Banks Borrow $165B Amid Liquidity Crisis, AI Drive Accelerates

Some have said it's an SVB crisis, and others have said it's a banking crisis; so far, the developments in the market seem to be leaning toward the latter. The Federal Reserve and Treasury have come to the rescue, and banks have used these “lifeline” programs over the past few days. The Federal Reserve has confirmed that banks have borrowed $165 Billion from their backstop facility. 

Markets know this as the “discount window” borrowing, which in simple terms, is a short-term borrowing facility for managing short-term liquidity needs. The discount window facility last night reached an all-time high. Banks also borrowed over $11 billion from the Treasury’s BTFP program. This is the emergency program announced by the President earlier this week.

The Federal Reserve and economists have advised that similar signs of liquidity stress will likely develop soon, but the issue is under control. Economists have also quickly confirmed this is not similar to the banking crisis in 2008. Investors should also note that the extra liquidity from the Fed has been one of the main reasons the stock market decline has halted. European and US Stock markets have positively reacted over the past 24 hours. 

During yesterday’s European session, economists were uncertain whether the ECB would hike 50 basis points or 25. As previously expected, the European Central Bank did stick to a 50 basis point hike. The Euro reaction varies depending on the currency pair but performs well against the US Dollar. Gains against the US Dollar continue during this morning’s Asian session. The US Dollar Index has declined by 0.44% today and is close to forming a full price correction. 

EUR/USD 30-Minute Chart on March 17th 

Even though the Dollar has significantly declined over the past 24 hours, investors should note that safe-haven assets continue to perform well. The Bond market and Gold prices continue to remain high. Gold has increased by 1.23% since yesterday’s lows but has yet to cross the previous resistance level at $1,937.

NASDAQ - AI Drive Pushes the NASDAQ Higher

One of the best-performing index within the market was the NASDAQ which has increased by almost 6.50% this week alone. The price movement has been influenced by the Fed and Treasury's increased liquidity and a lower terminal rate. Previously investors expected the terminal rate may be as high as 6%, but this is not the case anymore. However, the AI drive and ChatGPT, is specifically supporting the NASDAQ.

The stock market, in general, has generally improved after suffering last week on Friday and Monday after the SVB crisis and general banking liquidity crisis. However, the NASDAQ has outperformed other equities due to the drive in technology-based companies. During yesterday’s US trading session, 89% of the NASDAQ’s components ended the day at a higher price. More specifically, stocks are strongly connected to the AI drive. 

NASDAQ 1-Hour Chart on March 17th 

Microsoft stocks increased by 4.65%, Amazon by 4.20%, Alphabet (Google) by 4.90%, and Nvidia by 6.50%. All mentioned companies are strongly connected to the AI Drive. Microsoft and Nvidia have been in the spotlight throughout the week after recent company announcements related to ChatGPT. 

Microsoft’s CEO demonstrated how AI would be included in their business model. Mr. Nadella, the CEO of Microsoft, demonstrated new advancements in AI using programs such as Office, including Word, Excel, and PowerPoint. Mr. Nadella revealed how an AI named “copilot” can assist in reporting, expressing, and enhancing productivity. AI will also be available for Outlook. 

Technical analysis, including price action and indicators, points towards upward price movement in the short term. The price is trading within the upper regression channel, moving averages crossovers are pointing upwards, and the price is above the Ichimoku Trading Clouds. The only concern for investors is the resistance levels which can be seen between February 2nd and February 16th. The price trades close to the overbought level on the Relative Strength Index. The RSI is currently trading at 77.25, and a figure above 80.00 is known to be overbought. Therefore traders should also be cautious of retracements and corrections.

Summary:

• The Euro’s performance after the ECB’s rate hike decision varies depending on the currency pair. 
• The US Dollar significantly declines and has almost corrected previous gains. The US Dollar Index is down 0.44% this morning. 
• The NASDAQ significantly increases in value and outperforms other instruments due to the Artificial Intelligence drive.
• Microsoft stocks increased by 4.65%, Amazon by 4.20%, Alphabet (Google) by 4.90%, and Nvidia by a whopping 6.50%
• Mr. Nadella, the CEO of Microsoft, demonstrated new advancements in AI using programs such as Office, including Word, Excel, and PowerPoint.