Futures Surge Above 4,000 As Bank Crisis Fades Amid Growing Deposit Insurance Speculation

It’s only appropriate that the day after the weekly dose of doom and gloom from Marko Kolanovic and Mike Wilson, that stocks soar to the highest level in almost two weeks. S&P futures spiked above 4,000 on Tuesday as fears about turmoil in the global banking sector subsided, following a Bloomberg report that the Biden admin was considering insuring all deposits (unclear exactly how they will credibly insure all $18 trillion in deposits, some 75% of US GDP but whatever) followed by an FT article this morning previewing Janet Yellen’s speech at the American Bankers Association on Tuesday in which the Treasury Secretary will signal further US government backing for deposits at smaller American banks if needed, “a shift that seeks to protect parts of the country’s banking system struggling in the recent financial turmoil.”

Contracts on the S&P 500 were up 0.8% by 7:45 a.m. ET paced by European shares with Estoxx50 +1.8% on the day as  risk appetite has been stoked by report that US officials are studying ways to temporarily guarantee all bank deposits; Nasdaq 100 futures gained 0.7%. Both underlying indexes had risen on Monday. European and Asian markets were solidly in the green. As a result of the jump in risk sentiment, traders are also firming up bets on the Fed raising rates another 25bp on Wednesday with ~20bps currently priced in — versus less than 10bp at one stage on Monday.%. The Bloomberg Dollar Spot Index was down for the second day as treasury yields edged higher, mirroring moves in the UK and Europe. Gold fell and oil rose, while Bitcoin retreated for the first time in nearly a week.

Among notable movers in US premarket trading, First Republic Bank advanced more than 20%, rebounding from a slump to a record low as investors weighed a proposal from JPMorgan to help the struggling mid-size lender. Meta Platforms Inc. rose after Morgan Stanley raised its recommendation to overweight from equal-weight. Here are some of the other notable premarket movers:

• First Republic Bank jumps as much as 27% in premarket trading, set to rebound after closing at a record low Monday, as investors digest a proposal from JPMorgan to help the struggling midsize lender. Shares in fellow regional banks also gain on Tuesday, with Western Alliance (WAL US) +3.9%, PacWest Bancorp (PACW US) +4.9%
• Meta rises 2.5% after Morgan Stanley raised its recommendation to overweight from equal-weight, citing the social media giant’s pivot to increased efficiency.
• First Majestic Silver drops 16% in US premarket trading after saying it’s temporarily suspending all mining activities and reducing its workforce at Jerritt Canyon effective immediately.
• Keep an eye on Emerson Electric as it was upgraded to overweight from equal-weight at Morgan Stanley, which noted the drop in the US electrical-equipment maker’s stock after it announced its bid for National Instruments.

Investors are tiptoeing back into riskier assets, reversing the knee-jerk selloff early Monday that followed a government-brokered takeover of Credit Suisse Group AG at the weekend by Swiss rival UBS Group AG. Banks’ Additional Tier 1 bonds rebounded in Europe and Asia after euro-zone and UK regulators gave reassurances on the risky debt category, which seized up after Credit Suisse shareholders took precedence over the holders of over $16 billion of the AT1s. Appetite for risk is also being fueled by expectations that the Federal Reserve may adopt a more cautious policy approach when it decides on interest rates on Wednesday.

“The resolution to the Credit Suisse situation has managed to calm markets down, though in the US, all eyes remain on First Republic Bank and whether it needs another show of support from major banks,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “If the Fed can calm markets down tomorrow, a longer-lasting rally in equity markets is on the cards.”

“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 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 latest BofA fund manager survey showed investors now view a systemic credit event as the biggest tail risk to markets, followed by elevated inflation and hawkish central banks. Strategist Michael Hartnett recommended selling the S&P 500 above 4,100 to 4,200 points — between 3.8% and 6.3% higher than current levels.

Money markets are wagering on a hike of around a quarter-point as the cracks that emerged in the global banking industry discourage 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.”

