Sentiment in equity markets continues to stabilize, but indices are heading for solid weekly losses after a turbulent week for markets and especially the financial sector.
After The Swiss National Bank has provided a liquidity facility to Credit Suisseand rescue package for the first republic bank was announced, and while it helped calm markets, jitters remain. Stocks moved sharply higher in Asia, but indexes are still heading for a weekly loss, and the same is true for Europe.
However, European and US futures are moving higher as attention turns to next week Fed announcement, with traders currently expecting a 25 basis point hike. The ECB stuck to its guns yesterday but issued a 50 basis point hike in a clear signal that it will closely monitor developments in financial markets before considering further action. The 10-year government bond yield is now down -5.7 bp to 3.52%, the German 10-year corrected -5.5 bp to 2.23% in early trade. The USDIndex he dropped under the 104 mark as a willingness to take risks is stabilizing and equity markets are also moving up from this week’s lows. Additional support at 103 and 102.34.
The First Republic reportedly received a $30 billion lifeline from a group of banks to help support liquidity in a trade brokered by the Fed and the Treasury Department. It is an “all for one, one for all” action to “save” the banking system from destabilizing pressures. Joint Statement by Fed, Treasury, FDIC and OCC noted that “11 banks reported $30 billion in deposits to First Republic Bank.
This show of support from a group of major banks is very welcome and demonstrates the resilience of the banking system.”
The $30 billion in uninsured deposits will help alleviate liquidity woes in the First Republic specifically, and will in turn boost confidence in the banking sector in general and support many other medium-sized and smaller regional institutions and community banks. Citigroup also made a statement that the banking system has strong capital and sufficient liquidity. BNY Mellon and State Street joined Bank of America, Wells Fargo, Citigroup, JPMorgan, Goldman Sachs, Morgan Stanley, PNC, Truist, US Bancorp and M&T Capital One. This show of support was not seen at SVB or Signature Bank, which quickly collapsed.
Newswires report Bank of America (BOA), Wells Fargo (WFC), Citigroup (C) and JPMorgan (JPM.s) put in (uninsured) $5 billion each, p Goldman Sachs (GS.s) and Morgan Stanley (MS.s) is contributing $2.5 billion along with $1 billion in injections PNC (PNC.s), Truist, US Bancorp (USB.with)M&T Capital One (MTB.s).
Concerns about the spread of tension in the financial markets triggered another massive flight to safety in bonds, and in particular in instruments with shorter maturities. Along with risk aversion, bonds benefited from revaluation in anticipation of a central bank rate hike. The Treasury 2 years fell 69 bps from a high of 4.407% to a low of 3.71% before recovering to 3.91% in afternoon action. That’s on top of 50bp moves in recent sessions. The 10-year rate it was 22 bps richer at 3.468% at the close after moving from 3.70% to 3.38%, high to low. Wall Street was volatile but under pressure. But the main indexes managed to reduce losses US30 still finished with a loss of -0.87%, while the S&P 500 fell -0.7%. The US100 it made a small gain of 0.06%. The USDIndex ended at 104.69 but bounced back through 105 to 105.10 during the day, benefiting from port demand and uncertainty over Thursday’s 50bp hike by the ECB.
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Andria Pichidi
Market analyst
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