Futures Flat As Attention Turns To Fed Rate Hikes

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by Tyler Durden
Tuesday, Mar 28, 2023 - 12:09 PM

US futures are flat with bond yields reversing an overnight drop, lifted by the belly of the curve; the USD weaker for 8 of the past 9 days, and commodities mostly higher as investors shift their focus back to concerns about inflation and potential further monetary tightening from the recent banking-industry chaos; after all, a bank hasn't failed in at least a few days.  WTI has soared 5.6% this week.

S&P 500 contracts were little changed as of 7:45 a.m. ET, after earlier gaining as much as 0.4% and closing 0.2% higher on Monday. Nasdaq 100 futures slid 0.2% after the tech-heavy benchmark lost 0.7% on Monday following strong gains over the previous two weeks. European stocks advanced along with Asian equities and the dollar traded lower as fears of broader contagion from the banking turmoil eased.

According to JPM, If bank contagion fears subside, we may see a resurgence in both bond yields and commodities as growth, before the banking crises, was stronger than expected led by the US and a reopened China. "However, banking crises typically have wide-ranging, and negative, impacts on growth and employment." Today’s macro data focus includes inventories, housing prices, regional mfg updates, and Consumer Confidence. Keep an eye on the confidence number as that can impact spending.

In premarket trading, Alibaba shares soared 9% after the Chinese e-commerce company planned to split into six units that will individually explore IPOs. Shares in fellow Chinese ADRs also rallied. First Republic Bank gained 3.1% adding to a 12% jump on Monday after First Citizens BancShares’s agreement to buy Silicon Valley Bank reassured investors in regional lenders. PVH climbed 12% in premarket as the owner of Calvin Klein and Tommy Hilfiger issued stronger-than-expected earnings forecasts. Lyft rose as much as 5.2% after the ridesharing company appointed David Risher as CEO. Here are some other notable premarket movers:

  • Array Technologies gains 3.7% after Truist Securities raises the solar equipment manufacturer to buy from hold, saying it has made significant progress addressing past challenges related to its product portfolio, execution and margin structure.
  • Carnival Corp. is raised to equal-weight from underweight at Wells Fargo as the cruise operator has low near-term refinancing risk, its business in Europe is holding up well, and its annual Ebitda forecast is reasonable. Its shares gain 1.7% after dropping 4.8% on Monday following its earnings report.
  • Ciena Corp. shares are up 3.2% in premarket trading after Raymond James upgraded the communications equipment company to strong buy from outperform.
  • Occidental Petroleum advances as much as 2.2% after being upgraded to outperform from market perform at Cowen, with the broker saying the oil and gas company stands out for its “superior” exposure to oil pricing, share support, capital structure and differentiated catalyst rich profile. .
  • PVH shares surge 12% after the parent company of Calvin Klein and Tommy Hilfiger issued stronger-than-expected forecasts for revenue growth and reported fourth-quarter earnings per share that beat estimates. Analysts found the company’s performance to be strong, flagging the beat to EPS as well as the strong outlook. .
  • Viking Therapeutics said it plans to initiate a Phase 2 study of VK2735 in patients with obesity in mid-2023 based on Phase 1 trial results. Shares gain 50%.
  • Virgin Orbit fell more than 9.5% after the launch provider placed workers on furlough as it seeks rescue financing or bankruptcy.

"For now, it looks like the major stress around the banking crisis is calming down and markets can switch back to monitoring the inflation-recession dynamics," said Marija Veitmane, senior multi-asset strategist at State Street Global Markets in London.

As jitters in the banking sector subside, investors are again turning their attention to economic fundamentals and the outlook for Federal Reserve policy. Swaps have meanwhile priced in a more than 50% probability of a rate hike at the next meeting; they continue to expect sharp easing later however, with pricing suggesting the policy rate will slide to around 4.3% in December, down from around 4.95% in May.

Not all agree. “We see major central banks moving away from a ‘whatever it takes’ approach, stopping their hikes and entering a more nuanced phase that’s less about a relentless fight against inflation but still one where they can’t cut rates,” strategists at BlackRock Investment Institute, including Wei Li and Alex Brazier, wrote in a note.

