At the start of the week, just when Asian session traders were getting ready to price in their Silicon Valley Bank (SVB) contagion concerns from Friday, the U.S. Treasury Department, Federal Reserve, and the Federal Deposit Insurance Corp. (FDIC) stepped in and announced that they would cover ALL of SVB and Signature Bank’s uninsured deposits.

More importantly, the Fed also launched a special loan program that would let U.S. banks borrow cheap money to cover depositor withdrawals, using the U.S. Treasury bonds on the bank’s balance sheets as collateral, valued at par.

The intervention not only helped stem depositor fears, but it also got traders wondering if the event would make the Fed think twice about a forecasted hawkish tightening schedule that included a previously expected 50 bps rate hike next week.

The prospect of a less hawkish Fed sent the 10-year Treasury yields and U.S. dollar lower on Monday, while gold and Bitcoin both gained from the anti-dollar sentiment, as well as the rising narrative that hard assets may attract more capital if the banking system worsens.

Price action was a bit calmer on Tuesday as traders awaited the always anticipated U.S. CPI release. The report itself supported a sticky inflation scenario ahead where the Fed would need further rate hikes this year, but it wasn’t strong enough to weaken the narrative that the Fed may have tightened too much.

The Fed pivot narrative seems to have actually gained ground with some traders and financial institutions pricing a lower rates ahead.  Based on the CME Fed Watch Tool, the most likely Fed Funds range at the end of 2023 is now 3.75% – 4.0% at a 31.9% probability vs. just last week where the 4.75% – 5.00% range was leading at a 32.8% probability.

Gold, U.S. equities, and Bitcoin made new intraweek highs before the CPI report tempered expectations of a less hawkish Fed. Bitcoin, in particular, dipped back to the $25,000 major area of interest after hitting the $26,500 levels.

The re-re-pricing of Fed expectations turned to full blown risk aversion on Wednesday thanks to news from Credit Suisse may be in trouble (the Swiss firm disclosed that its 2021 and 2022 financial reporting procedures contained “significant deficiencies”).  Market fears really kicked off, though, when Saudi National Bank – Credit Suisse’s largest investor – said that it is not able to provide further financial help to banking giant.

Not surprisingly, markets turned to safe-havens at the news. USD, JPY, gold, and government bonds gained ground for most of the European and U.S. sessions while CHF lost pips across the board.

The panicking eventually eased after Swiss National Bank (SNB) announced its 50B CHF package to help boost Credit Suisse’s liquidity.

Focus then turned to the European Central Bank (ECB) on Thursday when the central bank raised its interest rates by 50 basis points as expected. ECB President Lagarde expressed confidence in the European banking sector but also stressed that future ECB decisions will be data-dependent.

The ECB wasn’t the only bank under the spotlight! First Republic Bank – a regional U.S. bank – had bank run concerns before a group of large U.S. banks including Bank of America, JP Morgan, and Citi chipped in to provide a $30B rescue package to help stabilize its depositor base.

This was enough to stem banking crisis fears, characterized by a bounce in positive risk sentiment going into the Friday session, which seems to have been only momentary relief as banking sector assets took another dive, taking risk sentiment lower into the weekend.