Dollar and Bonds Gain, Stock Indices Flat on More Bank Fears

Financial markets remain concerned about Deutsche Bank even after assurances from authorities, with a flight to safety evident in US bonds and the Dollar. Deutsche Bank shares are down around 12% this week, after their credit default swaps spiked unexpectedly today (an indicator of stress). While no story has accompanied the move it nonetheless spooked markets.

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US Treasury Secretary Yellen convened an urgent meeting with the heads of top financial regulators today. Regional Fed Presidents Bullard and Bostic noted that the Federal Reserve sees the US banking system as "sound and resilient", but stressed the need for interest rate policy to slow inflation over banking concerns. European leaders also reiterated the strength of the banking industry, specifically in Germany and across Europe.

Dollar and Bonds stronger

• The broad S&P 500 index was flat at 3947, but the tech heavy NASDAQ was off 0.4% at 11,735
• The VIX, Wall Street’s fear index, rose to 23, after a period of calm
• The dollar index rose back to 103.1, up 0.6%, with £/$ 1.22 and €‎/S 1.08
• Yields on 2- and 10-year Treasuries fell back to 3.78% and 3.37%, respectively
• Gold was off 0.4% at $1,988, still well up year-to-date

Stronger global economics data

• Positive economic readings delivered today would normally support a hawkish Federal Reserve view, if not for the recent banking problems
• S&P Global’ Manufacturing PMI for March came in at a preliminary 49.3 reading, above the average trade estimate for 47.8, and up two points from February
• S&P’s Services PMI and Composite PMI both beat expectations as well at 53.8 and 53.3, respectively – the latter was the best reading in almost a year, with a reading above 50 that indicates expanding output
• Investment plans are being curbed by recent rate rises. US durable goods orders fell 1.0% in February, well below the forecast 0.2% monthly increase
• Durables excluding transportation were unchanged on the month, while orders placed with factories for business equipment rose slightly in each of the last two months

Commodities weaker, Strategic Petroleum Reserves low

• Speculative investments in commodities has been flooding towards the exits amid rising interest rates
• WTI crude oil is regained some of its losses this morning, but was still off 1% at $69.3 at time of writing
• The US Energy Secretary yesterday said that it "could take years" to refill the U.S. Strategic Petroleum Reserve, which has dipped markedly, rather than taking immediate advantage of current prices
• The Reserve was typically 650 million barrels as recently as the summer of 2020, but has now been depleted to 372 million barrels, a 40-year low
• The Biden Administration had previously signaled that the reserve could be refilled if prices were in the current price range (e.g., $67-72 million barrels)

Grains volatile on trading but absent fundamentals

• Grain prices had a wild ride today, with traders liquidating net long positions in soybeans and soy meal
• A random story that Russia was considering halting wheat exports sent the wheat prices skyrocketing
• US quarterly stocks and planted acreage intentions are published on March 31 and will give the agricultural complex more fundamental direction

Analysis by Arlan Suderman, Chief Commodities Economist. Read more of Arlan’s thoughts at StoneX Market Intelligence at https://my.stonex.com/