European markets rise for a second day as concerns around the health of the banking sector ease and investors look ahead to this week’s central-bank rate decisions while the demise of Credit Suisse appears to be in the rear-view mirror for investors who have piled back into European bank stocks. The Stoxx Banks Index is up 4.5% as most lenders saw their AT1 notes rebound from Monday’s sharp sell off. The Stoxx 600 is up 1.5%,  with banks and insurance stocks leading gains, while consumer staples trail. Here are some of the biggest European movers:

• Kingfisher shares rise as much as 3.4% after the UK home- improvement retailer reported FY pretax profit that beat estimates and said it plans to announce a new buyback program
• Santander gains as much as 4.8%, Deutsche Bank 4.6% and Commerzbank 7.2% as concerns around the banking system ease following UBS’s rescue deal for Credit Suisse
• RWE climbs as much as 3.2% after the German energy company reported new guidance and a higher dividend ahead of estimates
• Nordea shares rise as much as 3.6% after Barclays upgraded the bank to overweight, though is cautious given Nordic banks’ vulnerability to deposit outflows and funding costs
• Axfood gains as much as 5.7%, the most since June 2022, as both DNB and Carnegie upgrade the Swedish food retailer and wholesaler to buy from hold
• Thyssenkrupp climbs as much as 5.9% after a report that CVC is considering offering €1 for the German industrial firm’s steel unit
• Rockwool bounces as much as 5.5% as DNB upgrades the Danish insulation supplier to buy from hold, saying it thinks the firm’s margin guidance is “overly cautious”

Earlier in the session, Asian stocks gained as concerns of an escalation in the banking crisis eased, with lenders helping drive the day’s advance.  The MSCI Asia Pacific excluding Japan Index climbed as much as 1%, with Tencent, TSMC and AIA Group providing the biggest boosts among individual stocks. Japan was closed for a holiday. Financial stocks lent the most support among sub-indexes to the regional benchmark, which traded close to its 200-day moving average. Sentiment was helped by a rebound in riskier Additional Tier 1 bonds sold by banks in the region, along with news that US officials are studying ways to temporarily guarantee all bank deposits if the turmoil expands. 

“Whenever there is bad news on individual banks, governments and big global banks are responding immediately, helping markets find a bottom,” analysts at Shinhan Investment Corp. wrote in a note.  Benchmarks in Hong Kong and China advanced more than 1% to lead a regional rebound. The Hang Seng Tech Index gained 2.5% as Tencent climbed ahead of its earnings release. Korean stock gauges rose after China approved more foreign online game titles, fueling a rally among related stocks.  Investors are waiting for the Fed’s monetary policy decision, due early Thursday in Asian hours, with expectations that the US central bank will refrain from an aggressive interest rate increase. Pershing Square’s Bill Ackman said the Fed shouldn’t raise its benchmark rate.

In Australia, the S&P/ASX 200 index rose 0.8% to close at 6,955.40, buoyed by a rebound in banks and mining shares. The rise comes following gains on Wall Street as immediate concerns over the global financial system dissipated. Australia’s central bank will consider pausing its policy tightening cycle next month, given that interest-rate settings are already restrictive and the economic outlook is uncertain, minutes of its March meeting showed. In New Zealand, the S&P/NZX 50 index fell 0.3% to 11,531.30.

Stocks in India rose, helped by a recovery in lenders who posted their biggest gains in two weeks as investors chose to look beyond the ongoing banking crisis and chase pockets of value.  Tata Consultancy Services, the country’s biggest software exporter, slumped for a ninth straight session. This was the stock’s longest losing streak since November 2007, triggered by a surprise change in its top leadership. Meanwhile, the turmoil in US and European banks continued to dent the appeal for information technology service providers. The S&P BSE Sensex Index rose 0.8% to 58,074.68 in Mumbai, while the NSE Nifty 50 Index advanced 0.7%. The gauges have now risen for three of the last four sessions but slipped more than 4% over the last one month as global equities remained under pressure on concerns of slowing growth and higher rates. The 50-stock Nifty gauge is now trading at 17.3 times its members’ estimated earnings for the next 12 months – the lowest in one year -  and near its 10-year average, according to data compiled by Bloomberg.

