US equities slipped on Friday and Treasuries gained, capping a tumultuous week for global markets with another risk-off turn as concern mounted that the turmoil rocking the banking sector will tip the global economy into recession.
(Bloomberg) — US equities slipped on Friday and Treasuries gained, capping a tumultuous week for global markets with another risk-off turn as concern mounted that the turmoil rocking the banking sector will tip the global economy into recession.
The S&P 500 fell after the index rallied 1.8% yesterday as larger banks threw a lifeline to First Republic Bank, the latest US lender to signal stress. That didn’t stop shares in First Republic from sliding, however, other regional lenders were also weak. On the plus side, FedEx Corp. jumped 9.4% after the courier boosted its profit outlook.
The Nasdaq 100 eked out a small gain as the rates-sensitive gauge heads for its best week since November amid expectations the Federal Reserve will temper its tightening path. The 10-year Treasury yield fell more than 10 basis points and a gauge of the dollar declined.
Banks including JPMorgan Chase & Co. and Citigroup Inc. banded together in a show of support for First Republic on Thursday. While the rescue attempt initially boosted sentiment, billionaire investor Bill Ackman was among those questioning whether it would be enough to halt the crisis. Meanwhile, US banks borrowed a combined $164.8 billion from two Federal Reserve backstop facilities in the most recent week, a sign of escalated funding strains in the aftermath of Silicon Valley Bank’s failure.
“We do not expect a full-blown financial crisis, but one must not dismiss the underlying dynamics,” said Karsten Junius, the chief economist at Bank J Safra Sarasin AG. “Financial conditions will most likely tighten further and increase recession risks. We therefore advocate a defensive positioning with regard to risk assets and a tactically cautious stance on the banking sector, even though the constructive case for banks remains intact over the medium to longer term.”
Friday’s quarterly triple witching, where contracts for index futures, equity index options and stock options all expire, could amp up swings in trading.
The Stoxx Europe 600 index turned lower while shares in the troubled Swiss lender Credit Suisse Group AG resumed a decline, falling as much as 13% after the idea of a forced combination with a larger rival UBS Group AG was shot down. The stock had rallied 19% Thursday after the Swiss central bank stepped in with support.
Markets were also digesting a 50 basis points rate hike by the European Central Bank. By making it clear that stress points in the banking industry — as well as economic data — will guide future rate decisions, ECB Chief Christine Lagarde paved the way for bond-market gyrations to remain elevated for the remainder of the year as traders try to figure out when the hiking cycle will end.
US two-year yields have whipsawed at least 20 basis points a day for six straight sessions through Thursday as traders re-calibrated rate-hike bets. Market pricing for the Fed’s March 21-22 meeting has lurched between another quarter-point hike, and the first rate pause in more than a year. US overnight indexed swaps are now pricing for a more than 70% probability of a quarter-percentage point Fed rate hike next week.
BlackRock Investment Institute does not expect cracks in the financial sector to deter central banks from raising rates further to contain inflation. It expects both the ECB and the Fed to “go as far as possible to distinguish their inflation fighting campaigns from measures to deal with bank troubles and safeguard the financial system,” a team of BlackRock analysts wrote in a note.
Anastasia Amoroso, chief investment strategist at iCapital, told Bloomberg TV that the confidence signaled by a 25 basis point hike from the Fed would not go “that far.”
“They have to pause,” said Amoroso. “The biggest signal of confidence would be to say, we are attuned to the issue. We want to take the time to make sure we have the right approach in place before we resume that rate hiking cycle. To me that would be the best approach.”
Bitcoin rose to the highest level since June amid a broad rally in cryptocurrencies. Other tokens such as Ether, Solana and Polkadot surged as well. Oil was steady, heading for the worst week so far this year. Gold rose.
These are the main market moves:
- The S&P 500 fell 0.2% as of 9:30 a.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average fell 0.4%
- The Stoxx Europe 600 fell 0.8%
- The MSCI World index was little changed
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.2% to $1.0626
- The British pound rose 0.3% to $1.2143
- The Japanese yen rose 1% to 132.45 per dollar
- Bitcoin rose 7.7% to $26,656.1
- Ether rose 5.1% to $1,744.9
- The yield on 10-year Treasuries declined 10 basis points to 3.48%
- Germany’s 10-year yield declined 12 basis points to 2.17%
- Britain’s 10-year yield declined 11 basis points to 3.31%
- West Texas Intermediate crude fell 0.7% to $67.86 a barrel
- Gold futures rose 1.6% to $1,971.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.