Central Bankers Talk Cuts, Driving Rates Down

Rates decline after multiple central banks signal momentum toward rate cuts. Chair Powell and the ECB made comments that suggest rate cuts may be on the horizon, where the latter forced short-term swap rates immediately lower by ~4bps. Powell said that the Fed is “not far” from the confidence level to ease policy, while the ECB held rates steady and offered dovish comments. Short-term rates dropped ~5bps on the session, while long term rates were little changed. Meanwhile, equities rallied on the sentiment while the S&P 500, Dow, and NASDAQ closed at all-time highs. Attention has now shifted toward tomorrow’s labor data, where NFP is expected to plummet to +200k in February from +353k in January.

New York Community Bank (NYCB) receives “vote of confidence” through large capital infusion. Yesterday, NYCB announced that a group of investors led by former US Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital will invest over $1 billion dollars in the bank. Per the deal announcement, the investor group will acquire shares of NYCB at a ~40% discount to yesterday’s closing price ($3.48). Alongside the deal, NYCB announced that Joseph Otting will replace Alessandro DiNello as CEO. Otting served as CEO for OneWest bank, formerly IndyMac, which was purchased out of receivership in 2009 by Secretary Mnuchin, successfully turned around, and sold to First Citizens Bank in 2022. The deal was well received by markets, as the bank’s stock price more than doubled during intraday trading after the announcement. Commenting on the deal, KBW analyst Chris McGratty wrote, “While painful for existing shareholders, it should quiet systemic concerns for NYCB. This should help broader sentiment for the bank group.”

ECB points to rate cuts in June, leaves policy rate unchanged. After the ECB announced a rate pause at today’s policy meeting, ECB President Christine Lagarde told reporters that “we clearly need more evidence, more detail” before easing monetary policy. She expanded that “we know that this data will come in the next few months… we will know a lot more in June,” and markets are pricing accordingly. A 25bp cut is seen as ~15% likely at the April policy meeting and is almost fully priced in by June’s meeting. The ECB revealed that rate cuts were not discussed at today’s meeting, though they are “just beginning to discuss the dialing back of our restrictive stance.”