In FX, the Dollar Index is flat after a three-day fall. The New Zealand dollar is the weakest among G-10 currencies, followed by the Japanese yen. The euro advanced to the strongest level in five weeks and short-end German bonds extended a drop as concerns about contagion in the European banking sector eased further following the rescue deal of Credit Suisse Group AG over the weekend.  EUR/USD rose as much as 0.5% to 1.0770, the highest since Feb. 14.

In rates, the improving market sentiment dented government bonds and treasuries extend declines led by the short-end as US stock futures gain and money markets add to Fed tightening wagers ahead of Wednesday’s policy decision. Losses across the curve are led by an aggressive bear-flattening move in bunds, with 2-year German yields nearly 21bp higher on the day to 2.57% as traders also bet the ECB will raise rates again in May. The US 2-year yield rises 11bps to 4.09% while its 10-year peer climbs 5bps to 3.54%, flattening the 2s10s curve 6bps to -56bps. Traders bet on 20bps of Fed hikes this week and add as much as 17bps to tightening expectations this year. The US session includes 20-year bond auction reopening at 1pm, while a $15b 10-year TIPS sale is slated for Thursday. WI 20-year yield near 3.875% is around 10bp richer than last month’s, which tailed by 0.2bp. Cash trading was closed in Tokyo for a Japanese holiday.

In commodities, crude futures rose for a second day with WTI rising 1.3% to trade near $68.50 after swinging in a $3-plus range on Monday. Traders are starting to return to risk markets after authorities stepped in to shore up the financial system. US officials are also studying ways they might temporarily expand protection for all deposits. Spot gold falls 0.6% to around $1,697. Bitcoin gains 0.4%. 

To the day ahead now, we get the US existing home sales for February and the latest Philly Fed non-mfg survey. From central banks, we’ll hear from the ECB’s Lagarde and Villeroy, whilst the two-day FOMC meeting will be getting underway ahead of tomorrow’s decision. Lastly, earnings releases include Nike.

Market Snapshot

• Australia’s central bank will consider pausing its policy tightening cycle next month, given interest-rate settings are already restrictive and the economic outlook is uncertain, minutes of its March meeting showed. BBG
• Vanguard will shut its remaining business in China after a partial retreat two years ago, people familiar said. It will shut the Shanghai unit and exit a robo-advisory joint venture with Ant Group. The reversal comes as rivals including BlackRock and Fidelity strive to build up local operations as China’s recovery and a pension reform brighten prospects. BBG
• UBS relies more on AT1 bonds for its capital than any other major lender in Europe. AT1s are the equivalent of about 28% of its highest quality regulatory capital, Bloomberg calculations show, just slightly more than for Barclays. The average exposure among the 16 biggest banks in Europe is about 16%. BBG
• Financial market turmoil may do some of the ECB’s work for it if it dampens demand and inflation, ECB President Christine Lagarde said on Monday. “Clearly financial stability tensions might have an impact on demand and might actually do part of the work that would otherwise be done by monetary policy and interest rate hikes,” Lagarde told European lawmakers. RTRS
• The Federal Home Loan Bank System issued $304 billion in debt last week, according to a person familiar with the matter, who asked not to be identified discussing non-public data. That’s almost double the $165 billion that liquidity-hungry lenders tapped from the Federal Reserve. BBG
• US officials are studying ways they might temporarily expand FDIC coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis. BBG
• The jobs market may not be as robust as it seems as many job postings are “fake”, with the prospective employer having no intention of immediately filling the position in question. WSJ
• US accounting rulemakers are being urged to rethink how banks should value their assets in financial statements, in the wake of the run on Silicon Valley Bank and pressure across the regional banking sector. Advocates of “fair value” accounting are urging the Financial Accounting Standards Board to force banks to recognize unrealized losses on securities such as those held by SVB, even when management insists they will never have to be sold. FT
• Wall Street bank chief executives are trying to come up with a new plan for First Republic after a $30bn lifeline failed to arrest a sharp sell-off in the lender’s shares. The executives will discuss if anything more can be done for the California-based lender on the sidelines of a pre-planned gathering in Washington on Tuesday, which is being organized by the Financial Services Forum, one of the main industry lobby groups. FT
• Pacific Investment Management Co. and Invesco Ltd. are among the largest holders of Credit Suisse’s so-called Additional Tier 1 bonds that have been wiped out after the bank’s takeover by UBS Group AG: BBG
• First Republic Bank shares rallied in US premarket trading after falling to a record low Monday, as investors ponder what’s next for the struggling midsize lender following an offer of help from JPMorgan Chase & Co: BBG

