting casts gloomy tone for the week ahead

Swiss authorities orchestrated a deal for UBS to buy ailing rival bank Credit Suisse for $3.2 billion to prevent a failure of the systemically important Credit Suisse sending shockwaves through world banking. The details of the buyout did little to ease market tensions first thing on Monday, with the UBS share price falling 12% in early trade and euro zone bank stock indices down another 3%.

Over the weekend, the FDIC said Flagstar Bank, a subsidiary of New York Community Bancorp, would take over large chunks of Signature Bank, including its 40 former branches, almost all of its depositions and a piece of its loan portfolio. About $60 billion in loans and $4 billion in assets would remain under receivership.

First Republic hit with another credit downgrade, following another downgrade from Standard & Poor’s, which had already lowered the bank’s credit status to junk. After the failures of Silicon Valley Bank and Signature Bank, investors are focusing on First Republic as the main representative of large regional banks in the U.S. First Republic’s stock had already fallen about 80% this month heading into Monday trading. The S&P downgrade came after 11 banks, including JPMorgan Chase and PNC, agreed to deposit a collective $30 billion in First Republic as a sign of confidence.

Acknowledging the risk of wider stress shortly after the Swiss deal, the U.S. Federal Reserve, European Central Bank and other major central banks issued statements to reassure markets and announced coordinated action to provide U.S. dollar liquidity where needed and backstop their banking systems.

“There’s going to be less credit. Less credit means less growth. So, some of the mission of the Fed in trying to slow the economy will be done here,” former Goldman Sachs chief executive Lloyd Blankfein said on Sunday.

President Joe Biden asked Congress to expand regulators’ power to claw back compensation and capital gains from executives of failed banks. He cited stock sales worth $3.6m by the former boss of Silicon Valley Bank in February. SVB Financial Group — the bank’s former parent company, which no longer includes the deposit-taking business — filed for bankruptcy to salvage value from the technology-investing and brokerage divisions.

Futures markets now only see a one-in-three chance that the Fed will go ahead with a final rate hike this Wednesday and they see up to a percentage point of rate cuts by yearend.

Some U.S. lawmakers from California are asking for a federal probe into what role Goldman Sachs Group might have played in the collapse of Silicon Valley Bank. Meanwhile, Sen. Bernie Sanders (I-Vt.) said he plans to introduce a measure that would prevent big-bank executives from serving on the boards of the regional Federal Reserve banks that oversee them. And Sen. Elizabeth Warren (D-Mass.) is calling for more U.S. deposits to be covered by federal insurance.

CFTC again delays COT report. After issuing several reports over the past few weeks in a delayed fashion following a cyberattack at ION that prevented the submission of timely and accurate data to the Commodity Futures Trading Commission (CFTC), expectations were that the CFTC would release the Commitments of Traders (COT) report on March 17 which would have returned the agency to a regular publishing schedule. However, the CFTC announced Friday that “staff will not issue the Commitments of Traders report as data for this week will need to be reviewed and validated. The CFTC intends to sequentially issue the missed COT reports, subject to reporting firms submitting accurate and complete data.”

Commodity analyst and trader Richard Crow writes: “The commodity market has seen the liquidation of spec longs. If the COT were current, the corn market is likely net zero, soy oil market short, the wheat market short, bean and soymeal market long. The cattle market is believed to be still long. This means the commercial market dominates as the business develops or does not develop.”

Russian President Vladimir Putin pledged today in remarks to a Russian-African parliamentary conference that Russia would provide grain for free to African countries if the Black Sea Grain Initiative is not extended in May. He again complained that only a small amount of grain that has left Black Sea ports under the deal has gone to African countries.

EPA reportedly plans to let California phase out diesel-powered trucks. Details in Energy and Climate Change section.

California storms. As California reels from an onslaught of powerful storms and destructive floods, a 12th atmospheric river will bring another round of heavy snow and rain to the state this week. The next atmospheric river will take aim at Southern California tomorrow and is expected to arrive with high winds, heavy rain, mountain snow and the threat of more floods. Soil in California is still overly saturated from last week’s storms, making the ground vulnerable to more flooding and rapid runoffs, the National Weather Service said.

Equities today: Global stock markets were mixed to lower overnight. U.S. stock indexes are pointed toward mixed openings. U.S. Treasury yields plunged across the curve, with 2-year yields hitting 6-month lows of 3.6% and 10-year yields also hitting 6-month lows at 3.29%. In Asia, Japan -1.4%. Hong Kong -2.7%. China -0.5%. India -0.6%. In Europe, at midday, London +0.3%. Paris +0.8%. Frankfurt +0.5%.

Bank stocks are falling around the world after UBS Group agreed Sunday to take over its longtime rival Credit Suisse for $3.2 billion as part of regulators’ efforts to stop a dangerous decline in confidence in the global banking system. Bonds are rallying, pushing yields down. Wall Street’s fear gauge, the VIX, is climbing.