Hugh Gimber, global market strategist at JPMorgan Asset Management, also doesn’t foresee rate cuts anytime soon, even if hikes pause, and cautions against stock-market optimism on it. “I think the market is right to price a Fed pause,” he said in an interview on Bloomberg TV. “The question here is how big the feed through from a deterioration in lending standards is to really get inflation lower towards target, and I’m not that convinced we will see that very quickly. I think we would need a pretty significant economic shock to get there in 2H. Rate cuts are more of a 2024 story.”

European stocks are in the green although they’ve pared gains since the open as investors remain cautious amid risks to the global financial system. The Stoxx 600 has trims gains to 0.2% while Deutsche Bank swings to a ~2% fall from from ~2% rise. Energy, miners and autos are the strongest-performing sectors. Here are the most notable European movers:

  • GSK gains as much as 0.9% after it announced positive results from an endometrial cancer drug trial. Shore Capital describes the published data as “promising”
  • Ocado shares rise as much as 5.7% after the online grocer’s retail joint venture with Marks & Spencer beat sales expectations in the first quarter
  • Zalando shares rise as much as 3.2% as HSBC upgrades the online fashion retailer to buy from hold, saying its momentum is moving in the right direction
  • Marks & Spencer shares gain as much as 3.1% as Credit Suisse hikes its price target, saying the UK retailer’s recovery momentum is building
  • Eurocash jumps as much as 11% after the retailer posted record 4Q Ebitda of 308m zloty and cut debt ratios, seen by analysts as a soothing signal
  • Telecom Italia shares rise as much as 3.4% after Bloomberg reported that Italian state-backed lender CDP plans to raise its offer for the carrier’s landline network
  • Diageo shares slip as much as 0.9% after the British distiller said Ivan Menezes plans to retire as chief executive officer, which analysts say is a loss
  • Embracer shares slump as much as 15%, after the video-game maker said licensing deals with several industry partners are unlikely to be completed before the month ends
  • Norma shares fall as much as 15% as Baader highlights the tech hardware firm’s conservative FY23 margin outlook due to ongoing burdens from efforts to restructure
  • CMC Markets falls as much as 6.3%, adding to a 21% drop Monday when the online trading company released a downbeat earnings update late in the session
  • Schibsted shares drop as much as 9.6% as a weaker short-term guidance for the Norwegian media and classified advertising group offsets higher longer-term targets
  • Synthomer shares drop as much as 19% with Morgan Stanley saying it sees further consensus downgrades ahead for the UK chemicals firm following its FY results

Elsewhere in markets, Asian stocks gained as a lull in new developments in the banking sector gave investors a chance to adjust positions and assess whether the Federal Reserve will lower rates to buttress the US economy.  The MSCI Asia Pacific Index rose as much as 0.9%, halting a two-day losing streak. A sub-gauge of financial shares jumped more than 1% as they followed US peers higher. Australia, Japan and South Korea advanced. Hong Kong’s Hang Seng Index gained about 1%, while China’s mainland indexes fluctuated. “Asia still remains relatively well insulated from the latest round of US/European bank turmoil,” Citigroup analysts including Johanna Chua wrote in a note. “Direct exposure of Asia to the affected financial institutions is very limited.” Asia’s regional equity gauge has climbed more than 2% over the past week as US bank shares regained their footing after tumbling last week and fanning fears of a looming economic slowdown. Doubleline Capital’s Jeffrey Gundlach said on CNBC that he expects a US recession to start in a few months, and that the Federal Reserve will need to respond “very dramatically.”

Japanese stocks rose for a second day as concerns around financial institutions cooled after First Citizens BancShares Inc. agreed to buy failed Silicon Valley Bank.  The Topix rose 0.2% to close at 1,966.67, while the Nikkei advanced 0.2% to 27,518.25. Sumitomo Mitsui Financial Group contributed the most to the Topix gain, increasing 2.7%. Out of 2,159 stocks in the index, 799 rose and 1,232 fell, while 128 were unchanged. “Overall risk tolerance has increased now that the Silicon Valley Bank situation appears to have calmed down,” said Ryuta Otsuka, strategist at Toyo Securities. “However, it is hard to expect large market moves in Japan as we are approaching the end of the fiscal year.”

