Stock market sentiment continues to stabilise, but indexes are heading for solid weekly losses after a turbulent week for markets and the financial sector in particular.
After the Credit Suisse was given a liquidity facility by the Swiss National Bank, a rescue package for First Republic Bank was announced and while that helped to soothe markets, nervousness remains. Stocks moved broadly higher across Asia, but indexes are still heading for a weekly loss and the same holds for Europe.
European and US futures are moving higher though, as the focus turns to next week’s Fed announcement, with traders currently expecting a 25 bp hike. The ECB stuck to its guns yesterday but delivered a 50 bp hike with a clear signal that it will watch financial market developments carefully before considering further steps. The 10-year Treasury yield is down -5.7 bp at 3.52% now, the German 10-year has corrected -5.5 bp to 2.23% in early trade. The USDIndex has dropped below the 104 mark as risk appetite is stabilising and stock markets are also moving up from this week’s lows. Next Support at 103 and 102.34.
First Republic reportedly got about a $30 bln lifeline from a group of banks to help shore up liquidity in a deal brokered by the Fed and Treasury. It’s an “all for one, one for all” type of action to “save” the banking system from more destabilizing stresses. A joint statement from the Fed, Treasury, FDIC, and OCC noted that “11 banks announced $30 bln in deposits into First Republic Bank.
This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system.”
The $30 bln in uninsured deposits will help ease the liquidity woes at First Republic specifically, and in turn boost confidence in the banking sector in general and support the many other midsize and smaller regional institutions and community banks. Also, Citigroup made a statement that the banking system has strong capital and plenty of liquidity. BNY Mellon and State Street have joined Bank of America, Wells Fargo, Citigroup, JPMorgan, Goldman Sachs, Morgan Stanley, PNC, Truist, US Bancorp, and M&T Capital One. This show of support was not seen with SVB or Signature Bank which quickly collapsed.
Newswires report Bank of America ($BOA), Wells Fargo ($WFC), Citigroup ($C), and JPMorgan ($JPM) are depositing (uninsured) $5 bln each, with Goldman Sachs ($GS) and Morgan Stanley ($MS) contributing $2.5 bln, alongside $1 bln injections from PNC ($PNC), Truist, US Bancorp ($USB), M&T Capital One ($MTB).
Fears over spreading financial market stress sparked another hefty flight-to-safety trade into bonds, and especially into shorter dated instruments. Along with risk aversion, bonds benefited from repricing in expectations for central bank rate hikes. The Treasury 2-year plunged over 69 bps from a high of 4.407% to a low of 3.71%, before edging back up to 3.91% in afternoon action. That’s on top of 50 bp moves in recent sessions. The 10-year rate was 22 bps richer at 3.468% at the close after ranging from 3.70% to 3.38%, high to low. Wall Street was volatile but under pressure. The major indexes managed to pare losses but the US30 still ended with a -0.87% loss, with the S&P 500 down -0.7%. The US100 eked out a small 0.06% gain. The USDIndex finished at 104.69, but rallied back over the 105 mark to 105.10 intraday, benefiting from haven demand and from uncertainties over the 50 bp ECB hike Thursday.