Top Overnight News

• S&P 500 futures up 0.9% to 4,018
• MXAP up 0.5% to 156.40
• MXAPJ up 1.0% to 504.24
• Nikkei down 1.4% to 26,945.67
• Topix down 1.5% to 1,929.30
• Hang Seng Index up 1.4% to 19,258.76
• Shanghai Composite up 0.6% to 3,255.65
• Sensex up 0.7% to 58,035.99
• Australia S&P/ASX 200 up 0.8% to 6,955.40
• Kospi up 0.4% to 2,388.35
• STOXX Europe 600 up 1.2% to 446.06
• German 10Y yield little changed at 2.18%
• Euro up 0.1% to $1.0734
• Brent Futures up 0.7% to $74.28/bbl
• Gold spot down 0.6% to $1,967.56
• U.S. Dollar Index little changed at 103.35

A more detailed look at global markets

Asia-Pac stocks mostly tracked the gains on Wall St where some of the banking sector jitters dissipated following the Credit Suisse rescue and amid hopes FDIC’s deposit insurance amount could be increased. ASX 200 was led by outperformance in energy, financials and the mining-related sectors, while the RBA Minutes from the March meeting noted that the Board agreed to reconsider the case for pausing at the April meeting. Nikkei 225 was closed as Japanese participants observed the Vernal Equinox holiday. Hang Seng and Shanghai Comp. gained as Hong Kong benefitted from strength in consumer stocks and the mainland was buoyed by the PBoC’s liquidity injection albeit with upside capped on higher money market rates.

Top Asian News

• China is giving chipmakers new powers to guide a recovery in the industry with a handful of China’s most successful chip companies to get easier access to subsidies and more control over state-backed research, according to FT.
• RBA March Minutes said the Board agreed to reconsider the case for pausing at the April meeting and that a pause would allow time to reassess the outlook for the economy, while it added that further tightening of monetary policy is likely required to lower inflation. RBA noted monetary policy was in restrictive territory and the economic outlook was uncertain, while these considerations meant that it would be appropriate at some point to hold the cash rate steady to assess more fully the effect of the interest rate increases to date. Furthermore, it said inflation is too high, the labour market is tight, business surveys are solid and sluggish productivity could lead to more persistent inflation.

European bourses are firmer on the session, Euro Stoxx 50 +1.7%, as the region continues the positive APAC handover with specific banking-sector updates slim. Sectors are all in the green with Banking names the outperformer, SX7P +3.5%, and back at Friday’s best levels; albeit, the index has someway to go to recoup the pressure of recent days/weeks. Stateside, futures are similarly in the green though magnitudes are much more contained as participants await updates to First Republic (FRC) and the FDIC ahead of Wednesday’s FOMC, ES +0.6%.

Top European News

• The Times shadow monetary policy committee urges the BoE to continue raising interest rates this week. Two members said the Bank should stick to 50bps, five said 25bps and one said unchanged.
• ECB’s Kazaks said uncertainty in financial markets is high and it is not possible to say that we have stopped hiking, while he added that European banks are well capitalised and financial resources are available, according to Bloomberg.
• ECB’s de Cos says he cannot validate the markets expectation of a 3.25% peak rate, via Expansion.
• Swiss KOF: Inflation forecast at 2.6% (prev. 2.3%) and 1.5% (prev. 1.1%) in 2023 and 2024. Click here for more detail.

