Marriage and a Hike as the Honeymoon

PacWest to be acquired by Banc of California. News of a merger between PacWest and Banc of California hit the market this afternoon, stealing some of the spotlight from tomorrow’s FOMC decision. The combined bank will have ~$36B in total assets, and BANC stock rose as much as 22% on the day. The KRE Bank Index fell despite the news, though the banks expect the merger to create a “robust, well-capitalized and highly liquid institution.” Elsewhere, rates were mixed across a steepening curve, the policy-sensitive 2-year UST yield falling 4bps to 4.87% while the 10-year climbed ~1bp to 3.89%.

Camping at the FOMC. Past statements from the Fed and Chair Powell suggest the FOMC remains committed to a 25bp hike tomorrow, and the futures market agrees, pricing in a near 100% likelihood of a 25bp rate hike to the 5.25% – 5.50% target range. Despite the near-term certainty, a widening split between the FOMC’s resident doves and hawks may undermine the FOMC unity that Chair Powell has championed during his tenure, creating more monetary policy uncertainty in a world where the IMF warned, “the balance of risks to global growth remains tilted to the downside.”

Data recap. July’s consumer confidence data came in at 117.0 despite a forecast of 112.0, a 2-year high and a positive forecast that offered hope for a soft-landing. Richmond Fed manufacturing also beat forecasts (-10), coming in at -9 and cementing a slight decrease from -8 in June.