Goldman Sachs no longer expects a March Fed hike as the SIVB fallout continues - Newsquawk Euro Market Open
- Fed said it is to provide liquidity to US depository institutions in which each Federal Reserve bank would make advances to eligible borrowers.
- Goldman Sachs said it no longer expects the Fed to hike rates at the March meeting in light of recent stress in the banking system; expects hikes in May, June and July.
- APAC stocks traded mixed with financials hit amid the fallout from the SVB collapse and subsequent failure of Signature Bank.
- US (ES +1.9%) and European (Eurostoxx 50 +0.4%) equity futures have been supported by efforts to support the financial system.
- DXY has been pressured and retreated beneath 104, US yields also softer as market scale back rate hike bets.
- Looking ahead, there is a lack of tier 1 highlights for today's session.
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- US stocks were pressured on Friday owing to the fears of contagion within the financial sector after regulators announced the collapse of SVB Financial (SIVB) and although they were yet to determine the extent of the bank's uninsured deposits, a February filing for year-ending December 2022 suggested that the amount of uninsured deposits was around USD 150bln, while Treasury officials attempted to calm fears, with officials expressing confidence in the resilience of the banking system and the tools available to regulators to address these types of events, which briefly helped stocks climb off lows, before closing around the trough.
- SPX -1.45% at 3,861, NDX -1.38% at 11,830, DJIA -1.07% at 31,910, RUT -2.95% at 1,773.
- Click here for a detailed summary.
- Fed is to hold a closed-door meeting under expedited procedures at 11:30EDT/15:30GMT on Monday with the meeting primarily for the review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.
- Goldman Sachs said it no longer expects the Fed to hike rates at the March meeting in light of recent stress in the banking system and sees US measures will provide substantial liquidity to banks facing deposit outflows and improve depositor confidence, while it still expects the Fed to hike 25bps in May, June and July with its terminal rate view now at 5.25%-5.50%.
- Fed announced that it is taking decisive actions to protect the US economy by strengthening public confidence in the bank system and approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank (SIVB). Fed said it is to provide liquidity to US depository institutions in which each Federal Reserve bank would make advances to eligible borrowers, taking as collateral certain types of securities. Fed said none of the losses by SVB will be borne by the taxpayer and it also declared a similar systemic risk exception for Signature Bank (SBNY) which was closed by its state chartering authority, while it was announced that all depositors will be made whole and will have access to all their money on Monday but shareholders and certain unsecured debt holders will not be protected.
- Fed said the core goal of the new program is to ensure bank depositors that their money is safe and there is no topline number on what will be available in the facility, while the aim is to meet demand from banks for liquidity as needed. Furthermore, it stated that the program will dramatically reduce any incentive for depositors to withdraw but owners of the two failed banks will lose their investments.
- US President Biden said the Treasury Secretary and National Economic Director reached a solution with banking regulators and the solution avoids putting taxpayer dollars at risk, while he added that American people and businesses can have confidence their bank deposits will be there when they need them, according to Reuters.
- US Treasury senior official said the steps on SVB (SIVB) were taken to stabilise the financial system and protect depositors, while they will work with Congress and financial regulators to further strengthen the financial system.
- Pershing Square's Ackman said more banks will likely fail despite the intervention, but we now have a clear roadmap on how the government will manage them.
- Canada's Superintendent of Financial Institutions took temporary control of Silicon Valley Bank's Canadian branch, according to a statement.
- Regional banks are most likely to prevail in the SVB sale process and large lenders such as JPMorgan Chase and Bank of America are likely to not be in the running to absorb SVB, while an ideal bidder would likely be a regional bank like PNC Financial, US Bank, Truist or Capital Bank, according to The Information. Furthermore, PNC Financial Group and Royal Bank of Canada were early suitors for Silicon Valley Bank but their interest has cooled, while it was also reported that the chances of Silicon Valley Bank or Signature Bank being acquired by a rival bank was unlikely as all potential buyers have so far walked away, according to people with direct knowledge of the matter cited by FT.
- BoE said on Friday that it is to apply to the court to place Silicon Valley Bank UK Limited into a bank insolvency procedure and that SVB UK’s other assets and liabilities will be managed in the insolvency by the bank liquidators. BoE noted that SVB UK has a limited presence in the UK and no critical functions supporting the financial system, while the firm will stop making payments or accepting deposits in the interim, according to Reuters.
- UK Chancellor Hunt said the UK is working at pace to minimise the fallout from the collapse of Silicon Valley Bank and will bring forward immediate plans to help SVB UK customers with cash flow needs, while Hunt said that they will come forward with solutions over SVB and that they want to find a solution that minimises or possibly avoids all losses for customers, according to Reuters.
- UK PM Sunak said that he will have something to say very shortly on SVB.
- SVB UK had nearly GBP 7bln in deposits when the BoE deemed it insolvent on Friday and the government seeks to tap Middle East money to buy out the Silicon Valley Bank unit, according to FT. it was also reported that Bank of London submitted a formal proposal for the UK arm of Silicon Valley Bank, while a separate report noted that HSBC (5 HK) emerged as a potential bidder as the government races to secure an 11th-hour rescue of Silicon Valley Bank UK, according to Reuters and Sky News.
- APAC stocks traded mixed with financials hit amid the fallout from the SVB collapse and subsequent failure of Signature Bank, although US equity futures were supported and there was also a gradual improvement in Asia following efforts to stabilise the financial system with bank deposits guaranteed and the Fed announced to make additional funding available to eligible depository institutions to assure that banks have the ability to meet the needs of their depositors.
- ASX 200 was lower with weakness seen across most industries including the top-weighted financials sector although closed off its lows owing to the resilience in commodity-related stocks and with money market rates pricing in over 75% probability of a pause at next month’s RBA meeting.