U.S. equities Friday: All three major indices ended Friday lower, but only the Dow posted a loss for the week, losing 0.1%, while the S&P 500 was up 1.4% and the Nasdaq gained 4.4%. On Friday, the Dow was down 384.57 points, 1.19%, at 31,861.98. The Nasdaq lost 86.76 points, .074%, at 11,630.15. The S&P 500 fell 43.64 points, 1.10%, at 3,916.64.

Agriculture markets Friday:

• Corn: May corn futures rose 1 1/2 cents on the day to settle at $6.32 1/4, up 17 cents on the week.
• Soy complex: May soybeans fell 15 cents to $14.76 1/2, the lowest close since Dec. 22 and is down 30 1/2 cents on the week. May meal dropped $8.00 to $466.00, while May soyoil ended the session 27 points lower at 57.46 cents.
• Wheat: May SRW wheat rose 11 1/2 cents to $7.10 1/2, near the session high and hit a two-week high. For the week, May SRW rose 30 3/4 cents. May HRW what gained 16 cents to$8.35 3/4, hitting a three-week high and increasing 37 1/2 cents on the week. May spring wheat futures rose 11 3/4 cents to $8.35 3/4.
• Cotton: May cotton fell 133 points to 77.83 cents, marking the lowest close since Nov. 1 and was down 35 points on the week.
• Cattle: Cattle and feeder futures posted significant losses in early Friday trading but staged sizeable comebacks later in the day. April live cattle futures ended the day having dipped just 2.5 cents to $162.325; that represented a weekly loss of $1.95. April feeder futures lost 50 cents on the day, closing at $194.65, which marked a weekly drop of $3.00.
• Hogs: April lean hog futures rose 42 1/2 cents to $79.875 after careening to a 17-month low in early trading. For the week, April hogs fell $7.575.
  

Ag markets today: Bears controlled price action in the grain and soy markets overnight amid ongoing macroeconomic unease. As of 7:30 a.m. ET, corn futures were trading 6 to 7 cents lower, soybeans were 8 to 12 cents lower, winter wheat futures were 8 to 12 cents lower and spring wheat was 6 to 8 cents lower. Front-month crude oil futures were around $1 lower and the U.S. dollar index was down around 175 points this morning.

Technical viewpoints from Jim Wyckoff:

The Cboe Volatility Index, or VIX, rose to 28.21 early Monday, on track for its highest closing level since October, underscoring how investors remain nervous despite efforts by regulators to stabilize large banks.

Why farmers and others should be watching the impact of some failing banks: Smaller banks are likely to respond to recent turmoil in the sector by tightening standards and slowing lending to raise capital ratios. That could make it harder for American families and businesses to get a loan.

Some regional banks across the country engaged in one of Silicon Valley Bank’s risky practices: Buying long-dated bonds with low interest rates, whose value has now fallen as interest rates have risen. A New York Times account notes: “The current chaos is less about contagion from that one firm’s collapse and more about embedded losses hiding in banks’ balance sheets. One study says that as many as 190 more lenders could fail.”

Warren Buffett has reportedly been in contact with the Biden administration about potentially investing in beleaguered U.S. regional banks. The chairman of Berkshire Hathaway invested $5 billion in Bank of America in 2011 as he tried to bolster the bank due to its losses tied to subprime mortgages, and also came to the aid of Goldman Sachs in 2008.

Pricey child care is keeping parents out of the workforce. Many lower-income Americans who left their jobs when the pandemic began three years ago still aren’t working because of a lack of child care, a factor contributing to worker shortages and historically low unemployment. An estimated 380,000 Americans in their prime working years, aged 25 to 54, held jobs before the pandemic but no longer did late last year, according to estimates from Bank of America.

Market perspectives:

• Outside markets: The U.S. dollar index was weaker as the euro, British pound and Swiss franc are firmer against the U.S. currency. The yield on the 10-year US Treasury note has fallen to trade around 3.38% with a lower tone in global government bond yields. Crude oil was under pressure but has lifted off lows seen earlier in overnight action. U.S. crude was trading around $65.65 per barrel and Brent around $71.80 per barrel. Gold and silver are seeing safe-haven-related buying, with gold around $1,987 per troy ounce and silver around $22.62 per troy ounce.

• Gold futures prices hit a 12-month high of $2,014.90 an ounce today, on safe-haven demand.

• Goldman Sachs scraps its forecast of $100-a-barrel oil prices. Analysts at the bank, which had been especially bullish on oil prices, cited fears of a global recession and the recent stock market volatility in cutting their prediction. The Brent crude global benchmark has fallen nearly 20% over the past two weeks and currently trades at about $70 a barrel.

• Ag trade: Taiwan tendered to buy 56,300 MT of U.S. milling wheat.