Australian stocks extended rose with the S&P/ASX 200 index rising 1% to close at 7,034.10, extending gains for a second session, boosted by mining shares and banks. Lithium miners, some of the benchmark’s most shorted names, rallied after Liontown rebuffed a takeover bid from Albemarle.  Equities across Asia climbed, US stock futures edged higher and the dollar declined as fears of broader contagion from the banking turmoil eased. Investors await Australia’s CPI print due Wednesday.  In New Zealand, the S&P/NZX 50 index rose 1.4% to 11,771.27

Stocks in India were mostly lower on Tuesday as key gauges headed for their fourth consecutive monthly decline amid tepid sentiment for global equities.  The S&P BSE Sensex fell 0.1% to 57,613.72 in Mumbai, while the NSE Nifty 50 Index declined 0.2%. The benchmark gauge has slipped about 2.1% this month and is on course for its longest losing monthly streak since Feb. 2016. Software major Infosys contributed the most to the Sensex’s decline, decreasing 0.8%. Out of 30 shares in the Sensex index, 11 rose, while 19 fell. All 10 companies related to the Adani Group fell, led by a 7% plunge in flagship firm Adani Enterprises after a newspaper report said the conglomerate will probably seek more time to repay a $4 billion loan it took out last year.  Foreign investors have been buyers of $1.3b of local shares this month through March 24, mainly on back of GQG Partners’ stake purchase in Adani companies. “Barring gains in select banking and metal stocks, other sectors witnessed profit-taking as caution prevailed ahead of the F&O expiry on Wednesday,” Kotak Securities analyst Shrikant Chouhan said.

In FX, the Bloomberg Dollar Spot Index slipped 0.1%, marking its eighth day of declines in the past nine sessions, weighed by a jump in the yen on domestic demand ahead of the fiscal year-end in Japan.  Exporters in Japan and Australia added to the selling of the dollar as they increased hedging to cover prior long positions in the greenback, Asia- based FX traders said. The New Zealand dollar and Japanese yen are the best performers among the G-10s while the Swiss franc is the weakest.

In rates, the five-year Treasury yield rises as much as 7 basis points to 3.67%, while the two-year yield climbs 4 basis points to 4.04% after sliding as low as 3.89% earlier in the session; a selloff in Treasuries since the start of the week has lifted most yields from six-month lows reached on Friday. 10-year yields around 3.55%, cheaper by 2bps on the day with bunds lagging by additional 5bp in the sector; 2-year yields cheaper by around 7bp on the day, remain above 4% level vs. Monday’s 3.954% auction stop. As BBG's Beth Stanton notes, Monday's poorly-bid 2Y auction is now under water vs its 3.954% stop with May rate hike back in favor. Auction cycle continues with $43b 5Y at 1pm. WI yield 3.65% is between last two 5Y stops. The US auction cycle resumes with $43b 5-year note sale at 1pm, follows Monday’s poor 2-year result; WI 5-year at 3.63% is ~48bp richer than February’s stop-out. German two-year borrowing costs are up 12bps.

Traders are now betting on a roughly 50/50 chance that the Fed will deliver a final quarter-point hike in May, followed by a similar-sized cut in September; market pricing reflects a diminishing outlook for a series of cuts in the coming months, and a growing view that the Fed may keep rates on hold for longer. BlackRock sees the Fed continuing to raise interest rates despite traders betting otherwise as fears of a banking crisis convulse markets. “We don’t see rate cuts this year – that’s the old playbook when central banks would rush to rescue the economy as recession hit,” its strategists write in a note. “We see a new, more nuanced phase of curbing inflation ahead: less fighting but still no rate cuts.”

In commodities, crude futures advance with WTI up 0.5% to trade near $73.15. Spot gold falls 0.3% to around $1,951. European and US gas benchmarks diverge slightly in European trade; Morgan Stanley writes that “prices likely still need to move lower to incentivize an adequate supply response, but we may be approaching the bottom”.

