SVB and NFP - this is what the global financial market is talking about right now

Jerome Powell's recent speeches before Congress confirmed the importance of today's data from the US labor market. If the report is strong again, it will be another argument for the Fed for aggressive interest rate hikes. Yesterday sentiment on Wall Street was spoiled by SVB, which sold its stock portfolio to improve liquidity. The institution mainly finances startups from the Silicon Valley.

Bank stocks down sharply

Banks index SP500 fell nearly 6 percent on Thursday. It was the largest one-day loss in more than two years. Shares of SVB Bank (Silicon Valley Bank) fell almost 60 percent. – it was the largest loss in the history of these securities. This is the aftermath of the announcement of the decision to sell shares worth USD 1,75 billion. The institution thus strengthens its liquidity due to the decreasing deposits of startups that have problems with financing.

The entire US banking sector has been overvalued. Concerns about that are growing sharp rises in interest rates in the US are eroding balance sheets across the financial industry. Shares of other large banking institutions (Bank of America, JP Morgan) also lost heavily and the discounts exceeded the level of 5%. The entire sector is currently holding a large amount of US debt. The Fed's aggressive rate hikes have meant that unrealized losses continue to grow.

Startups struggle with the problem of lack of diversification of financing. Higher interest rates, recession fears and a weak initial public offering market made it difficult for these companies to raise additional capital.

They also lose profitability

Due to yesterday's news yields of US 2-year bonds fell from 5,06 to 4,76 – the lowest until February 24.

The difficult situation of Silicon Valley Bank causes the public to be concerned about the condition of other financial sector institutions. SVB has been a very strong, well-run bank so far. Now that reputation has been shaken, and risk aversion may spill over.

Going back to today's NFP data, the market assumes a change in employment in the non-agricultural sector at the level of 225 thousand. The unemployment rate is expected to remain at an all-time low of 3,4 percent. Monthly data from the US labor market have always heated the atmosphere, contributed to nervousness and increased volatility. Recently, however, the importance of this report was slightly lower due to the fact that inflation became the main problem and the market's attention was focused on CPI and PCE readings. Now, when Powell himself indicates directly that it is this report that will have a big impact on the March decision on rates, the importance of the publication increases dramatically.

This means one thing - in the event of a surprise in the data - the US dollar and stock indices will be most affected. Better data than the consensus will strengthen the USD and negatively affect the stock markets. Once again, better data is worse data. It sounds paradoxical – but these are the rules currently governing the financial market.

Source: Łukasz Zembik, OANDA TMS Brokers