Shock OPEC+ Oil Production Cut Puts $100 a Barrel on Horizon, Crude Rises To >$80 On Oil Cartel Snub (Strategic Petroleum Reserve DOWN -42% Under Biden, Diesel Prices UP 64%)

While Resident Biden is on good terms with the Mexican drug and sex trafficing cartels that control our southern border, the oil cartel just stuck their fingers in Biden’s eyes by cutting oil productions. Riyadh, Saudi Arabia was irritated last week that the Biden administration publicly ruled out new crude purchases to replenish SPR

Cartel removes more than 1 million barrels a day from market
Analysts say the decline in oil inventories will accelerate

Today, crude oil futures are up 6.62% to over $80 per barrel.

Sunday’s surprise OPEC+ production cuts have redefined the outlook for crude prices, bringing $100 a barrel back into the frame.

Prior to the announcement, the cartel’s own numbers suggested the group would need to pump more oil, not less, in the second half. With the International Energy Agency expecting a demand surge later this year, there’s now renewed risk of a fresh inflationary impetus for the global economy.

Under Biden’s Reign of Error, diesel prices are up 64% while the Strategic Petroleum Reserves (SPR) have been drained by -42%.

St. Benedict, help protect us from Biden and The Federal Reserve.

The Fed Never Died! Deutsche Bank Slumps in Resurgence of European Bank Worries As Fed Balance Sheet Expands … Again

The Federal Reserve never died. In fact, The Fed is growing its balance sheet again. Why? A slowing economy and weakness in the banking sector (thanks to inflation and the Fed trying to get inflation back to 2%.

And the banking fiasco keeps rolling, particularly in Europe where Credit Suisse has been in the news for failing and now my former employer, Deutsche Bank (aka, The Teutonic Titanic).

Deutsche Bank AG became the latest focus of the banking turmoil in Europe as ongoing concern about the industry sent its shares slumping the most in three years and the cost of insuring against default rising.

The bank, which has staged a recovery in recent years after a series of crises, said Friday it will redeem a tier 2 subordinated bond early. Such moves are usually intended to give investors confidence in the strength of the balance sheet, though the share price reaction suggests the message isn’t getting through.

“It is a clear case of the market selling first and asking questions later,” said Paul de la Baume, senior market strategist at FlowBank SA. “Traders do not have the risk appetite to hold positions through the weekend, given the banking risk and what happened last week with Credit Suisse and regulators.”

Deutsche Bank slumped as much as 15%, the biggest decline since the early days of the pandemic in March 2020. It was the worst performer in an index of European bank stocks, which fell as much as 5.7%. Crosstown rival Commerzbank AG, Spain’s Banco de Sabadell SA and France’s Societe Generale SA also saw steep drops.

The widespread declines undermine hopes among authorities that the rescue of Credit Suisse Group AG last weekend would stabilize the broader sector. Central banks from the Federal Reserve to the Bank of England this week raised interest rates once again, keeping their focus on inflation amid hopes that the worst of the financial turmoil was past.

All week, regulators and company executives have sought to reassure traders about the health of the banking industry. Deutsche Bank management board member Fabrizio Campelli said Thursday that the government-brokered takeover of Credit Suisse by UBS is “no indication” of the state of European banks.

Standard Chartered Plc Chief Executive Bill Winters said Friday that while there are still some issues to be addressed, “it seems that the acute phase of the crisis is done.”

The latest moves in Europe follow losses in US banks, which tumbled Thursday even after Treasury Secretary Janet Yellen told lawmakers that regulators would be prepared for further steps to protect deposits if needed.

And apparently bank bailouts never died. They just got relabeled.

And on growing banking fears, the 10-year Treasury yield is down -11.7 basis points.

Mortgage Demand Rises 3% WoW Thanks To Banking “Crisis”, But Mortgage Purchase Demand Still Down 36% From Same Week Last Year (Refi Demand Down 68% YoY)

The deposit runs and Federal bailout at Silicon Valley Bank and Signature Bank has a positive silver lining: mortgage rates dropped -3.43% from the previous week. As such, we got an increase in mortgage demand.

Mortgage applications increased 3.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 17, 2023.

The Market Composite Index, a measure of mortgage loan application volume, increased 3.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3 percent compared with the previous week. The Refinance Index increased 5 percent from the previous week and was 68 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index increased 3 percent compared with the previous week and was 36 percent lower than the same week one year ago.

The rest of the story.

How I will feel if The Fed raises rates today more than 25 basis points. Or if Treasury Secretary Janet Yellen gets on TV lecturing us again.

Philly Fed Non-manufacturing Sentiment Index Signals Recession (Down -12.8) As Fed Retreats … For The Moment

It’s not always sunny in Philadelphia.

The Philly Fed non-manufacturing sentiment index just tanked to -12.8 as The Federal Reserve removes its Covid-related stimulus.

The banking fiasco (SVB, Signature, etc.) has caused The Fed’s balance sheet to expand … again.

And Fed Funds Futures are pricing in a meager 20 basis points increase at tomorrow’s FOMC meeting (some betting on no change, some betting on 25 basis points). Then another rate hike at the May FOMC meeting, then all downhill from there.

Call this the Powell retreat.