Looking to the day ahead, we will have a number of data releases from the US including the Conference Board consumer confidence, the Richmond Fed manufacturing index and business conditions, the Dallas Fed services activity, the January FHFA house price index, and February’s wholesale and retail inventories and advance goods trade balance. We will also have Italy’s March manufacturing and consumer confidence as well as economic sentiment data, and from France the March manufacturing and consumer confidence data. The BoE’s Bailey will testify today on the Silicon Valley Bank crisis, and we will also hear from ECB’s Muller. Finally, we will have earnings releases from Micron, Walgreens Boots Alliance and Lululemon.

Market Snapshot

  • S&P 500 futures little changed at 4,009.00
  • STOXX Europe 600 up 0.3% to 446.06
  • MXAP up 0.6% to 159.53
  • MXAPJ up 0.6% to 512.94
  • Nikkei up 0.2% to 27,518.25
  • Topix up 0.2% to 1,966.67
  • Hang Seng Index up 1.1% to 19,784.65
  • Shanghai Composite down 0.2% to 3,245.38
  • Sensex little changed at 57,596.88
  • Australia S&P/ASX 200 up 1.0% to 7,034.09
  • Kospi up 1.1% to 2,434.94
  • German 10Y yield little changed at 2.30%
  • Euro up 0.2% to $1.0818
  • Brent Futures up 0.5% to $78.49/bbl
  • Gold spot down 0.2% to $1,952.30
  • US Dollar Index down 0.17% to 102.69

Top Overnight News

  • Alibaba plans to split its $220 billion business into six main units encompassing e-commerce, media and the cloud, each of which will explore fundraising or IPOs when the time's right. Group CEO Daniel Zhang will head up the cloud intelligence division, a nod to the growing role AI will play in the e-commerce leader's portfolio in the long run. BBG
  • Binance’s CEO Changpeng Zhao shot back at the CFTC, calling its lawsuit over alleged violations of derivatives regulations "unexpected and disappointing," given compliance efforts and cooperation with regulators. His firm doesn't trade for profit or manipulate the market, he said. The suit has "an incomplete recitation of facts." BBG
  • China has significantly expanded its bailout lending as its Belt and Road Initiative blows up following a series of debt write-offs, scandal-ridden projects and allegations of corruption. A study published on Tuesday shows China granted $104bn worth of rescue loans to developing countries between 2019 and the end of 2021. The figure for these years is almost as large as the country’s bailout lending over the previous two decades. FT
  • Semiconductor companies seeking federal grants under the Chips Act could face a tough decision: take Washington’s help to expand in the U.S., or preserve their ability to expand in China. The Biden administration last week proposed new rules detailing restrictions chip companies would face on operations in China and other countries of concern if the companies accept taxpayer funding. WSJ
  • Balances at the Fed's RRP facility climbed, even as rates in the private market rose as much as 15 bps above the central bank's offering yield. Ninety-eight counterparties parked $2.22 trillion at the RRP, up $1.7 billion from Friday. BBG
  • The Federal Reserve’s top official on banking supervision has blamed the collapse of Silicon Valley Bank on a “textbook case of mismanagement”, saying the board of the US central bank had been briefed on the troubles at the California lender in mid-February. FT
  • The Treasury's top domestic policy official Nellie Liang will tell Congress regulators are ready to repeat steps taken after recent bank failures. She testifies today with the Fed's chief of banking supervision, Michael Barr, and FDIC head Martin Gruenberg. The ECB's top oversight official urged global scrutiny of the CDS market. And BOE boss Andrew Bailey said UK banks are strong. BBG
  • Calm returned to Israeli cities Tuesday and protests against Israeli Prime Minister Benjamin Netanyahu’s judicial overhaul dispersed after the premier agreed to suspend the controversial plan and Israeli President Isaac Herzog offered to host compromise talks between the two sides. WSJ
  • DIS has eliminated its next-generation storytelling and consumer experiences unit, the small division that was developing metaverse strategies, according to people familiar with the situation, as part of a broader restructuring that is expected to reduce head count by around 7,000 across the company over the next two months. WSJ
  • In the battle for the biggest prize in China’s trillion-dollar pension market, BlackRock Inc. and other global firms have little chance of attracting clients like Judy Deng: BBG
  • The Federal Deposit Insurance Corp. stuck to its guns and didn’t offer bailouts to keep two lenders from collapsing. Instead, it struck deals that included millions of dollars of sweeteners for the acquiring banks that sent their stocks soaring: BBG
  • The US took its most forceful move yet on Monday to crack down on crypto exchange Binance Holdings Ltd. and its chief executive officer Changpeng Zhao: BBG

