The butterfly effect caused by Silicon Valley banks is emerging.

In the global financial markets continue to rise in risk aversion, gold prices continue to rise strongly, Hong Kong A precious metal stocks continued to "skyrocket" on Tuesday.

As of press time, Hong Kong shares Dragon Resources rose more than 13%, China Gold International rose nearly 5%, Zhaojin Mining rose more than 3%, Shandong Gold Mining, Zijin Mining Group and so on rose.

Affected by the Silicon Valley bank incident, there was a financial tsunami in the American market overnight. Among them, U. S. bank stocks crashed across the board, and the VIX panic index rose sharply and hit a new high for the year. At one point, two-year u.s. bond yields fell 4%, falling 100 basis points in three days, the worst since the 1987 stock market crash, and the dollar fell nearly 1% to its lowest level in four weeks.

Conversely, global safe haven assets soared, with COMEX April gold futures rising 2.6 per cent, or nearly $50, to above $1916 an ounce to the highest level in more than five weeks. It has fallen back slightly to around $1904 an ounce.

The Federal Reserve quickly rescued the market.

At present, US regulators have begun to intervene in the Silicon Valley banking incident.

After the Federal Reserve and the US Treasury, together with the Federal Deposit Insurance Corporation (FDIC), announced a "backstop" for Silicon Valley banks, the Fed also announced the launch of an emergency financing facility called the Bank regular financing Program (BTFP), which will provide loans of up to one year to banks that mortgage US Treasuries, agency debt, mortgage-backed securities (MBS) and other eligible assets.

Biden also spoke on the situation in the US banking sector, saying he would ask Congress and banking regulators to strengthen supervision of banks to reduce the possibility of similar bank failures and to protect the US job market and small businesses.

After a series of emergency actions, Silicon Valley banks reopened on Monday, local time, and depositors lined up to withdraw money. According to Silicon Valley Bank's new CEO, the company is open and operating as usual; business in the United States is business as usual and cross-border transactions are expected to resume in the coming days; depositors can withdraw funds in full, and new and existing deposits are protected.

In addition, the Fed will investigate its regulation of Silicon Valley banks and release its findings on May 1.Powell, chairman of the Federal Reserve, said that a rapid and in-depth investigation was needed around the Silicon Valley bank incident.Fed Vice Chairman Barr will lead the investigation. In addition, the Federal Deposit Insurance Corporation (FDIC) plans to hold a second auction for Silicon Valley banks.

With the Fed's emergency rescue, the market began to bet that failures, including Silicon Valley Bank, Silvergate and Signature Bank, would prompt the Fed to sharply slow the pace of interest rate hikes.

Interest rate hike is expected to cool down

At a time when a global market shock wave is spreading, Fed interest rate hike expectations have suffered a strong cooling, and the market has even begun to bet that interest rates will be cut in the second half of this year.

After Goldman Sachs Group called out not to raise interest rates in March, Nomura Securities called for a March interest rate cut.

Goldman Sachs Group pointed out yesterday that the Silicon Valley bank turmoil made Powell aware of the pressure of raising interest rates on Bank of America Corporation's system, so the Fed is not expected to raise interest rates at the March FOMC meeting. But at the same time, given that there is still considerable uncertainty about the outlook for the US economy after March, the Fed is expected to raise interest rates by 25 basis points in May, June and July, with interest rates expected to peak by 25 basis points to 5.25-5.5 per cent.

Gunrake, known as the "new debt king", also believes that US regulators have taken special rescue actions to deal with banking risks, but the Federal Reserve may still raise interest rates at its March meeting in order to maintain credibility.The range narrowed from 50 basis points to 25 basis points, and it was the last interest rate hike in this round.

Ganglak said that although this is not the best time for the Fed to raise interest rates, he believes the Fed will still raise interest rates because it wants to deliver on its promise to fight inflation. The collapse of Silicon Valley Bank and Signature Bank undoubtedly poses a major hindrance to the Fed's plan to raise interest rates. However, considering that the authorities have been emphasizing the fight against inflation over the past six months, if it is suspended because of an emergency, it is worried that the credibility of the Reserve Bureau will be undermined.

At the same time, he also pointed out that in all the recessions in the past few decades, the yield curve began to hang upside down a few months before the recession. From the current upside-down of debt and interest rates, it can be seen that the US economic recession is coming.

According to the latest Nomura analyst,In response to looming financial risks, the Fed is expected to cut interest rates by 25 basis points and end QT at its FOMC meeting in March.

At present,According to CME Fed Watch, the probability of raising interest rates by 25 basis points in March is 79.7%, and the probability of not raising interest rates is 20.3%.

But tonight's CPI economic data will be key to whether the Fed's rate hike will come to an end.

As energy prices fall, CPI growth is expected to slow to 6.0 per cent year-on-year in February from 6.4 per cent before, and 0.4 per cent month-on-month from 0.5 per cent in January; core CPI, excluding energy and food, will fall slightly from 5.60 per cent to 5.50 per cent, with a monthly rate of about 0.4 per cent.

If the data unexpectedly exceed expectations, it could reignite concerns about raising interest rates by 50 basis points this month.

But if the CPI data cool down, coupled with the financial market panic caused by the "Silicon Valley banking incident", the Fed rate hike cycle may be very close to the end.

As for the future outlook for safe-haven assets, Guosheng Securities pointed out that the US economy has accelerated into a "tightening slowdown-interest rate cut" cycle, and the relative speed of tightening and inflation indicators is expected to become the core pricing logic of gold.Based on the upside expectation of gold price in 2023, gold stocks are expected to usher in a "bull market".

The price change of gold in 2023 is expected to continue along the main line of Fed policy, there are two ways to influence gold price: 1) choose to shift to easing-inflation upward-monetary value decline-gold price upward; 2) continued tightening-recession expectations increase-gold anti-risk premium upward.

Southwest Securities believes that the bankruptcy of Silicon Valley banks in the United States has led to a rise in risk aversion, with the unemployment rate rising higher than expected in February, lowering market expectations for subsequent interest rate increases by the Federal Reserve, and long-end US debt yields and the dollar index falling synchronously, driving gold prices to rebound and remain bullish on the gold sector for a long time, and the gold price center still has room to rise.

The Fed's interest rate hike is coming to an end, and under the background of the switching of the monetary cycle, the real yield on long-end US bonds and the large cycle of the dollar are still downward; under the energy transformation, the rise of anti-globalization trends and the stickiness of inflation in the service industry, it is difficult for the long-term inflation center to fall back quickly; global central banks increase their holdings of gold and enhance their strategic allocation status.

Edit / phoebe