Bank headlines

• US officials are examining ways to permit the FDIC to temporarily insure deposits beyond the current USD 250k cap on most accounts without the need for congressional approval, according to Bloomberg. There were also earlier reports that the House Freedom Caucus is against raising bank deposit guarantees.
• US banking executives are to discuss at a Financial Services Forum event on Tuesday the next steps for First Republic (FRC), via FT citing sources.
• Swiss Banking Association says Swiss banking credibility has not been destroyed by the Credit Suisse (CSGN SW) crisis, but the situation is not good.
• ESMA Chair says reforms to make money market funds more resilient to economic shocks are needed sooner rather than later.
• Australia’s prudential regulator has begun asking banks to declare their exposures to start-ups and crypto-focused ventures following the collapse of Silicon Valley Bank and volatility at global lenders, according to AFR.

FX

• The DXY is underpressure as the risk tone takes a more constructive tilt, with the index at the low-end of 103.24-103.51 parameters.
• Amidst this, the EUR is the marginal outperformer as the single currency extends above 1.07 though has seemingly paused for breath at 1.0750 with specific catalysts thin.
• Next best is the CHF, though this is more a recuperation of recent depreciation than any concerted upward move vs the USD while EUR/CHF is essentially flat, given the EUR’s relative strength.
• Antipodeans are at the bottom of the G10 pile following data and RBA minutes which suggested that a pause could occur in April, currently AUD/USD and NZD/USD are below 0.67 and 0.62.
• Additionally, given the above, the JPY has pared back much of Monday’s haven allure with USD/JPY around 25pips shy of Monday’s 132.64 high at best.
• PBoC set USD/CNY mid-point at 6.8763 vs exp. 6.8753 (prev. 6.8694)

Fixed Income

• Bonds extend retreat from Monday’s lofty safe haven peaks as risk appetite continues to pick up amidst less financial sector stress.
• Bunds down to 136.62 vs yesterday’s 140.30 Eurex best, Gilts to 104.65 from 107.33 and T-note 114-18+ compared to 116-24.
• Solid 2053 DMO issuance provides UK debt with little support and 20 year US supply still to come.

Commodities

• WTI and Brent are firmer in-fitting with the risk sentiment seen in European trade and with the complex attentive to commentary from Goldman Sachs, among others.
• Specifically, the benchmarks are towards the top-end of USD 66.77-68.500/bbl and USD 72.82-7466/bbl parameters respectively.
• Spot gold is softer given the relatively constructive tone with the yellow metal retreating further from Monday’s USD 2009/oz peak to USD 1963/oz at worst while base metals are benefitting from broader action and reports relating to China’s steel output.
• Goldman Sachs’ Commodities Head Currie sees upside of USD 5-10/bbl for crude, saying a Fed pause would be bullish for oil.
• Trafigura says they do not see major impact on industry from Credit Suisse (CSGN SW); current oil prices are not encouraging production. Still moving limited Russian refined products and considering whether to resume more Russian oil trade, CEO does not see much downside for oil at this point. Adds, that the existing LME Nickel contract is not fit for purpose.
• Gunvor Co-head of trading says with all these new refineries coming on stream, we are not very bullish on refined products down the road; does not think oil price can go over USD 100/bbl by December.
• Pierre Andurand of Andurand Capital sees oil price at USD 140/bbl at year end.
• TotalEnergies (TTE GP) Normandy refinery (250k BPD) is to be shutdown amid strike action, according to a statement.
• Norwegian oil production (Feb) 1.776mln BPD (vs. prev. M/M 1.754mln BPD), gas production 9.9bcm (vs. prev. M/M 11.1mln BPD).
• China is reportedly considering cutting 2023 crude steel output by circa. 2.5%, via Reuters citing sources.