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mixed with a mild positive bias as global banking sector fears continued to dissipate and with early advances led by energy after the recent surge in oil prices although gains were capped in the region as North Korean nuclear rhetoric stoked geopolitical concerns. ASX 200 was boosted amid strength in the commodity-related sectors with outperformance in energy after oil prices notched the largest daily gain since October and financials were also lifted as Australia downplayed the risks to domestic banks from the recent global banking issues. Nikkei 225 was indecisive despite Japan reiterating plans for a JPY 2.2tln economic stimulus package with trade stuck in a narrow range near 27,500 after the nuclear rhetoric by North Korea which called for the scaling up of weapons-grade nuclear materials and included similar language used before its last nuclear test in 2017. Hang Seng and Shanghai Comp. were choppy ahead of key earnings results and after PBoC liquidity efforts.

Top Asian News

  • China's Foreign Ministry said Premier Li Qiang met with foreign representatives at the China Development Forum in Beijing on Monday and met with executives including Apple (AAPL) CEO Cook, while Li told executives China will unswervingly expand its opening up, according to Reuters.
  • US and Japan reached a trade deal for critical EV battery minerals in which the deal prohibits enacting export restrictions on lithium, cobalt, nickel, manganese and graphite, according to US officials. Furthermore, the deal includes provisions to combat non-market practices, while access for Japanese automakers to the battery minerals portion of USD 7,500 in US EV tax credit depends on the tax guidance this week from the US Treasury.
  • China is reportedly aiming to set up 30+ key auto chips standards by 2025, according to the Ministry of Industry and Information Technology.
  • A magnitude 5.7-5.9 earthquake occurred offshore Eastern Aomori Prefecture, Japan; NHK says it has a prelim. magnitude of 6.1; no tsunami warning issued.

European bourses were initially firmer across the board in a continuation of the APAC tone, though benchmarks have since eased from best and are flat/mixed. Sectors are mixed with Energy outperforming while Banking names were firmer but have eased off of best levels and incrementally into the red alongside the broader benchmarks throughout the morning. Stateside, futures are mixed/flat, though with the bias inching further into the red, as the region awaits todays Senate Banking Committee hearing on the recent banking turmoil with Fed' Barr in attendance. Meta Platforms Inc. (META) plans to lower some bonus payouts and will more frequently assess employee performance, according to an internal memo, part of a sweeping revamp of the social-media company that includes large head-count reductions, WSJ reports.
Alibaba (BABA/9988 HK) business unit can reportedly pursue fundraising and IPOs when ready, according to Bloomberg; Alibaba to restructure into six main business divisions.

Top European News

  • Kantar UK Supermarket update (Mar): Grocery price inflation has climbed again to reach 17.5% over the four weeks to 19 March 2023, a new record based on our latest market data.
  • ECB's Muller says inflation is slowing but it is too early to declare a victory.


  • ECB's Enria says current events confirm that strong, demanding supervision is needed more than ever. Adds, there have been some fast outflows of bank deposits in some cases.
  • BoE's Bailey says does not think any of the features of recent banks issues are causing stress in the UK; Ramsden says will keep a close eye on bank funding costs.
  • US Treasury official Liang said the US government will use tools to prevent banking contagion again if warranted and that the US financial system is significantly stronger now due to stronger capital and liquidity requirements, while she added the US must ensure that banking regulations and supervision are appropriate for today's risk and challenges, according to her prepared testimony, according to Reuters.
  • French PNF Financial Prosecutors says searches are underway at five banking/financial firms located within Paris and the Paris La Defense district re. a tax probe, German prosecutors assisting. Societe General (GLE FP) confirms its offices are being searched.
  • S&P says they are yet to see any meaningful contagion for APAC from the US regional banks/Credit Suisse (CSGN SW) turmoil.


