Stock Indices Gain on Moderating Bank Failure Fears

Fears of more failures in US regional banks were allayed after Silicon Valley Bank was purchased by First Citizens BancShares, Inc., easing contagion fears. There’s a cost to the bank failures – many of which were the product of poor decisions. But there’s a bigger cost to be paid by the erosion of confidence in the nation’s banking system. Investors hope that the recent actions by regulators have come a long way toward reinstating confidence in the banking system, although we still likely have some bumpy times ahead.

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Bank shares stabilize

• First Citizens BancShares bought all of SVB’s loans and deposits, while giving the Federal Deposit Insurance Corporation equity rights in its stock worth up to $500 million
• First Citizens also has an agreement with regulators to share losses to provide further protection against potential credit losses
• SVB’s failure is expected to cost the FDIC roughly $20 billion

Dollar and Bonds stronger

• The broad S&P 500 index was up 0.6% 3,995, and the tech heavy NASDAQ was flat at 11,822
• The VIX, Wall Street’s fear index, fell to 20.7
• The dollar index rose back to 102.9, off 0.3%, with £/$ 1.23 and €‎/S 1.08
• Yields on 2- and 10-year Treasuries rose to 4.00% and 3.53%, respectively\

FOMC speakers on tour …

• This week’s focus should shift to comments from several members of the Federal Open Market Committee – the policy making arm of the Federal Reserve – as they make public comments
• They will all be asked about the health of the US banking system, and the implications of the current instability for monetary policy
• The market is pricing in 75 to 100 basis points of cuts by the end of this year
• The Fed stated at its last meeting that it planned to raise rates at least one or two more times this year, and the market – sticking to its skepticism – is pricing in 35% odds of a rate hike in May, 28% odds of seeing one in June, and a first rate cut to come as early as July
• The market has been wrong about the Fed for the past year, but the strength of its conviction continues to grow
• That means that the Fed will either yield to the market’s expectations, or that the market will once again be disappointed and need to adjust

Commodities mixed, oil stronger

• Crude oil prices were 5.3% higher at midday, back to $73 per barrel
• The grain and oilseed sector are mostly higher as well
• Gold was off 1.4% at $1,957, indicating lower fear in markets

US real economy still strong

• Factory activity expanded modestly in Texas this month, after contracting in February, but other signals were mixed
• New orders for the Dallas Fed district were negative for the tenth consecutive month, but capacity utilization improved modestly
• Overall perceptions of business conditions continued to deteriorate in March, although the outlook for future conditions was slightly less negative this month

Chinese profits contract

• Today’s profit data out of China numbers do not speak well for a rebound of China’s economy following Covid
• China’s National Bureau of Statistics reported 17.5% decline in profits during the same two-month period
• Industrial profits contracted by 23% in the first two months of this year, according to our Shanghai office, well below market expectations of a 5% contraction

Analysis by Arlan Suderman, Chief Commodities Economist.

Read more of Arlan’s thoughts at StoneX Market Intelligence at https://my.stonex.com/