{"id":186500,"date":"2023-03-10T10:00:00","date_gmt":"2023-03-10T15:00:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=186500"},"modified":"2023-03-10T09:50:15","modified_gmt":"2023-03-10T14:50:15","slug":"a-buzz-in-the-air-over-svb-financial-and-february-employment-report","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/a-buzz-in-the-air-over-svb-financial-and-february-employment-report\/","title":{"rendered":"A Buzz In The Air Over SVB Financial And February Employment Report"},"content":{"rendered":"\n

Today is an employment report day, and until 24 hours or so ago, today was supposed to be all about the employment report and the market’s reaction to it. There is another fly in the ointment, though, if you will, and that fly is SVB Financial (SIVB)<\/strong>, which has imploded over the last 24 hours or so on concerns about its capital position after experiencing elevated cash burn from its clients.<\/p>\n\n\n\n

Yesterday, shares of SIVB plummeted 60%, taking the banking sector and the broader market down with them. Unfortunately, things have not improved this morning for SIVB. The stock is down another 65% in pre-market trading amid a report by Bloomberg<\/em> that Founders Fund, the venture capital fund co-founded by Peter Thiel, has advised companies to pull their money from Silicon Valley Bank.<\/p>\n\n\n\n

We can’t say for certain if there has been a withdrawal run on the bank, but there has certainly been a run on the stock as investors are in a sell-first-ask-questions later mode, cognizant of how quickly a confidence crisis in a bank can destroy its stock.<\/p>\n\n\n\n

The debate today is whether SIVB’s issues are SIVB’s issues or the start of a bigger issue for the banking sector. There seems to be an allowance in the stock market for it being more of company-specific problem or at least not a debilitating systemic issue. We say that knowing that the equity futures were little changed this morning even as shares of SIVB were plummeting.<\/p>\n\n\n\n

At the same time, though, we can’t ignore the fact that the Treasury market was also rallying at the time SIVB was plummeting in a continued flight-to-safety trade that made it look as if some parties at least thought SIVB’s issues could be a bigger issue. To that end, the 2-yr note yield was down another nine basis points to 4.79% in front of the employment report, after hitting 5.06% before yesterday’s open; and the probability of a 50 basis points rate hike at the March meeting has fallen to 41.0%, according to the CME FedWatch Tool, from 78.6% yesterday.<\/p>\n\n\n\n

The yield on the 2-yr note, currently 4.74%, continued lower after the release of the February employment report, which was accented by stronger-than-expected growth in nonfarm payrolls, a larger-than-expected increase in the unemployment rate, and a smaller-than-expected monthly increase in average hourly earnings, although the year-over-year rate increased to 4.6% from 4.4%.<\/p>\n\n\n\n

The key takeaway from the report is that it was still a strong report for this point in the Fed’s tightening cycle, and while the SIVB issue is causing a notable distraction, the strength of the report in our estimation is still enough to keep a 50 basis points rate hike on the table for the March FOMC meeting.<\/p>\n\n\n\n

Other notable headlines from the Employment Situation Report are as follows:<\/p>\n\n\n\n