Thoughts On ... Everything, Everywhere, All at Once

March 10, 2023 | Matt Barasch


In honor of what looks to be everyone’s 2023 Oscar pick, markets this week were hit by a veritable cornucopia of difficult to digest tidbits that led to some choppy seas. Let’s start with Fed Chairman Jerome Powell, who in our view is in the conversation for the Mount Rushmore of “Jerome’s” potentially bumping off the visage of either Jerome Bettis (Hall of Fame NFL running back), Jerome “Jerry” Garcia (Hall of Fame rocker and drug taker), Jerome “Jerry” Seinfeld (Hall of Fame funny man), or Saint Jerome (Hall of Fame Latin translator).


Chairman Powell began the week with his scheduled testimony before the Senate Banking Committee and as we have outlined for some time, he came out quite hawkish. Markets had been gravitating toward a few more quarter point hikes from the Fed before a prolonged pause, but Powell’s comments pointed very much toward a potential 50bp hike at next week’s Fed meeting. In fact, the entire Fed Funds curve moved up post the meeting (the turquoise line is pre-Powell’s comments, while the dark blue line is post his comments):

Powell’s stance is primarily driven by inflation data that remains sticky and a jobs’ market that refuses to crack, despite nearly 500bps of tightening over the last 12-months:

While the Job market took a big hit from COVID, it has now been 25 consecutive months of monthly gains exceeding the 20-year average and Powell views slowing the job market as key to bringing down inflation. If there were any silver lining, we have seen job openings begin to come down, which is usually a precursor to a slowing job market.


As interest rates surged on the back of Powell’s comments, we then saw a veritable run on the bank:

We will not get into all the reasons Silicon Valley Bank has gotten into trouble, but let’s just say that what crypto giveth, crypto taketh away. The SVIB decline weighed on the rest of the banking sector both in the U.S. and Canada; although, we see the risks of contagion as exceedingly low given both SVIB’s unique positioning and the massive capital protections banks have put in place over the past 15-years.

All At Once

The combined force of the above weighed on most assets this week with both stocks and bonds losing ground. We would take particular note of the Canadian dollar, which is once again testing decade lows:

The obvious question might be why? To this, we would note that 1) with the Fed likely to raise rates another 75-100bps and the Bank of Canada likely on hold, a fairly large interest rate differential will develop between the two countries over the next 3-6 months; and 2) the Canadian dollar has been viewed as more of a “risk-on/risk-off” currency in recent years and with risk firmly turned to off right now, the Canadian dollar has struggled.