Stocks in Europe rallied and US equity futures pointed to a stronger open for Wall Street as regulators’ assurances on the banking industry helped restore investor confidence.
(Bloomberg) — Stocks in Europe rallied and US equity futures pointed to a stronger open for Wall Street as regulators’ assurances on the banking industry helped restore investor confidence.
S&P 500 futures climbed 0.9%, putting the index on track to extend Monday’s gains. The euro gained against the dollar to the strongest in five weeks and government bonds dropped as demand for haven assets faded.
Shares in First Republic Bank surged as much as 20% in premarket trading following a proposal from JPMorgan to help the struggling lender. Other US bank shares advanced, with smaller names leading gains. In Europe, the Stoxx equity benchmark rose 1.6%, buoyed by a 4% bounce in the banking index.
Renewed appetite for risk is reversing the knee-jerk selloff early Monday that followed a government-brokered takeover of Credit Suisse Group AG by Swiss rival UBS Group AG. Markets are due to receive assurances later in the day from Treasury Secretary Janet Yellen about US regulators’ readiness to protect bank deposits if smaller lenders are threatened.
“About 10 days ago we had a series of risks emerge and now one by one, those tail risks are diminishing,” said Erick Muller, head of product and investment strategy at asset manager Muzinich & Co. Ltd. “It seems like everything has been put in place to resolve any liquidity issues — which is reassuring.”
The turnaround also encompassed banks’ risky Additional Tier 1 bonds after euro-zone and UK regulators said the wipeout in Credit Suisse’s AT1s wouldn’t happen in their jurisdictions under similar circumstances.
Those losses were “an isolated situation, that’s why it was so important for regulators to come in,” Muller said.
Banks’ Riskiest Bonds Rise as Regulators’ Assurances Resonate
Reduced appetite for haven bets pushed government bonds lower, sending 10-year US Treasury yields up about five basis points. The policy-sensitive two-year yield rose about 12 basis points, touching 4% after trading near 3.6% amid the recent turmoil.
The dollar slipped further against a basket of currencies, extending its three-day losing streak.
The rebound was also fueled by expectations that the Federal Reserve may adopt a more cautious policy approach when it decides on interest rates on Wednesday. The latest reading of the US Philadelphia non-manufacturing index showed regional business activity slipped to -12.8 in March, compared with 3.2 in the prior month.
Money markets are wagering on a hike of around a quarter-point as the banking turmoil discourages more aggressive tightening. Swap traders now see the Fed’s benchmark rate ending the year around 4%, while two weeks ago investors were betting on rates peaking close to 6%.
“It is possible that some central bankers will see recent events as policy finally getting some traction and tightening financial conditions via forcing markets to price in greater credit risk,” Mizuho International Plc strategists including Evelyne Gomez-Liechti wrote in a note. “This would allow central bankers to do a little less with policy rates.”
Elsewhere, Brent crude rose for a second day and gold prices weakened.
Key events this week:
- US existing home sales, Tuesday
- 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
- S&P 500 futures rose 0.9% as of 8:37 a.m. New York time
- Nasdaq 100 futures rose 0.6%
- Futures on the Dow Jones Industrial Average rose 0.9%
- The Stoxx Europe 600 rose 1.6%
- The MSCI World index rose 0.5%
- S&P 500 futures rose 0.9%
- Nasdaq 100 futures rose 0.6%
- The MSCI Asia Pacific Index rose 0.5%
- The MSCI Emerging Markets Index rose 1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.6% to $1.0781
- The British pound fell 0.2% to $1.2255
- The Japanese yen fell 0.6% to 132.06 per dollar
- The offshore yuan was little changed at 6.8726 per dollar
Cryptocurrencies
- Bitcoin rose 0.1% to $28,121.21
- Ether rose 0.9% to $1,777.48
Bonds
- The yield on 10-year Treasuries advanced eight basis points to 3.56%
- Germany’s 10-year yield advanced 14 basis points to 2.27%
- Britain’s 10-year yield advanced six basis points to 3.37%
Commodities
- West Texas Intermediate crude rose 1.6% to $68.70 a barrel
- Gold futures fell 0.8% to $1,983.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott, Cecile Gutscher and Tassia Sipahutar.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.