A sense of calm continued to prevail on global markets, with a rebound in banks and assurances from authorities easing fears that the recent tumult would lead to a full-blown crisis.
(Bloomberg) — A sense of calm continued to prevail on global markets, with a rebound in banks and assurances from authorities easing fears that the recent tumult would lead to a full-blown crisis.
Stocks climbed across the board and bonds tumbled as the coordinated actions to resolve the banking turmoil have restored a semblance of order in the financial world — at least for now. Traders again expect the Federal Reserve will raise rates by a quarter percentage point Wednesday, with the central bank forging ahead with its battle against inflation amid growing risks that more tightening could tip the economy into a recession.
As demand for haven assets waned, the S&P 500 approached 4,000 and traded above its key 200-day moving average, a threshold seen by many analysts as heralding more gains. First Republic Bank snapped back from a record low, soaring about 40% as JPMorgan Chase & Co. mapped out a new plan to help the firm. A gauge of US financial heavyweights jumped 5%. UBS Group AG was on track for its biggest gain since March 2020 as investor optimism about the takeover of its biggest rival gathered pace.
“This is an easier market backdrop,” said Nicholas Colas, co-founder of DataTrek Research. “Expectations of a dramatic about-face for monetary policy are diminishing. Market expectations for near-term Fed rate decisions are now within the realm of the possible. That is good news.”
Not Too Fast
To Matt Maley at Miller Tabak + Co., investors should be careful about the conclusions they draw from the recent equity rally as there are at least two ways to look at it.
“One is to think that the stock market is looking past this mini-crisis and sees that the economy (and thus earnings) are going to grow quite nicely once we get past this problem,” Maley said. “The other way to look at it is to think that the situation is still quite a dicey one, and the authorities are pumping so much short-term liquidity into the system that the stock market cannot decline over the near-term.”
A systemic credit event has replaced stubborn inflation as the key risk to markets for increasingly pessimistic investors, according to Bank of America Corp.’s latest global survey of fund managers. The polling took place from March 10-16, while money managers were witnessing the collapse of US lenders Silicon Valley Bank and Signature Bank and monitoring the turmoil at Credit Suisse before its historic takeover by UBS.
But strategists are growing concerned, with Morgan Stanley’s Michael Wilson saying the risk of a credit crunch is increasing materially. The S&P 500 might find a floor at 3,800 but investors should sell into any rallies if the benchmark reaches 4,100 to 4,200, BofA’s Michael Hartnett wrote.
Treasury Secretary Janet Yellen said the US government could repeat the drastic actions it took recently to protect bank depositors if smaller lenders are threatened. US officials are studying ways they might temporarily expand Federal Deposit Insurance Corp. coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.
Still, the behind-the-scenes deliberations show there are concerns in Washington’s corridors of power as midsize banks call for broader government intervention after three lenders collapsed this month when uninsured depositors pulled their money, and as a fourth firm strives to avoid a similar fate. Shares of that one, First Republic Bank, have tumbled 90% since the start of the month as industry leaders tried to find a way to bolster the company’s finances.
Key events this week:
- US Treasury Secretary Janet Yellen to appear at Senate subcommittee hearing, Wednesday
- FOMC rate decision, news conference from Chair Jerome Powell, Wednesday
- EIA crude oil inventory report, Wednesday
- Eurozone consumer confidence, Thursday
- BOE interest rate decision, Thursday
- Swiss National Bank rate decision and press conference, Thursday
- US new home sales, initial jobless claims, Thursday
- US Treasury Secretary Janet Yellen testifies to a House Appropriations subcommittee, Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- US durable goods, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.7% as of 11:06 a.m. New York time
- The Nasdaq 100 rose 0.3%
- The Dow Jones Industrial Average rose 0.7%
- The Stoxx Europe 600 rose 1.4%
- The MSCI World index rose 0.9%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.5% to $1.0777
- The British pound fell 0.5% to $1.2218
- The Japanese yen fell 0.4% to 131.91 per dollar
Cryptocurrencies
- Bitcoin fell 0.3% to $28,000.43
- Ether rose 3% to $1,813.5
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.55%
- Germany’s 10-year yield advanced 12 basis points to 2.25%
- Britain’s 10-year yield advanced four basis points to 3.35%
Commodities
- West Texas Intermediate crude rose 1.2% to $68.45 a barrel
- Gold futures fell 1.4% to $1,971.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Isabelle Lee, Angel Adegbesan and Carly Wanna.
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