  • The USD has been incrementally softer throughout the morning within relatively narrow 102.52-102.76 parameters, most recently the DXY has attempted to pare initial downside.
  • Action which comes to the mixed fortune of peers, with AUD, NZD and JPY outperforming given the risk tone and as the JPY attempts to recover from Monday's pressures; holding below 0.67, 0.625 and above 131.00 respectively.
  • CHF resides as the laggard, with downside seemingly stemming from the risk tone rather than any fresh Swiss banking concern, EUR/CHF above 0.99 to a 0.99300 peak.
  • In close proximity is the CAD which is unable to benefit from crude upside while GBP and EUR are contained around 1.08 and 1.23 respectively vs USD with Central Bank speak thus far not moving the dial.
  • Citi month-end model: Prelim. estimate points to moderate USD selling vs all major currencies ex-EUR, via Reuters. Click here for more detail.
  • PBoC set USD/CNY mid-point at 6.8749 vs exp. 6.8737 (prev. 6.8714)

Fixed Income

  • EGBs are under pressure in a continuation of the firmer risk tone from APAC trade; however, benchmarks are off worst levels as equities inch into the red.
  • Specifically, Bunds are below 136.00 with the associated 10yr yield firmly above 2.30% though yet to breach 2.35%.
  • Gilts and the EZ periphery are in-line with mentioned core counterparts and have been unaffected by numerous Central Bank officials where the focus has been on recent banking turmoil.
  • Supply wise, the Italian and German sales passed without fanfare and were well-received overall though demand was slightly softer when compared to the prior outings.


  • Crude benchmarks continue to climb aided by the softer dollar and the latest geopolitical tensions re. N. Korea; WTI and Brent holding above USD 73/bbl and USD 78/bbl respectively.
  • European and US gas benchmarks diverge slightly in European trade; Morgan Stanley writes that “prices likely still need to move lower to incentivize an adequate supply response, but we may be approaching the bottom”.
  • Spot gold is pressured by the risk tone and failing to benefit from the softer USD with the yellow metal below the USD 1959/oz 10-DMA and holding around USD 1950/oz currently, base metals conversely are modestly firmer.
  • Russian Deputy PM Novak says the domestic fuel and energy complex is sustainable despite challenges, hopes to agree on key contract terms for the Power of Siberia 2 gas pipeline to China this year. Russia should look to produce at least 100mln/T of LNG per year by 2030.


  • Russian Defence Ministry said it fired supersonic anti-ship missiles at a mock target in the Sea of Japan.
  • North Korean leader Kim guided the nuclear weaponisation programme and inspected nuclear trigger technology during a recent simulation. Kim also called for constant efforts to improve nuclear capability and said the country should be fully ready to use nuclear weapons at any time, while he called for the scaling up of weapons-grade nuclear materials to exponentially increase nuclear weapons arsenal. North Korea also alleged that US and South Korea military drills involving an air carrier are aimed at pre-emptive nuclear strike and said that US anti-North Korean activities are intensifying to unacceptable levels, according to KCNA.
  • North Korea is reportedly preparing to resume foreign diplomatic activity after three years of COVID isolation, according to FT; North Korean officials recently resumed travels to Russia and China.
  • Belarus' Foreign Minister says they have been forced to take steps ensuring security in the face of NATO potentially increasing within neighbouring nations, via Tass.


  • Binance CEO said the CFTC complaint appears to have an incomplete recitation of the facts and they do not agree with the issues alleged in the complaint. Binance CEO said they intend to respect and collaborate with US and other regulators around the world, while he added that does not trade for profit or manipulate the market under any circumstances, according to Reuters.

