The week in the markets -
March 17, 2023

What a difference a week can make

Big developments in the regional banking sector in the U.S. caused panic among deposit holders across the country, which led to a targeted bank run and the insolvency of some banks. We have released a special market update explainer outlining those events.

On Monday, the Federal Deposit Insurance Corporation, along with state and federal regulators, temporarily guaranteed deposits for all banks, regardless of balance size. They created a loan program called the Bank Term Funding Program (BTFP), designed as a means to lend money to banks for up to a year, using their long-term assets as collateral (valued at par). This program is designed to prevent other banks from coming under pressure from withdrawals. We note that this is a dynamic situation, with state and federal regulators supporting banks in order to maintain the stability of the financial sector. We continue to monitor this situation closely.

In Canada, data from the Canadian Real Estate Association (CREA) reported a decline in home prices in February 2023, with the country's benchmark home price dropping 1.1% from the previous month to C$704,300 (the smallest monthly decline since March 2022). The slowdown in sales is directly related to the rapid rise in mortgage interest rates (and therefore higher borrowing costs), resulting in one of the fastest declines in Canadian home values on record. With the Bank of Canada having paused its campaign of raising interest rates, the number of properties hitting the market fell by 7.9% in February 2023, the steepest decline since May 2021. This made February the tightest month the housing market has been since last April (just after the Bank of Canada began raising borrowing costs). However, with rate increases on hold and demand starting to pick up, the main question for the housing market will be whether there will be signs of optimism with supply coming online with the traditional spring selling season.

The impact of the failing U.S. and European banks has created uncertainty for markets and has also had an effect on oil. Commodity traders are juggling concerns with the overall global slowdown (which is what central bankers have been trying to achieve for months) along with supplying China's increased oil demand, which in turn was expected to drive international demand.

Inventory levels were released this week showing demand was subdued, amid lingering fears of recession. Global oil inventory surpluses reached an 18-month high, partly driven by Russian production, in spite of having a price cap on what importing nations can pay. As China, the largest importer globally, continues its reopening of the economy, the International Energy Agency predicts that, “Stocks today will ease tensions as the market swings into deficit during the second half of the year.”