U.S. Stocks Uneasy with Low Prices, Expect Unstable Price Movements to Continue


■ It is difficult to alleviate the pressure of interbank and USD funding
■ Unclear outlook for US monetary policy Investors' risk tolerance or moderate recovery

    The difference between the dollar forward interest rate agreement (FRA) and the overnight interest rate (FRA/OIS spread, one month) was 0.5 basis points on the 9th, but 58.6 basis points on the 13th, a turbulent period caused by the COVID-19 pandemic (March 2020). Although OIS is generally considered risk-free, the Federal Reserve covers the credit risk of counterparty financial institutions in the event of bankruptcy, and the widening interest margin between the two indicates an increase in credit risk. Following the collapse of a regional bank in the United States, the financial instability of a major European bank indicates that pressure on interbank funding is increasing. Despite the impact of liquidity supply measures by European and American authorities, the market narrowed to 35.8bps yesterday, but it is expected that the once increasing pressure will only gradually ease.
    In addition, the dollar yen basis swap (SOFR-TONAR, 3 months) rose from 32.1 basis points on the 9th to 65.7 basis points on the 14th, while the euro dollar (SOFR-ESTR, 3 months) rose sharply from 12.8 bps on the 9th to 45.6 bps on the 13th, respectively. Benchmark swaps will vary based on the dollar demand for foreign currency exchange over a certain period of time, but the rise in benchmark swaps means that the dollar demand for each currency is increasing. It can be explained that the financial system has become more unstable, and there has been an increase in the movement to seek dollars to ensure settlement funds for emergencies in response to unexpected events.
    The rapid rate increase by the Federal Reserve has hit the real estate market and high-tech companies, but has little impact on other industries. However, due to the recent bankruptcy of regional banks in the United States, with the accelerated pace of interest rate hikes in the United States, the losses on assets held by financial institutions have significantly increased. If the Federal Reserve continues to raise interest rates due to concerns about persistently high inflation, fears of economic recession will further intensify, and speculation that concerns about the financial system will reappear will intensify. With the uncertain outlook for US monetary policy, it is unlikely that investors' risk tolerance will temporarily recover quickly, and it is expected that US stocks will continue to fluctuate amid downward uncertainty. The S&P 500 index maintains its previous outlook of 3600 points in the middle of the year and 4000 points at the end of the year.