US Event Calendar

  • 08:30: Feb. Advance Goods Trade Balance, est. -$90b, prior - $91.5b, revised -$91.1b
  • 08:30: Feb. Retail Inventories MoM, est. 0.2%, prior 0.3%
    • Wholesale Inventories MoM, est. -0.1%, prior -0.4%, revised -0.3%
  • 09:00: Jan. FHFA House Price Index MoM, est. -0.2%, prior -0.1%
  • 09:00: Jan. S&P Case Shiller Composite-20 YoY, est. 2.55%, prior 4.65%
    • S&P/Case-Shiller US HPI YoY, prior 5.76%
    • S&P/CS 20 City MoM SA, est. -0.50%, prior -0.51%
  • 10:00: March Conf. Board Consumer Confidence, est. 101.0, prior 102.9
    • Expectations, prior 69.7
    • Present Situation, prior 152.8
  • 10:00: March Richmond Fed Index, est. -10, prior -16
  • 10:30: March Dallas Fed Services Activity, prior -9.3

Central Banks

  • 10:00: Fed’s Barr Appears Before Senate Banking Panel

DB's Jim Reid concludes the overnight wrap

After a hectic 2 and a half weeks that has felt like a year, the week has started on a much calmer footing. I'm on holiday for a couple of weeks from Thursday so I'm hoping that I don't have to do zoom meetings from the ski slopes. My ski outfit and technique won't make that a pretty sight.

As we highlighted in our CoTD yesterday (link here) we have to be careful not to fight the battle of the last war. Large banks in the US and Europe are completely different entities than they were going into the GFC. For large US banks for example, securities and loans/leases on their balance sheets as a % of deposits are lower than when our data starts in 1985 and at below 100% are massively down from their GFC peaks of over 150%. We don't have the same long term data for Europe but the declines since the GFC are of similar magnitudes.

In contrast corporates are more levered now than during the GFC and this cycle could ultimately be more corporate default focused vs financials as per say 2001-2002 rather than 2008-09. See Steve Caprio's full note here for more on this and how corporate spreads are too tight to financials now.

So no new news was good news yesterday and some risk premium was removed from the market. This was most evident in bonds with US 2yr and 10yr yields up +22.9 bps and +15.4bps respectively. The S&P 500 was up +0.80% in the first hour of trading but did retrace the entire move back to flat before rallying in the US afternoon to finish with a an overall modest gain of +0.17%, whilst the STOXX 600 climbed +1.05%. US banks led the US move higher, having traded off their lows from last week, with the S&P 500 banks index up +3.05%. European banks were earlier +1.69% higher.

Narrowing in, First Citizens jumped 49% at the market open after its agreement to buy SVB Financial Group’s Silicon Valley Bank, ending the day up by +53.74%. First Republic Bank similarly jumped at the open by +27.45% after a Bloomberg report that US authorities were considering an expansion to their emergency lending facility, the Bank Term Funding Program, that had been created on March 12 with the collapse of SVB and Signature Bank. Against this backdrop, the gauge of regional US banks, the KBW index, closed up +2.54% yesterday, with the leaders including First Republic (+12.14%), Comerica (+5.40%) and KeyCorp (+5.31%).

Improving risk sentiment saw investors pare back their expectations of Fed rate cuts, as the implied rate for the Fed’s May meeting gained +9.2bps, bringing it to 4.950%. In other words, fed futures are now pricing in a 53% chance of a +25bps hike in May. For December’s meeting, markets trimmed their expectations of rate cuts from over -94bps on Friday to nearly -74bps, as the implied rate rose +29.5bps to 4.206%.

Back on this side of the pond, the German March Ifo business confidence index printed above expectations at 91.2 (vs 88.3 expected), and up from 88.5 for February. The other two individual components of the release also beat expectations, with business climate rising to 93.3 (vs 91 expected) and current assessment at 95.4 (vs 94.1 expected). Although the Ifo survey typically demonstrates less sensitivity to financial market uncertainty relative to other surveys coming from Germany such as the ZEW survey, the release is consistent with last Friday’s PMIs that suggested the Eurozone economy remains in, or at least was in decent shape, before the banking crisis hit.

