The Federal Reserve has issued private warnings to several regional lenders, including Fifth Third, M&T Bank, and Citizens Financial Group, instructing them to enhance their liquidity planning. The Fed aims to tighten supervision following the failures of three banks earlier this year. The warnings cover various areas such as capital, liquidity, compliance, and technology. Bloomberg was the first to report the story.
Background and Significance
Earlier this year, following the failure of Silicon Valley Bank, Fed Vice Chair for Supervision Michael Barr emphasized the need to strengthen the Federal Reserve’s supervision and regulation based on lessons learned. It was determined that both SVB’s management and the regulator itself had shortcomings in managing risks and taking prompt action on identified issues.
Impact on Stock Market
The stock market is currently experiencing a positive streak, with the S&P up 0.4%, the Nasdaq up 0.6%, and the Dow up 0.3%. Challenger’s report on increased layoffs in August boosted investor confidence, aligning with softer ADP and JOLTS figures. However, weekly jobless claims fell below consensus, indicating steady job gains. The market is also monitoring the upcoming release of the August jobs report.
Inflation and Spending Data
Income and spending data for July matched forecasts, with spending slightly higher than expected. The core PCE price index, the Fed’s preferred inflation gauge, rose by 0.2%, maintaining a consistent trend since February. Notably, core PCE services ex-housing increased by 0.5%, driven partly by volatile financial services component prices.
Restrictions on AI Chip Exports
The U.S. has expanded restrictions on exporting high-performing AI chips from Nvidia and AMD to certain Middle Eastern countries. Nvidia stated that these additional export restrictions would not have an immediate material impact on its financial results.
Dollar General missed estimates and adjusted its guidance, causing pressure on discount store names. Campbell Soup reported a slight increase in revenue, driven by growth in the snacks segment. Hormel Foods’ fiscal Q3 earnings fell short of expectations. Morgan Stanley downgraded Palantir to underweight but raised its price target. In other news, BTIG’s technical strategist highlighted heavily shorted office REITs worth considering.