Fed Panics, Announces “Coordinated” Daily US Dollar Swap Lines To Ease Banking Crisis As 2-year Treasury Yield Drops -10 Basis Points (Again)

Its the start of a new week after the closure of several US banks (SVP, Signature) and the failure of Credit Suisse. But swaps spreads have calmed down a bit and are no where near the credit crisis highs of late 2008. Or the plain vanilla swap between fixed and variable contracts (white line) has simmered down a bit. BUT was never as high as it was during the financial crisis. Panic by The Fed and FDIC much?

And the 2-year Treasury yield dropped -10 basis points … again.

… and at exactly 5pm the Fed announced “coordinated central bank action to enhance the provision of U.S. dollar liquidity” by opening daily Dollar Swap lines with all major central banks, in a carbon copy repeat of the Fed’s panicked post-covid crisis policy response playbook.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.

To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily. These daily operations will commence on Monday, March 20, 2023, and will continue at least through the end of April.

The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses.

And once the USD swap lines are reopened, the rest of the cavalry follows: rate cuts, QE (the real stuff, not that Discount Window nonsense), etc, etc. In fact, we have already seen a near record surge in reserve injections:

The Fed may as well formalize it now and at least preserve some confidence in the banking sector, even if it means destroying all confidence left in the “inflation fighting” Fed, with all those whose were in charge handing in their resignation for their catastrophic handling of this bank crisis.

The bank bailout express!

The NEW Banking Crisis In One Chart (Hint: Inflation = Fed Rate Hikes = Treasury/MBS Duration Increases = Bond Losses = Bank Runs) Bond Volatility Highest Since 2008

So, the Biden Administration made a horrible error by guaranteeing deposits at Silicon Valley Bank for deposits over $250,000. Essentially, Biden bailed out big tech that kept their deposits at SVB.

But what triggered the run on SVB and other banks? Simple. Biden and Congress spent like drunken sailors with Covid and The Federal Reserve went nuts printing money. Viola! We got inflation. But with inflation came The Fed’s attempt to get inflation back to its 2% target (difficult since Biden/Congress refuse to return spending to pre-Covid levels). But as interest rates rise, duration (weighted average life of MBS) rose dramatically meaning that risk increased. But banks like SVP ignored the risk, or didn’t hedge, or were spending time worrying about non-bank related issues.

So, what happened? Banks are holding Treasuries and MBS (orange line) that are getting clobbered with rate hikes (yellow line).

Talk about volatility. Today, the 2-year Treasury yield is up over 20 basis points as bond volatility hits levels last seen in 2008, just prior to the subprime credit crisis.

So, Biden’s bailout of SVP depositors stopped the deposit run for the moment. But if The Fed keeps hiking rates, banks are going to be hurting worse and worse. They could rebalance their portfolios and/or hedge. But with Uncle Spam (Biden) at the helm, bailouts are always on the table.

Don’t Cry For Argentina! Inflation Hits 102.5% As M2 Printing Hits 80% YoY (Suicide By Printing Press)

Don’t cry for Argentina! Their leaders did this to them.

Argetina’s inflation rate just hit 102.5% as their M2 Money printing hit 80%

Argentina’s central bank is considering raising its benchmark rate on Thursday for the first time since September after inflation data showed prices increased by more than 100% annually last month, according to two people with direct knowledge.

The monetary authority’s board will consider an increase after leaving the key Leliq rate unchanged at 75% for several months, the people said, asking not to be named discussing internal decisions. The board has not yet decided on the size of the hike in case they opt for such move, they said.

A cautionary tale for Washington DC spendacrats and Fed officials.

Brought to the same country that gave us Statist Juan Peron and his wife Eva.

Gold Soars 2% On Failure Of Fed And Bank Regulators

All together now. The Fed has been printing too much money for too long and Biden restricts fossil fuel production. Ad in rampant Federal spending and we have INFLATION. Inflation led to The Fed to raise rates. And with rate increases and down go the banks.

Of course, The Fed and Biden Administration will overeact (e.g. offering deposit insurance on ALL deposits above $250,000 creating moral hazard risk). As such, we are seeing gold prices soar by 2% this AM.

In adddition to gold rising 2%, natural gas futures are up 6%

US Treasury Yields Drop -26 Basis Points As Fed Expected To Drop Fed Rate To 4.7% (Regulators Suddenly Awaken And Panic, Biden Calls For MORE Regulations)

The Silicon Valley Bank failure (along with NY’s Signature Bank) are sending shock waves through the global economy. Not because of the incompetence of bank regulators, but because of the reaction function from the FDIC and Fed.

The 10-year Treasury yield is down -26 basis points in the AM. And the Fed Funds Target Rate is expected to drop to 4.7%.

Its not just the US Treasury yield that declined -26 basis points. European sovereign yields are down too (Germany 10-year is down -32.9 basis points).

Look at the 2-year Treasury yield. Its down -54.6 basis points.

On a sad note, Resident Biden is calling for stricter regulations for the banking industry, already one of the most regulated sectors of the economy. How about less politics and just make them do their ^*T^R jobs!

South Of The Border? Price Of Insuring Against US Debt Default Rises To 76.75, More Expensive Than Mexico, Almost As Expensive As Guatemala

South of the border, down Mexico (and Guatemala) way.

What a mess in Washington DC. While House Republicans are at lagerheads with Senate Democrats and Resident Biden over Federal spending cuts, the price of insuring against a debt default just rose to 76.75.

How bad it that? Put it this way. Millions are fleeing Mexico and Guatemala and coming to the US. But Mexico has a lower cost of insuring against a debt default than the USA. And Guatemala is almost as expensive as the USA.