Janet Yellen changed the mood – again

US Treasury Secretary Janet Yellen testifies before a subcommittee on March 23, 2023 in Washington, DC.

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Yellen opens up the possibility of protecting banks.

  • US Treasury Secretary Janet Yellen said yesterday that the federal government is prepared to take emergency measures to support regional banks, just as it did for Silicon Valley Bank and Signature Bank. Her comments struck a different tone from the day before, when Yellen, asked by a senator if the Treasury Department was considering guaranteeing all bank deposits without congressional approval, replied that it was not.
  • US stocks posted marginal gains on Thursday in a turbulent trading session as traders bet interest rate hikes would stop soon. However, Asia-Pacific markets were mostly trading lower on Friday. Japan’s Nikkei 225 was down 0.38% as the country’s March factory activity fell for a fifth straight month, according to a flash estimate from au Jibun Bank.
  • PRO Bitcoin is now at $28,300.74, levels not seen since June. Analysts believe the sky-high price has a message about the market’s expectations for interest rates.

Yellen spoke more about the banking crisis yesterday – this time, however, there was a significant difference in what she said.

In prepared remarks, Yellen reiterated to a House subcommittee that the federal government guaranteed deposits at Silicon Valley Bank and Signature Bank to “prevent contagion.” She then added this important line: “We will be prepared to take further action if warranted.” The statement doesn’t contradict her comments from Wednesday — it’s clearly not a promise to secure all deposits without congressional approval. But it showed the federal government’s willingness to step in if necessary.

Her comments came late in the trading day but managed to reassure investors. The SPDR S&P Regional Bank ETF (KRE), a fund that tracks the performance of regional banks, ended the day down 2.78%, but it had been down as much as 7.7% before Yellen started speaking.

The major indices produced marginal gains. The S&P 500 rose 0.29% and the Dow Jones Industrial Average rose 0.23%. The tech-heavy Nasdaq Composite rose 1%, boosted by tech stocks. Netflix was a standout, jumping 9%.

Compared to the past two weeks of bank turmoil, Thursday may have felt like a relatively calm day. But Liz Young, head of investment strategy at SoFi, has a warning. “Even if the banking system has been tightened and the deposit flight is over, I don’t think they will prove to be the only set of headlines that pose a risk to the economy,” she wrote. We may then just be in the eye of a storm.

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