In today’s briefing:
- Bank Watch – Deutsche, Deustche Alles Ist Vorbei
- A Fed Put of a Different Kind
- An Event Study of the Fed’s Reaction Function
Bank Watch – Deutsche, Deustche Alles Ist Vorbei
- Why is Deutsche Bank suddenly selling off violently again without a trigger?
- Could the FIMA-repo usage be a hint that a European entity needs USDs?
- We look at alternative explanations of the contagion in European banking stocks
A Fed Put of a Different Kind
- We interpret current conditions as Powell Fed has conveyed that there is a limited Fed Put in the market.
- The Fed will act to support the banking system, or a Bank Put, but it will do nothing to support the overall stock market, or a Market Put.
- As long as the market concerns over the banking system are in place, expect a range-bound choppy stock market.
An Event Study of the Fed’s Reaction Function
- The latest “dot plot” is stale by the time it’s published and there’s a high degree of uncertainty around its projections. Instead…
- What matters more is the Fed’s reaction function to financial crises. We have conducted an event study of how the Fed has reacted to shocks and crises in the past.
- In all cases, the Fed took action to stabilize the system. Once stability returned, the Fed withdrew stimulus measures 2–3 months after the event.
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