Investor sentiment is expected to remain bearish in the near term following the big-ticket collapses of the Silicon Valley Bank and Credit Suisse (NYSE: CS). Shares of Germany’s largest bank, Deutsche Bank (NYSE: DB), also fell 8.5% last Friday as contracts implemented to insure the entity against debt defaults spiked higher.
The financial instruments called credit default swaps allow investors to insure their debt holdings by paying a premium. Last week, five-year CDS prices were up 85 basis points at 2.1%, indicating investors would pay around $2,100 each year to insure $1 million worth of bonds held by Deutsche bank.
Shares of several bank stocks, including JPMorgan (NYSE: JPM) and Morgan Stanley (NYSE: MS), were also down 1.5% and 2.2% lower, respectively, on March 24.
Will gold prices surge in the upcoming week?
Broader markets are trading lower as the banking crisis will weigh heavily on credit growth and economic activity as inflation remains elevated. The uncertainties of regional lenders and smaller banks have also shifted deposits into giants such as JPMorgan and Wells Fargo (NYSE: WFC).
But the implosion of banks in the U.S. is also driving gold prices higher. Viewed as a store of value and a hedge against inflation, prices of the precious metal have surged 10% since SVB’s bank run.
The Federal Reserve is unlikely to hike interest rates aggressively in the second half of 2023, and this pivot will act as another tailwind for gold. Earlier this month, gold prices breached the $2,000/ounce mark for the first time in 12 months and are now imperiously close to all-time highs. Gold demand surged last year as central banks brought 1,136 tons of gold in 2022.
In an interview with CNBC, Craig Erlam, a senior market analyst at foreign exchange company Oanda, stated, “I think it’s very plausible that we see a strong performance in gold over the coming months. The stars appear to be aligning for gold which could see it break new highs before long.”
Home prices
S&P Global will publish its Cas-Shiller National Home Price Index, and the FHFA or Federal Housing Finance Agency will release the House Price Index for January on Tuesday. The FHFA report tracks the prices of single-family houses in the U.S.
Economists expect home prices to fall by 0.9% in the month of January, which is the seventh consecutive month of decline. On a year over year. basis prices are forecast to rise 3.7%, marking the slowest annual growth rate in almost three years.
Rising mortgage rates have cooled down the housing market in the U.S. For instance, the fixed rate for a 30-year mortgage is close to 6.4%, an increase of 200 basis points compared to the year-ago period.
Will inflation numbers move lower?
The Bureau of Economic Analysis will release the latest Personal Consumption Expenditures (PCE) Price Index on Friday. The index is expected to have risen 0.5% last month, with an annual gain of 5.1%.
The core prices, excluding volatile food and energy costs, likely rose 0.4% from January and 4.7% YoY. The PCE Price Index is the Fed’s preferred gauge for measuring inflationary pressures and tracking U.S. consumer spending decisions. The Fed targets a 2% annual rate of PCE inflation.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