Geopolitics

• Chinese President Xi said China will continue to play a constructive role in promoting a political settlement of the Ukraine crisis, while President Xi told Russian President Putin that ties with Russia are China’s strategic choice.
• Chinese President Xi has invited Russia President Putin to visit China, via Ria. Subsequently, Russia’s Kremlin says Putin and Xi had a throughout exchange on Monday including on Chinese peace proposal for Ukraine, declined to give more details.
• Iran is interested in developing peaceful nuclear and renewable energy cooperation with Russia, according to RIA.
• Japanese PM Kishida said he will visit Kyiv and meet with Ukrainian President Zelensky, according to NHK. It was later reported that Japan’s Ministry of Foreign Affairs said Japan and Ukraine leaders will hold a summit today.
• South Korea imposed sanctions on four individuals and six entities linked to North Korea’s weapons programmes, while it announced a watch list to ban the export of items related to North Korea’s satellite development, according to Reuters.

US Event Calendar

• 08:30: March Philadelphia Fed Non-Manufactu, prior 3.2
• 10:00: Feb. Existing Home Sales MoM, est. 5.0%, prior -0.7%
• 10:00: Feb. Home Resales with Condos, est. 4.2m, prior 4m

DB’s Jim Reid concludes the overnight wrap

Morning from what promises to be a very sunny warm day in Lisbon which makes a nice change from the rain in London as I left yesterday as we hit the first official day of spring. Like the seasons, it did feel like a new beginning for markets as they finally saw some positivity in the UBS-Credit Suisse deal after an open that felt like we might be in an ice age rather than starting to see green seasonal shoots.

It’s worth looking at how bad the open was yesterday and why it turned around. The STOXX 600 fell by almost -2% within 20 minutes of the opening bell, whilst UBS was down almost -16% with European bank AT1s down around 10-15%. It was a similar story on the rates side too, since the 10yr Treasury yield hit its lowest intraday level in over 6 months, at just 3.286% (-14.3bps at that point).

It all turned when we got a statement from the European Banking Authority that explicitly set out that the EU’s practice was that “common equity instruments are the first ones to absorb losses”, and that “only after their full use would Additional Tier One be required to be written down”. A similar statement was then issued by the Bank of England, which said that the UK’s bank resolution framework “has a clear statutory order” as used in the case of SVB UK, which prioritised AT1 ahead of CET1. With that reassurance, AT1s recovered somewhat over the session and we saw a broader boost in bank stocks across the board.

In more detail, Euro Sub-Financial CDS was as much as +46bps wider on the open yesterday before closing -13bps tighter overall, while the senior index was +18bps wider just after the open before finishing -12bps tighter by the end of trading. The STOXX Banks index advanced +1.97% (from -6.61% at the early lows), as all 19 of the 23 members moved higher on the day.

This was an extremely important announcement as most financial investors felt very uncomfortable with the details of the Swiss merger and what it did for AT1 bondholders rights in the resolution pecking order. The EU/UK clarity was a very good move and net net probably helps the European economy longer-term as to permanently increase the cost of bank capital would be counterproductive. As we’ve shown for the last few days, CS was massively decoupled from the rest of the European banking sector in CDS terms over the last several months, so whilst harder times are to come economically, this announcement and the prior fairly stable European banking system outside of CS, should cut off contagion risks.

US banks have a few more issues to deal with still though and although the KBW Banks index was up +0.79% on the day, they were as much as +2.4% higher before selling off steadily after Europe went home.

This came as concerns continue to percolate regarding US bank First Republic, even after last week’s move by other US banks to deposit $30bn. S&P cut their credit rating to B+ from BB+ over the weekend and yesterday saw their shares end the day down -47.08%, which builds on a decline of more than -80% already over the previous two weeks. There was a short intraday rally after the Wall Street Journal reported that JPMorgan CEO Jamie Dimon was leading discussions with other CEOs to stabilise First Republic, which could involve some or all of the $30bn in deposits being converted into a capital infusion. Despite these headlines, the stock reverted lower to finish near the lows of the day.