- Nikkei 225 retreated to beneath the 28,000 level with financial stocks dominating the list of worst performers.
- Hang Seng and Shanghai Comp. were positive with Hong Kong boosted by gains in tech after President Xi advocated strengthening science and technology at the closing remarks of the NPC and with Bilibili boosted following the inclusion of its Z shares to the Stock Connect, while the mainland was also kept afloat after China reported stronger-than-expected loans/financing data and surprisingly retained PBoC Governor Yi Gang as the head of the central bank.
- US equity futures were underpinned (ES +1.9%) by the US efforts to ease fears in the banking system.
- European equity futures are indicative of a marginally higher open with the Euro Stoxx 50 +0.4% after the cash market closed down 1.3% on Friday.
- DXY was pressured and retreated beneath the 104.00 level as short-end yields slid amid the banking sector stress which spurred Goldman Sachs to adjust its call for next week’s FOMC in which it now expects the Fed to pause, while the CME Fed Watch Tool still points to a 25bps hike but no longer sees any possibility for a 50bps move and money markets are also now pricing a terminal rate of below 5.10%.
- EUR/USD benefitted from the dollar weakness and with further momentum spurred after breaking through 1.0700.
- GBP/USD strengthened and reclaimed the 1.2100 handle with the UK working to minimise the fallout from the collapse of Silicon Valley Bank and is to bring forward plans to help SVB UK customers with cash flow needs.
- USD/JPY retreated and briefly dipped beneath the 134.00 level owing to the dollar weakness and haven flows.
- Antipodeans were firmer with the cyclical currencies underpinned alongside the improvement in risk appetite.
- PBoC set USD/CNY mid-point at 6.9375 vs exp. 6.9380 (prev. 6.9655)
- 10yr UST futures surged at the open in the fallout from the Silicon Valley Bank collapse and briefly tested the 114.00 level, although then pared most of the advances after the efforts by US authorities to instil confidence in the banking system in which it declared that all deposits will be guaranteed but said it will not bailout failed lenders.
- Bund futures were rangebound ahead of the ECB meeting this week where a 50bps hike is widely flagged.
- 10yr JGB futures remained firm and extended on their post-BoJ advances with the 10yr yield below 33bps.
- Crude futures were kept afloat albeit in a thin range with prices largely unmoved by the improvement in risk sentiment.
- Saudi Aramco achieved a record USD 161bln profit last year and its CEO Nasser said areas of interest for potential acquisitions include China and India. Aramco's CEO noted they are looking at major expansions and are looking at the global LNG market for potential opportunities, while he anticipates a healthy demand pick-up in China and India.
- Iran said its oil exports reached the highest level since the reimposition of US sanctions and that they exported 83mln bbls of oil more since 21st March 2022 compared with the same period the prior year, according to Tasnim.
- Spot gold gained amid the weaker dollar and with markets pricing a less aggressive Fed.
- Copper futures strengthened as risk appetite improved on measures by the US to avert contagion.
- MMG (MMG AT) announced that transportation of concentrate recommenced on March 11th after the removal of roadblocks and site operations are returning to full capacity at the Las Bambas copper mine in Peru, according to Reuters.
- Bitcoin was supported after the US guaranteed all deposits following the collapse of SVB and Signature Bank.
- Coinbase (COIN) said all client funds continue to be safe and accessible including USDC conversions which will resume on Monday.
NOTABLE ASIA-PAC HEADLINES
- China’s parliament officially approved senior government positions with Li Qiang as Premier, while Yi Gang will remain PBoC Governor and Liu Kun will remain Finance Minister, according to Xinhua.
- Chinese President Xi said China should implement a strategy of rejuvenating the country through science and education, while he added that they should work to achieve greater self-reliance, strength in science and technology, as well as promote industrial transformation and upgrading, according to Reuters.
- Chinese Premier Li said China needs to further enhance scientific and technological innovation capabilities, speed up construction of a modern market system and focus on high-quality development. Li said that China will unswervingly deepen reform and opening up, while he noted there are many favourable factors supporting China's economy but also said that China faces many difficulties this year and that it is not easy to achieve the 2023 growth target of around 5%.
- China’s NBS head Kang Yi said China’s economy still contains deep structural contradictions and problems.
- China reportedly privately suggested that the US consider a simultaneous visit by US VP Harris to China if House Speaker McCarthy decides to go to Taiwan, according to US sources cited by SCMP.
- China's city of Xi’an in the Shaanxi province revealed an emergency response plan last week that would enable it to shut schools, businesses and “other crowded places” in the event of a severe flu epidemic, according to CNN.
- Japanese BSI Manufacturing (Q1) -10.5% (Prev. -3.6%)
- Japanese BSI Large All Industry (Q1) -3.0% (Prev. 0.7%)
- Ukrainian President Zelensky said Russian forces suffered more than 1,100 dead in less than a week of fighting in Bakhmut, eastern Ukraine, according to Reuters.
- Russian Foreign Ministry said Russia’s position on the grain deal remains unchanged and that Russian representatives have not participated in any talks yet regarding extending the grain deal, according to Reuters.
- Iranian Foreign Minister said an initial agreement was reached with the US regarding exchanging prisoners, although a White House official said that Iranian claims of a US-Iran prisoner swap deal are false, according to Reuters.
- South Korea said that North Korea fired missiles from a submarine on Sunday morning and it was also reported that North Korean leader Kim convened a meeting with military leaders about practical war deterrence measures, according to Reuters and KCNA.
- Germany’s Verdi trade union called for a strike of security personnel at Berlin airport on Monday due to disputes regarding remuneration for working nights, weekends and bank holidays, according to Reuters.