Powell’s message on the 25bp rate hike had people feeling optimistic…

Then Yellen’s comments on deposit insurance triggered a massive sell-off in bank stocks.

Is the fractional reserve banking system at risk?

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σ Yesterday’s FOMC meeting was met with the usual market choppiness as traders tried to interpret Chairman Powell’s message.

Hoping to determine whether the 25bp hike would be the beginning of the end for this hiking cycle.

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σ Markets first took comfort in Jerome Powell’s comments around the ongoing banking crisis.

Acknowledging that the tightening in lending standards resulting from the banking crisis would do the work of some hikes.

Bringing down growth and inflation.

This sentiment boosted #SPX.

$SPX Traded as high as 4040, and things were looking promising…

Until Janet Yellen spoke…

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σ The reason behind the pre-FOMC rally was Yellen’s previously accommodating comments on the current turmoil in banks.

This led market participants to believe that a guarantee of all deposits across the banking system was being worked on to prevent bank runs.

Along with massive deposit flight into money market funds.

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σ However, as Powell’s press conference was taking place, Yellen spoke at the Senate panel hearing.

Stating very plainly:

“NOT CONSIDERING BROAD INCREASE IN DEPOSIT INSURANCE”

Sending markets tumbling and prompting traders to start shorting bank stocks once again.

$KRE once again dropped like a stone.

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σ It seems that policymakers will require more stress to realize the inherent fragility of our current fractional reserve banking system.

One where depositors can get an uplift in yield and improve their credit quality by merely parking their money directly into T-bills.

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➠ Watch the attached clip from today’s Macro Options Spotlight for more colour around yesterday’s FOMC

 

➠ Watch the rest of the Spotlight below to also see:

• Recap of recent price action

• Today’s Cross Asset Vol Summary

• Fixed Strike #Volatility Analysis

• #Copper Performing Well vs. #Oil

• $FCX Trade Idea

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➠ Want this kind of professional macro analysis sent directly to your inbox to help you navigate these volatility markets?

This is Options Insight’s specialty – trade ideas included!

➠ Try it out for a completely free month by following the link in my Twitter Bio, then use code RV2023 at checkout.

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Thank you for making it this far!

Cheers!

Imran Lakha
Options Inisght