US500 is weakening amid bank turmoil. GOLD above 2000 USD level ⚡

7:18 PM 23 March 2023

Sentiment in the US stock market is deteriorating due to the still precarious situation of the banking sector. Despite reassuring comments from regulators and Jerome Powell himself, the stock market does not share the optimism contained in the statements, bank shares continue to be sold. Regional banks, with limited access to liquidity, are particularly vulnerable. The S&P500 futures are once again under supply-side pressure, and the rise in the price of gold to the US$2,000 area confirms that fears of an escalating financial crisis are still alive:

  • First Republic Bank (FRC.US) shares are down more than 7%, already trading at a nearly 90% discount to book value. Credit Suisse also had a similar, puzzlingly low P/B ratio;
  • Yesterday, credit rating agency Fitch downgraded First Republic Bank from BB to B, which illustrates a high risk of bankruptcy and little 'margin of safety'. The share price has failed to rise steadily despite a USD 30 billion liquidity injection from major US banks;
  • The notorious fall in the bank's share valuation makes investors start to see another collapse or takeover as more likely before the weekend. This would not be positive news for the banking sector as a whole and could herald further deposit outflows in an environment of drying up liquidity;
  • Wells Fargo (WFC.US) and JP Morgan (JPM.US) erased their morning gains, while Bank of America (BAC.US) and Bank of New York Mellon (BK.US) are also losing. Investors fear that central banks that have not bent and raised rates will increase the stress level for the industry as a whole. 

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Credit conditions for buying large household goods in the US are tightening and have approached 2008 levels. Source: University of Michigan, Haver AnalyticsWhile GOLD is climbing above US$2,000 per ounce, S&P500 (US500) futures have retreated after dynamic gains, although we can see a bullish inverted head-and-shoulders formation on the chart. In the short term, the key level for the bulls appears to be the 4050 point level, which coincides with previous price reactions and the 38.2 Fibonacci retracement. The price is between the SMA200 and SMA100 averages, from where demand and supply will try to give the index further direction. If bank sentiment deteriorates, the inverted RGR formation is likely to be negated. Source: xStation5

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