Weekly Macro Minute

GuideStone Reflections

For freedom, Christ set us free. Stand firm, then, and don’t submit again to a yoke of slavery.

Galatians 5:1, CSB

When our culture thinks about Christianity, it usually doesn’t associate the concept of freedom with it. Typically, it defines Christianity with a series of “don’ts” – as though we Christians are bound and repressed people, prohibited from following our desires. And probably when many Christians read this verse, we add this caveat: Yes, Christ died to free us from sin and death, but that doesn't give us a license to pursue anything we want. But Paul says that freeing us to do anything we want is exactly why Christ died.

We tend to have a truncated view of freedom. True freedom is the ability to do anything you desire that brings you joy without hindrance or restraint for as long as you want. True freedom results in unending joy. So, people may enjoy sin, but enjoying sin is not true freedom. Sin ultimately robs us of our freedom by wreaking havoc, addiction, destruction and, ultimately, death.

What is the one thing that will bring unending joy? Hint: It’s not a thing; it’s a person. God is the one being that can bring us endless joy. Jesus Christ died so we could freely enjoy life on this earth in Him, knowing that whatever joy we experience here is just a mere foretaste of an eternity of joy with Him.

Christians are the only free people on this planet because we can enjoy the one person who will bring us eternal joy. Those who reject Christ are merely experiencing the appearance of freedom because there will be no joy for them an eternity from now. They will look back and wish they had freely chosen to follow Christ.

Freedom is God’s will for Christians. He commands it. So embrace our freedom in Christ “freely.”

Across the Markets

The S&P 500^® Index was up on the week despite fears of systemic risks in the banking sector that could precede a significant economic slowdown. Performance dispersion was exceptionally wide, with significant gains in the best-performing sectors (communication and technology) and significant losses in the worst-performing sectors (energy and financials). Investors flocked to large cap tech stocks given their perceived stability and reduced interest rate expectations. Credit spreads have steadily widened over the past few weeks but remain well inside last year’s peak levels for investment grade and high-yield.

While stock market volatility was relatively contained, bond markets showed extreme volatility, comparable to the Great Financial Crisis in 2008. After falling the prior week, yields went into a historic freefall this past week, especially on the short-end, with the 1-month T-Bill yield down 85 basis points and the 2-year down 75 basis points on the week. The yield curve steepened sharply as the 10-Year U.S. Treasury yield fell “only” 27 basis points to 3.43%. Liquidity in the Treasury market is extremely challenged, with market breadth reportedly at 15% to 20% of normal market levels.

Relatively sensitive to a deteriorating economic outlook, oil prices posted the worst weekly loss since April of 2020 amid the bank chaos, with WTI sliding nearly 13% to close at $66.74/bbl on Friday (its lowest level since December of 2021).

As the bank crisis saga unfolds, the market remains hypersensitive to each successive headline. First, it was Silicon Valley Bank’s (SVB) closure on March 10, then Signature Bank’s on March 12. Over the last weekend, the Federal Reserve enacted Section 13(3) powers that permit emergency lending used only three other times in history – in the 1930s, during the GFC, and for COVID. In addition, the Fed, FDIC, and Treasury effectively declared SVB/Signature banks a “systemic risk,” allowing them to make an exception to backstop ALL uninsured depositors at these banks. Even after these actions, though, turmoil continued this week for the banking sector both within the U.S. and abroad. Banks tapped the Federal Reserve’s discount window on an unprecedented scale last week ($165 billion, even greater than during the GFC), a significant reason for the ballooning of the Federal Reserve’s balance sheet that effectively unwound the last five months of quantitative tightening (QT). This has been dubbed “stealth quantitative easing” and awkwardly occurs amid the Fed’s planned QT. Also, this past week, First Republic Bank came under duress, with its share price falling 33% on Friday even after borrowing substantial sums from the Fed and an orchestrated $30 billion deposit infusion of cash by other major banks on Thursday. For largely different reasons, Credit Suisse came under pressure as strains in the U.S. financial system moved globally. Credit Suisse’s share price sold off on news that its largest investor Saudi National Bank (SNB) would not support the bank further. It preemptively borrowed more than $50 billion from the SNB, yet its stock remained under pressure on Friday. As of Sunday afternoon, it’s reported that UBS has agreed to purchase Credit Suisse for $3.23 billion while assuming up to $5.4 billion in losses.

The banking crisis has dramatically changed the forward pricing of Fed tightening expectations. Just over a week ago, futures markets were pricing at a 5.75% terminal rate with no easing well into 2024. Now, markets are pricing a 4.8% terminal rate with 100 basis points of easing by January 2024. The Fed faces a highly challenging policy decision on March 22.

European shares tumbled with the banking sector leading declines. Despite the recent market turmoil, the European Central Bank (ECB) raised its deposit rate by 0.5% to 3.0% in its ongoing efforts to curb inflation. The ECB stressed it would be data-dependent and provided reassurance that the euro area banking sector is resilient. China’s markets ended mixed, and China home prices rose for a second straight month in February.

In the Economy

Despite a heavy release of critical economic data, these reports felt like a sideshow this week in comparison. The market seemed to ignore the Consumer Price Index (CPI) report on Tuesday, despite inflation continuing to run hot (6% headline year-over-year and 5.5% core year-over-year) and instead took relief from an unexpected decline in Producer Price Index (PPI) the next day (-0.1% month-over-month). The economic data releases support a slowdown in the economy, with retail sales falling 0.4% in February, measures of manufacturing activity coming in weaker, the University of Michigan Sentiment Indicators declining, and the Leading Economic Index now registering negative for 11 straight months. The labor market, meanwhile, continues to show strength, with jobless claims falling to 192K.