US CPI Data May Have Another Bearish Surprise for Stocks and Crypto After SVB Collapse

NEW DELHI (CoinChapter.com) — The US Bureau Of Labor Statistics will release the Consumer Price Index (CPI) on Mar 14. Investors remain wary as the market reels from the collapse of the Silicon Valley Bank. Market participants globally await to see if the SVB collapse becomes a Lehmann Brothers-like incident.

S&P Global stated in a report that market expectations hint at CPI increase easing to 0.4% month-on-month (MoM), down from Jan 2023’s 0.5% MoM increase. Additionally, analysts expect core CPI, which excludes food and energy prices, to hold steady at 0.4% MoM.

Meanwhile, on a year-on-year (YoY) basis, inflation traders expect a 6% CPI rate in Feb. Core CPI readings are expected to reach 5.5% YoY. Therefore, investors closely follow the US CPI data since it is one of the most important macroeconomic indicators.

Furthermore, hawkish commentary by Fed chair Jerome Powell might have contributed to the skittish market sentiment. Rising inflation and interest rates mean people would rein in their spending. As a result, the economy would cool down, and companies would struggle to profit.

In addition, increased interest rates might hurt investors’ appetite for riskier assets like cryptocurrencies since most investors would likely opt for safer investment options.

However, lower CPI data might serve as a bullish cue for the crypto sector, as analysts suggest the index might have an inverse relation to the crypto markets.

On the other hand, a softer CPI reading might help instill the belief that the Fed could pause its policy tightening. Goldman Sachs analysts expect the Fed might not raise interest rates at its next policy meet due to the stress in the banking sector.

No Bailout Likely For SVB, But Depositors’ Money Safe

Meanwhile, US authorities scrambled to safeguard depositor confidence in the banking sector. The Silicon Valley Bank failed due to an asset liability management mismatch that resulted in a bank run in Mar.

The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve assured depositors they could access their money soon. Furthermore, the authorities set up a new bank facility to access emergency funds if needed.

This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.

Excerpt from a joint statement by Treasury secretary Janet L. Yellen, Fed chair Jerome Powell, and FDIC chairman Martin Gruenberg

However, experts believe the SVB collapse might make investors wary of other cracks in the US financial system. Additionally, the regulators closed down New York’s Signature Bank after it came under pressure.

The authorities stated that the government would also protect depositors whose funds exceeded the government insured-level. However, a treasury official told Reuters that the government would not bail the firms out, only protect depositors’ interests.

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Furthermore, the Federal Reserve would create a new program to fund stressed banks.

Impact On Crypto

Given several major crypto firms have deposits in the SVB and Signature Bank, the government’s assurance that depositor funds are safe would likely calm down crypto markets.

For example, USDC lost its peg to the US dollar after news of the SVB collapse broke out since Circle, the firm that issues the stablecoin, announced it had nearly $3.3 billion deposited with the Silicon Valley Bank. As a result, USDC fell to a low of $0.86 on Mar 11.

However, Circle announced that the government’s measures would help the firm recover its funds, helping USDC come close to regaining its dollar peg. Nevertheless, the USDC price action suggests investors closely monitor the traditional financial market conditions.

Meanwhile, it is unlikely that users would use their recovered funds to invest in risk assets.