MARKET WRAPS
Watch For:
Industrial Production and Capacity Utilization for February; Leading Indicators for February; University of Michigan preliminary Consumer Survey for March
Today's Headlines/Must Reads
Bank Failures, Like Earlier Shocks, Raise Recession Odds
First Republic Stock Falls Despite $30 Billion Big Banks Rescue Package
Silicon Valley and Capitol Hill Build an Anti-China Alliance
China to Cut Banks' Reserve-Requirement Ratio by 0.25 Percentage Point
Pro Take: Can the Fed Hold the Line on Job Losses in Its Inflation Fight?
Silicon Valley Bank's Distress Wasn't Reflected in Credit Ratings
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Opening Call:
Stock futures edged higher on Friday after the previous session's rally, with the issue of the health of the banking sector still in the spotlight.
Ahead of next week's Fed rate decision, there will be data on industrial production and consumer sentiment set for release.
"The decision for central banks is whether to target inflation or financial stability," CITI said. "We think they have more inflation fighting to do."
Stocks to Watch
Enzo Biochem agreed to sell its clinical labs division to Labcorp and its shares doubled in after-hours trading.
FedEx reported fiscal third-quarter earnings that easily topped analysts' estimates and the stock jumped 11% in premarket trading.
First Republic Bank was down 8% in premarket trading. The stock closed with a gain of nearly 10% on Thursday after a consortium of banks agreed to make uninsured deposits totaling $30 billion in the beleaguered bank.
United States Steel rose 6% in premarket trading after it issued better-than-expected first-quarter guidance on improving demand.
Economic Insight
S&P said it was still soon to assess the full impact from SVB's collapse to the U.S. economy, but for now the macroeconomic effects are likely to be limited.
The most likely contagion channel is consumer confidence, where uncertainty about the way current events might play out could dampen spending and demand.
"If widespread enough, the effects on consumption--particularly in services, which has remained strong--would hamper employment growth," S&P said.
As for monetary policy, central banks are expected to continue to increase interest rates, albeit the pace might be somewhat more moderate until the current turmoil in the banking sector ends, S&P said.
Forex:
The dollar dipped in Europe and could fall further as the Fed may soon pause its interest rate-rise cycle due to troubles in the U.S. banking sector, Swissquote Bank said.
The Fed could raise rates by a final 25 basis points before pausing. That was the expectation at the beginning of this year before the Fed's peak rate expectations shot up to 5.6% but that bet is "nearly dead," Swissquote Bank said.
"The impact of Fed tightening on banks could help to restrict borrowing from here and ease inflation, and need for further Fed action."
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The euro continued to strengthen but gains are likely to remain limited, UniCredit Research said.
"The lack of any forward guidance on future policy moves from the ECB is probably what is still preventing EUR/USD from benefiting further from the new rate hike."
It said the fact that EUR/USD is struggling to rise much above 1.0650 despite the rate rise indicates that upside potential for the euro remains modest for now.
Read Euro Vs Sterling Seen Driven by European Bank Developments
Bonds:
Bond yields were lower, as traders balanced worries about the banking sector with expectations about how high interest rates will go to combat inflation.
"Despite financial stability concerns, we expect a 25bp hike next week as inflation remains elevated," Societe Generale said.
That's the view of the market as well, with an 86% probability of a hike next week, according to the CME's FedWatch tool.
Energy:
Despite the recent oil price slump, JPMorgan maintains its view that prices should rise this year as the market tightens and China's demand bounces back.
"Oil demand is being repriced, but we see little change in fundamentals and are inclined to ride out financial sector volatility, keeping our price forecasts unchanged for now."
The bank points to an OPEC+ advisory meeting next month and the possibility that the U.S. may choose the present price slump to refill its strategic oil reserves as events to watch out for.
JPMorgan forecasts Brent prices at $89 a barrel in the second quarter and $94 in the fourth quarter.
Metals:
Base metals and gold prices were solidly higher, helped by a turnaround in global risk appetite following the latest news on First Republic Bank.
"Investor sentiment feels better heading into the weekend," Peak Trading Research said. As well as the moves from Wall Street, the European Central Bank dropping its commitment to keep raising interest rates at a steady pace was welcomed by the market, helping investors to move "risk-on," it added.
Aluminum
Prices for aluminum have become desensitized to shifts in Russian supply for the base metal, according to Fitch.