Overnight, it was reported that US officials at the Treasury Department and FDIC were studying ways to temporarily expand their deposit coverages in case the current situation expands into a full-blown crisis of confidence. The White House was looking into whether federal regulators would be able to increase the $250k cap without an act of Congress as headlines suggest Republicans would oppose the move.

Aside from the First Republic issues, the more positive shift in sentiment saw investors put growing weight on the probability of the Fed hiking rates tomorrow. For instance, shortly after the European open when everything had slumped, just 9bps worth of hikes were being priced in by futures. But that bounced back over the rest of the session, and by the close a 17.8bps hike was priced in, which is equivalent to a 71.2% probability. So for the time being at least (and clearly things are subject to change in these conditions), it would still be a surprise relative to expectations if the Fed didn’t go ahead.

Last night, our own US economists published their preview of tomorrow’s Fed meeting (link here), and they agree with the view that the Fed will opt for 25bps. Our economists expect the Fed to follow the ECB’s lead and raise rates in line with expectations, do away with forward guidance, but signal a continued tightening bias. They do not expect much change to the dot plot or the SEP from December, and Powell will also likely emphasise the heightened uncertainty surrounding those forecasts in his press conference.

Those expectations of a Fed hike meant that yields posted a small increase yesterday, with the 10yr Treasury yield ending the day up +5.6bps at 3.485%. As with bank stocks though, that only came after a big turnaround earlier in the session, having recovered by nearly +20bps from their intraday low of 3.286%. It was much the same story in Europe too, with the 10yr bund yield up from a low of 1.91% after the open before closing at 2.125%, leaving it up by a net +1.7bps over the day.

For equities it was also a positive session, at least once we got past the European morning. By the close, the STOXX 600 had advanced +0.98%, capping off a turnaround of almost +3% on an intraday basis from the initial lows. And over in the US, the S&P 500 was up +0.89%, which now leaves it down by just -1.01% since its close on March 8 before the concerns about SVB really took hold. Tech stocks were the main underperformer yesterday, with Software (-0.8%) the worst-performing industry, but even so the NASDAQ still gained +0.39%.

This morning in Asia a cautious rally continues. As I check my screens, the Hang Seng (+0.33%), the KOSPI (+0.30%), the CSI (+0.42%) and the Shanghai Composite (+0.15%) are trading in positive territory. Elsewhere, markets in Japan are closed for a holiday with Treasuries not trading overnight.

In central bank news, the minutes from the Reserve Bank of Australia’s recent meeting were less hawkish as the central bank indicated a near-term pause in interest rate increases at its upcoming policy meeting scheduled on April 4th, as uncertainty surrounding the economic outlook persists. In response to the RBA meeting minutes, the Australian dollar rose to a high of 0.6726 versus the US dollar before settling at $0.6687 as we go to press. Meanwhile, 10yr government bonds rallied with yields dropping -4bps to 3.20% as I type.

Amidst all the financial news, one more positive story in the background for consumers (albeit for negative return reasons) has been the continued decline in commodity prices. For instance, European natural gas futures (-8.24%) closed at a 19-month low of €39.325 per megawatt-hour yesterday, which brings their decline over March so far to -15.73%. Oil prices were under pressure for most of the day before a late rally in the US left Brent crude up +1.12% to $73.79/bbl and WTI contracts were up +1.35% to $67.64/bbl. Both contracts reached their lowest level since December 2021 intraday. Overall the recent drop in energy prices will benefit consumers, as well as central banks since it’ll offer them a helpful tailwind on the inflation side. On the other hand, it’s worth noting that much of the decline is thanks to growing concerns about a recession, with oil traditionally being a more cyclical commodity in those circumstances.

To the day ahead now, and data releases include the German ZEW survey for March, Canada’s CPI for February, and US existing home sales for February. From central banks, we’ll hear from the ECB’s Lagarde and Villeroy, whilst the two-day FOMC meeting will be getting underway ahead of tomorrow’s decision. Lastly, earnings releases include Nike.