Consequently, the DAX outperformed relative to the broader STOXX 600 index, up +1.14%, whilst the STOXX 600 advanced by +1.05%. For the latter, all major sectors were in the green, with sector leaders including health care (+1.93%), utilities (+1.31%) and autos (+1.89%). The CAC also gained yesterday, up by +0.90%. Following from Friday’s jitters about European banking sector stability, ECB’s Simkus emphasised that ‘bank liquidity, capitalisation (are) high in euro area.’ ECB’s De Cos echoed this sentiment, stating ‘euro-zone banks (are) well-prepared for adverse scenarios’.

We also heard from several other ECB’s speakers yesterday, as ECB’s Schnabel stated she had pushed for the ECB statement to say that more hikes were a possibility as opposed to the verbal assurance that had been made by President Lagarde. ECB’s Centeno’s comments were more dovish, as he stated that they “don’t see long-term inflation expectations de-anchoring”, with “no signs of second-round effects in wage-setting.” Markets moved to price in a modestly higher terminal rate as Eurozone overnight index swaps for July were up +7.5bps bringing the rate to 3.321%. The rate for year-end also increased, up +11.5bps to 3.226%, pricing in a 1 in 3 chance of a -25bps rate cut by December. Against this backdrop, yields across the German sovereign yield curve were up yesterday, with the 10yr bund yield climbing +9.8bps higher bringing the yield to 2.227%. The 2yr yield gained +12.8bps to 2.521%

Asian equity markets are mostly higher overnight. As I type, the Hang Seng (+0.60%), the KOSPI (+0.44%) and the Nikkei (+0.07%) are higher but with stocks in mainland China mixed with the CSI (-0.16%) edging lower while the Shanghai Composite (+0.05%) is oscillating between gains and losses. US stock futures are a little higher with contracts tied to the S&P 500 (+0.16%) and NASDAQ 100 (+0.17%) printing mild gains. Meanwhile, yields on 10yr Treasuries (-1.89bps) are slightly lower, trading at 3.51% while 2Yr Treasuries (-3.5bps) are trading at 3.96% as we go to press.

In early morning data, retail sales in Australia rose +0.2% m/m in February, in-line with market expectations, down from a revised +1.8% increase in January, signifying that households are reining in spending in response to higher interest rates. The subdued data adds to the case for a pause by the Reserve Bank of Australia (RBA) at its April 4th meeting. Meanwhile, the CPI data scheduled to be released tomorrow will be of note for the central bank.

Turning to commodities, WTI crude futures performed strongly yesterday, rising +5.13% to over $72.81/bbl, whilst Brent crude gained +4.17% to $78.12/bbl. European natural gas futures also gained +3.49% yesterday. The rally in energy prices was due to both supply-side and demand-side pressures. On demand, the rally in bank stocks and purchase of SVB seemed to ease concerns of a wider financial crisis. Meanwhile, a legal dispute between the Iraqi semi-autonomous region of Kurdistan and Turkey has put about 400,000 bbl/day of exports in limbo. This come as French refineries are running at a fraction of normal capacity due to the ongoing protests in the country. A Bloomberg report had as much as 80% of the nation’s crude-processing capacity stalled.

Finally, yesterday also saw the release of the Dallas Fed Manufacturing Activity for March which fell below expectations at -15.7 (vs -10 expected). This was a further decline from -13.5 last month as perceptions of broader business conditions deteriorated over the month.

Now looking to the day ahead, we will have a number of data releases from the US including the Conference Board consumer confidence, the Richmond Fed manufacturing index and business conditions, the Dallas Fed services activity, the January FHFA house price index, and February’s wholesale and retail inventories and advance goods trade balance. We will also have Italy’s March manufacturing and consumer confidence as well as economic sentiment data, and from France the March manufacturing and consumer confidence data. The BoE’s Bailey will testify today on the Silicon Valley Bank crisis, and we will also hear from ECB’s Muller. Finally, we will have earnings releases from Micron, Walgreens Boots Alliance and Lululemon.