Waiting for central banks to slash rates? Think again.
That was BlackRock
BLK,
the world’s biggest asset manager, on Thursday warning investors not to count on cracks in the banking sector to spur central banks to cut rates “as they used to do in episodes of financial stress.”
While pointing to different “cases” in the banking sector that have emerged in the U.S. and Europe, BlackRock Investment Institute strategists said investors “clearly are looking at bank vulnerabilities through a new, high-interest-rate lens,” in a Thursday client note.
Even so, betting on central banks to abandon planned rate hikes would be “misguided,” the strategists wrote. Instead, they see more rate increases in the coming days as central banks “to try to rein in persistent inflation,” while regulators also offer support to the banking system, as needed.
With that, BlackRock, which oversees about $10 trillion in assets, sees fallout and “recession coming,” due to “damage” caused by the fastest pace of rate hikes since the 1980s — but also opportunities in short-term government bonds and emerging-market equities.
The 2-year Treasury rate
BX:TMUBMUSD02Y
was at 4.13% on Thursday, but off its 5.06% high a week ago. U.S. stocks ended higher Thursday after the First Republic rescue plan emerged. The Dow Jones Industrial Average
DJIA
is down 2.7% for the year, while the S&P 500 index
SPX
is up 3.1% and the Nasdaq Composite Index
COMP
is 12% higher in 2023, according to FactSet.
Helping lift stocks, a group of America’s biggest banks on Thursday pledged $30 billion in deposits to First Republic Bank
FRC,
which saw its stock price earlier in the session fall to a record low on concerns about risks at banks in the wake of the failures of Silicon Valley Bank
SIVB
and Signature Bank
SBNY
in New York.
Related: Banks borrow $165 billion from the Fed after SVB failure
Credit Suisse
CS
also took up the Swiss National Bank’s offer of a $54 billion loan late Wednesday, after its shares fell to about $2 a share in New York trading.
In central bank action, the European Central Bank on Thursday went forth with a 50-basis-point rate increase, despite concerns about the banking sector, while also saying future decisions would be depend on financial and economic data.
See: Fed likely to follow ECB’s playbook and hike interest rates next week
“This is not a 2008 redux, and we stand ready to seize opportunities as the damage of rate hikes becomes priced in,” BlackRock strategists wrote.
