US equity futures rallied, the dollar tumbled and Treasury two-year yields extended declines as investors dialed back rate-hike bets following the collapse of Silicon Valley Bank.
(Bloomberg) — US equity futures rallied, the dollar tumbled and Treasury two-year yields extended declines as investors dialed back rate-hike bets following the collapse of Silicon Valley Bank.
Contracts for the rates-sensitive Nasdaq 100 surged around 1.5% and Treasury two-year yields dropped as much as 18 basis points to 4.34%, heading for their steepest three-day decline since October 1987, when the Black Monday equities rout stunned markets. The 10-year yield was little changed near a one-month low. The dollar extended a slump against major peers.
In Europe, stocks dropped, led by banks and insurers. HSBC Holdings Plc slipped after buying the UK unit of SVB. Bond yields across Europe fell.
The sudden closure of New York’s Signature Bank by state regulators Sunday underscored the urgency of US efforts to backstop the nation’s banking system. Treasury Secretary Janet Yellen said the her office would protect “all depositors” at SVB. The government actions will also include a new lending program that Federal Reserve officials said would be big enough to protect uninsured deposits in the wider US banking sector.
The risk of a banking crisis underscores the tension between Fed efforts to cool the economy and tame inflation with burgeoning concerns that 4.5 percentage points of rate hikes in the space of a year will spark a recession and a rout in riskier assets. Economists at Goldman Sachs Group Inc. no longer expect an increase from the Fed at its March meeting given stresses in the banking system.
“Tightening monetary cycles often end abruptly when ‘something breaks’ and a financial crisis is triggered,” Ed Yardeni, the founder of Yardeni Research, said in a note. “If the Silicon Valley Bank run is that something, it could mean tightening ends sooner and bond yields have peaked.”
A gauge of dollar strength fell as much as 1%, with the currencies of Australia, New Zealand and Norway among the biggest advancers of the greenback’s major peers. There were also notable gains in the yen and the offshore yuan.
Japan’s benchmark 10-year yield slid further below the ceiling of the central bank’s target trading band. Australian and New Zealand government bond yields dropped as traders globally reassessed the path of interest rate hikes and the economic cost the tightening cycle has taken already.
A gauge of Asian stocks eked out a small rise, held back by losses in Japanese shares, with financials being the biggest drag on the benchmark Topix gauge. The index has been under pressure also thanks to strength in the yen.
Shares in Hong Kong and mainland China rose on positive signs for policy continuity, with China’s central bank governor Governor Yi Gang and the finance and commerce ministers being kept in their posts. President Xi Jinping pledged to pursue reasonable growth in the economy and self reliance in technology during his closing speech at the National People’s Congress.
Monday’s moves in markets come after risk assets got pummeled last week, with the US stock benchmark suffering its worst week since September. Wall Street’s so-called “fear gauge” spiked, with the Cboe Volatility Index hitting the highest this year.
Anxiety is also running high ahead of this week’s consumer price index report, especially after Fed Chair Jerome Powell recently emphasized that a move to a faster pace of tightening would be based on the “totality of the data.”
Yet for now the reassurances from US regulators over SVB are having some of their desired impact.
“This will bring confidence back to the markets. But from the Fed’s point of view, there are additional dangers that need to be reviewed, which will take some time,” Carol Pepper of Pepper International said on Bloomberg Television. “So I’m hoping that this will help them to have a good reason to pause because frankly creating financial stability is the number one job at the Fed.”
Elsewhere in markets, oil fluctuated while gold rose on its allure as a haven. Bitcoin climbed, reflecting the relief among investors.
Key events this week:
- US inflation, Tuesday
- China retail sales, industrial production, medium-term lending, surveyed jobless rate, Wednesday
- Eurozone industrial production, Wednesday
- US business inventories, retail sales, PPI, empire manufacturing, Wednesday
- Eurozone rate decision, Thursday
- US housing starts, initial jobless claims, Thursday
- Janet Yellen appears before the Senate Finance Committee, Thursday
- US University of Michigan consumer sentiment, industrial production, Conference Board leading index, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.5% as of 8:13 a.m. London time
- S&P 500 futures rose 1.3%
- Nasdaq 100 futures rose 1.6%
- Futures on the Dow Jones Industrial Average rose 0.9%
- The MSCI Asia Pacific Index rose 0.2%
- The MSCI Emerging Markets Index rose 0.9%
Currencies
- The Bloomberg Dollar Spot Index fell 0.7%
- The euro rose 0.8% to $1.0726
- The Japanese yen rose 0.4% to 134.49 per dollar
- The offshore yuan rose 0.5% to 6.9017 per dollar
- The British pound rose 0.7% to $1.2113
Cryptocurrencies
- Bitcoin rose 4.6% to $22,477.82
- Ether rose 3.2% to $1,607.59
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.67%
- Germany’s 10-year yield declined seven basis points to 2.44%
- Britain’s 10-year yield declined six basis points to 3.58%
Commodities
- Brent crude rose 0.2% to $82.95 a barrel
- Spot gold rose 0.6% to $1,879.01 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric, Isabelle Lee and Akshay Chinchalkar.
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