Last year's government sanctions and self-imposed bans from companies on Russian production have all but freed the price from effects of shifts in Russia's output, Fitch said.
It referred to the recent U.S. imposition of 200% tariffs on aluminum originating in Russia having little effect on prices, with just a 1.4% move higher on Feb. 27, the next trading day after the move.
It said that with the U.S. looking to localize production and Europe sanctioning Russian material it expects Russian aluminum output to fall by 3% this year on slowing global demand.
TODAY'S TOP HEADLINES
First Republic Stock Falls Despite $30 Billion Big Banks Rescue Package
Regional bank stocks fell early Friday even after the country's biggest lenders agreed to inject $30 billion in uninsured deposits into First Republic Bank.
The rescue plan, involving many of America's largest banks, including Bank of America (ticker: BAC), Citigroup (C), and JPMorgan Chase (JPM), initially brought some relief to shares of regional banks but that optimism appears to have been short-lived.
Silicon Valley and Capitol Hill Build an Anti-China Alliance
A group of Silicon Valley executives, including investor Peter Thiel, and Washington lawmakers are quietly mobilizing against China's involvement in the U.S. tech industry ahead of TikTok CEO Shou Zi Chew's Capitol Hill testimony next week.
They plan to meet for a private dinner on Wednesday to discuss China, national security and the intensifying competition between the tech sectors of the U.S. and China. Mr. Chew is scheduled to testify the following day.
U.S. Steel Stock Is Surging. Its Forecast Bodes Well for Other Steelmakers.
United States Steel's better-than-expected earnings guidance was boosting its shares and those of other steelmakers Friday. Higher prices for steel look set to last in a good sign for the sector as a whole.
United States Steel (ticker: X) gained 5% in premarket trading on Friday after it gave its first-quarter outlook. Nucor (NUE) was up 1.7% and Steel Dynamics (STLD) rose 1.6%.
Baidu Gains as Analysts Praise Ernie Bot Potential
Shares of Baidu are trading higher after analysts lauded the company's new Ernie Bot, an AI-powered chatbot that represents China's first rival to ChatGPT.
The Chinese search giant's Hong Kong-listed shares jumped as much as 15% in early trading Friday. That erased a 6.4% loss from a day earlier when investors sold shares after Baidu staged an event demonstrating its new chatbot in a series of prerecorded videos rather than in a live performance.
GE CEO Larry Culp agrees to $10 million cut in compensation
General Electric Co. Chief Executive Larry Culp has agreed to a cut in his compensation in response to shareholder feedback, according to a regulatory filing on Thursday.
"In response to prior shareholder feedback, the committee and Mr. Culp agreed to reduce his annual equity incentive grant for 2022 from a grant date fair value of $15 million to $5 million," the filing said.
China's PBOC to Cut Banks' Reserve-Requirement Ratio by 0.25 Percentage Point
China's central bank said Friday that it will lower the amount of deposits banks have to set aside, underscoring Beijing's efforts to kick-start economic growth this year.
The People's Bank of China said it would cut banks' reserve-requirement ratio by 0.25 percentage point, which will bring the weighted average RRR level for the whole banking system to 7.6%. The change will take effect March 27, the PBOC said in a statement.
Pro Take: Can the Fed Hold the Line on Job Losses in Its Inflation Fight?
The Federal Reserve believes it can hold the economy to 1.7 million job cuts as it cranks up interest rates to tame inflation. But can it? Some lawmakers had doubts even before the Silicon Valley Bank-triggered crisis.
And Johns Hopkins University economics professor Laurence Ball says he thinks the Fed's jobless estimate-published in December-is based on "the vision of optimists."
Surging Chinese Oil Demand Pushes Shipping Costs Sharply Higher
China is on an oil-supertanker hiring spree, a sign energy demand has sped up after the world's second-largest economy limped out of its Covid-19 lockdowns.
Traders carry crude to China, the world's biggest oil importer, in Eiffel Tower-size tankers called Very Large Crude Carriers that each lug two million barrels of oil. The cost of chartering the most coveted type of these tankers, featuring modern exhaust systems, has shot up to nearly $100,000 a day, ship brokers say. That is double the rate from a month ago.
Bank Failures, Like Earlier Shocks, Raise Odds of Recession
Banking-sector turmoil raises the odds that the U.S. economy, already widely seen as prone to recession, might actually tip into one.
(MORE TO FOLLOW) Dow Jones Newswires
03-17-23 0615ET