• NWS weather outlook: Widespread below freezing and near record low temperatures this morning across the South will begin to moderate on Tuesday... ...Widespread rain/snow moving across the western U.S. today will be followed by a stronger storm to be moving onshore across California on Tuesday with high winds, heavy rain, and heavy mountain snow... ...Snow is expected to spread east across the northern Plains Tuesday to Wednesday morning while more widespread rain/heavy mountain snow overspreads the Great basin to the Four Corners.

Items in Pro Farmer’s First Thing Today include:

• Grain markets see price pressure to open the week
• Rains in Argentina, drier conditions in Brazil
• China sells nearly all wheat put up for auction
• Neutral Cattle on Feed Report
• Wholesale pork weakness continues

— President Joe Biden said that the International Criminal Court was right to pursue Vladimir Putin, as the Russian president had “clearly committed war crimes”. On Friday the court issued arrest warrants for Putin and Maria Lvova-Belova, Russia’s commissioner for children’s rights. The warrants allege that the pair bear responsibility for the “unlawful deportation” of people from occupied areas of Ukraine to Russia, notably children. Russia does not recognize the ICC’s authority; if it ignores the warrant, the issue could be referred to the U.N. Security Council.

— Xi Jinping of China has landed in Moscow. The Chinese leader will meet with President Vladimir Putin of Russia to discuss Beijing’s proposal for ending the war in Ukraine. Xi’s state visit underscores increasingly closer ties with Russia, as China faces growing tensions with the U.S. and other Western countries.

— Ukraine’s grain and oilseed crop to decline 10%. Ukraine’s 2023 combined grain and oilseed production is seen falling to a preliminary 63 MMT from 70 MMT last year, Ukrainian Agriculture Minister Mykola Solsky told Reuters. Solsky said the area planted to winter grains appeared to be slightly higher than the ministry expected.

— USDA extends comment period on cattle/bison electronic eartag proposed rule. USDA’s Animal and Plant Health Inspection Service (APHIS) will extend the public comment period by 30 days, to April 19, on its proposed rule to require eartags to be both visual and electronic for interstate movement of cattle and bison. The comment period had been set to end today (March 20), according to a notice (link) in today’s Federal Register. APHIS has proposed that the requirement would be put in place six months after a final rule is published in the Federal Register, but the agency has provided no timeline on when any final rule would be published at this stage.

— Chinese imports rose at their fastest pace in a year in February. The figures are another sign that the world’s second-largest economy is rapidly recovering from the impact of its “zero-covid” policies, scrapped late last year. Imports rose by 4.2% year on year to $197 billion after four months of decline. The fall in exports also slowed, to 1.3% year on year.

— The People’s Bank of China (PBoC) kept its key lending rates steady for the seventh straight month, as widely expected. The one-year loan prime rate (LPR), which the medium-term lending facility uses for corporate and household loans, was left unchanged at 3.65%; while the five-year rate, a reference for mortgages, was maintained at 4.3%. The move came after the central bank last week held its medium-term policy rate at 2.75%. PBoC’s governor Yi Gang said earlier this month that the current interest rate level is “appropriate” while adding that efforts to unleash long-term funds for banks were needed. On March 17, the central bank cut the reserve requirement ratio for financial institutions by 25bps, effective from March 27, marking the first rate cut in banks’ reserve ratio since December and in line with market expectations, in a move from policymakers to further shore up the country’s economic recovery.

— China’s pork imports stay strong to start 2023. China imported 380,000 MT of pork in January and February combined, up 35.8% from the same period in 2022. China’s pork imports increased late last year and are expected to climb this year, especially with the country reportedly fighting a new outbreak of African swine fever.

— EPA reportedly plans to let California phase out diesel-powered trucks. The Environmental Protection Agency plans to grant California a waiver to impose its own tailpipe pollution regulations — which are stricter than federal requirements — that will allow for the phaseout of diesel-powered truck sales in the state, the Washington Post reports (link), citing three people briefed on the plans. The waiver could affect six other states that have committed to following California’s tougher standards, which include more stringent pollution limits for heavy-duty vehicles that would apply to vehicles starting with the 2024 model year. Link for details.

— Big oil companies could be held criminally responsible for climate-related deaths, which could cost the industry billions of dollars, according to a new academic paper set to be published in the Harvard Environmental Law Review. As oil majors allegedly deceived the public about the dangers of burning fossil fuels, the authors argue that “there aren’t really any legal or factual barriers to prosecution” besides those that are political and cultural.

— Newsom announces $50-million contract to make California’s own brand of insulin. Gov. Gavin Newsom announced a new $50-million contract with the nonprofit generic drugmaker Civica to produce insulin under the state’s own label during a news conference Saturday in Downey. The deal with Civica would provide the first pharmaceutical product made under the CalRX brand of generic drugs.

— Saudi Arabia has invited Ebrahim Raisi, Iran’s president, for an official visit, according to a senior Iranian bureaucrat. Mohammad Jamshidi, who works in the president’s office, said Raisi “welcomed” the invitation and is ready to “expand co-operation.” Earlier this month, the two countries agreed to re-establish diplomatic ties following a seven-year rift.

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