MARKET WRAPS
Watch For:
S&P CoreLogic Case-Shiller Home Prices Index for January; Conference Board -- Consumer Confidence for March; Fed's Michael Barr Testifies to Senate Banking Committee; Earnings from Jefferies, Walgreens Boots Alliance, Micron Technology and Lululemon Athletica.
Today's Top Headlines/Must Reads:
- Top Bank Regulators to Face Senate Questions Over SVB, Signature Collapses
- To Some Investors, Banks Look Like Bargains
- For Chip Makers, a Choice Between the U.S. and China Looms
- Multinationals Slam New EU Foreign-Subsidy Law's Reporting Rules
- U.S. and Japan Strike Deal on Minerals Used in Batteries for Electric Cars
- Kim Jong Un Says He Will Expand Production of Nuclear Material
Follow WSJ market coverage here
Opening Call:
Stock futures were higher on Tuesday as the bank angst continued to subside.
Nasdaq futures were underperforming as the calmer mood is seen reducing demand for those large technology stocks with sturdy balance sheets that have been considered safe havens in recent weeks.
"A relief ripple is helping stocks make some gains amid hopes that the volatility, which has wracked the banking sector, has eased off," Hargreaves Lansdown said.
"With contagion limited for now, hopes that the debacle will have less of an impact on global growth have ticked up a little. Reports that the flow of deposits from smaller lenders to larger banks in the United States has slowed also appear to have helped sentiment," Hargreaves added.
Deutsche Bank said "improving risk sentiment saw investors pare back their expectations of Fed rate cuts."
An important clue to the likely trajectory of Federal Reserve policy will come on Friday when the PCE inflation gauge for February will be published.
Fundstrat observed that the market had proved resilient "at a time when most investors are expecting stock indices to fall" and that traders should note the S&P 500 will soon be entering the usually bullish month of April.
Read Markets Expect Central Banks to Shift Focus Back to Inflation
Read Bank Credit Investors Likely to Stay Cautious Due to US Banking Sector Uncertainty
Stocks to Watch
Coinbase edged lower in premarket trading. The stock tumbled 7.8% in the previous session after the Commodity Futures Trading Commission sued crypto exchange operator Binance and its co-founder and Chief Executive Changpeng Zhao.
Exicure warned about its ability to continue as a going concern if it doesn't secure significant additional funds. Shares dropped 3.5% in after-hours trading.
First Citizens Bancshares fell 0.8% in premarket trading after soaring nearly 54% on Monday after the bank agreed to acquire large parts of Silicon Valley Bank's business.
Lyft said it is tapping a board member as its chief executive, and its two co-founders will step back from managing the company, following a report in The Wall Street Journal. Shares rose 4.5% in premarket trading.
PVH, the owner of the Calvin Klein and Tommy Hilfiger brands, topped fourth-quarter adjusted earnings and sales estimates. Shares rose 11.4% in premarket trading.
Virgin Orbit dropped 17.3% to about 44 cents after Dan Hart, CEO of the space launch startup, told employees via email the company would be extending unpaid furlough for majority of its workforce as talks for more funding continue, Reuters reported.
Economic Insight
The U.S. economy is showing signs of resilience, even as downside risks rise, S&P said.
"We now expect U.S. GDP to decline by 0.3 percentage points from its peak in first-quarter 2023 to its third-quarter trough," S&P said.
"Safeguards from the Fed and other regulators have stabilized conditions, " S&P said, but added banking concerns, including the collapse of Silicon Valley Bank, increase risks of a worse outcome.
"With a high degree of uncertainty, the fed funds rate is still expected to peak at 5.00%-5.15% by May."
Separately, S&P said the economic weakness in the U.S. will soften the job market later this year.
The recent disturbances in the banking sector will also add to a softer market, S&P said.
"Businesses will also need to trim payrolls, as seen in interest rate-sensitive sectors, as demand dries up in other industries," according to S&P.
The agency said "the current 3.6% unemployment rate is expected to peak at 5.4% earlier in 2025, then decline in late 2025."
Read Recession looks less likely for U.S., these economists say, but a 'slog' still lies ahead
Forex:
The dollar was lower in early European trading, as improved global risk sentiment reduced demand for safe haven assets, MUFG Bank said.
It follows some relief Monday for European banks and U.S. regional banks after news that First Citizens BancShares will buy much of failed Silicon Valley Bank, MUFG said.
An expected tightening in credit conditions resulting from recent banking sector troubles has prompted the market to lower its Fed interest rate rise expectations, it added.
"The tentative improvement in global investor risk sentiment at the start of this week leaves the dollar vulnerable to further weakness on the back of the recent sharp adjustment lower in U.S. yields."
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Sterling gained and was the third best-performing G10 currency in March after the Japanese yen and Swiss franc, boosted by a reversal of some investor pessimism towards the U.K. economy, MUFG Bank said.
The U.K. economy's resilience is keeping pressure on the Bank of England to raise interest rates, MUFG said.
Meanwhile, BOE Governor Andrew Bailey on Tuesday provided reassurance that U.K. banks are well placed to support the economy. "The comments leave open the possibility of one further 25 basis points hike at the next Monetary Policy Committee meeting on May 11," MUFG said.
Read Sterling Could Extend Gains Vs Dollar on BOE-Fed Divergence
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The euro could rise further as ECB members continue to signal further interest rate rises, Unicredit Research said.
"We still expect [EUR/USD] to recover even beyond the year-to-date peak of 1.1033, as we expect a progressive convergence in policy rates between the Fed and the ECB over the medium term."
Moreover, investors remain considerably net-long EUR/USD, expecting it to rise, showing no signs that confidence in the euro has been undermined by recent market turbulence affecting the eurozone banking sector, Unicredit said.
Bonds:
Volatility is the big "winner" in this banking crisis, Natixis said.
"Constantly on the lookout for the weakest link, markets seesawed in reaction to any news concerning banking sector issuers on both sides of the Atlantic," it said.
In this context, visibility on the evolution of the Federal Reserve's and ECB's monetary policies is much murkier, it added.
"For the time being, markets are sceptical about further rate hikes, yet central banks are sticking to their restrictive rhetoric about combating inflation,"Natixis said, adding, that logically, this divergence of views is stoking bond market volatility.
Read Banking Jitters Seem to Justify Bullish View on Rates, ING Says
Energy:
Crude futures wavered after registering their biggest gains since December, as the turmoil surrounding U.S. banks continued to drive moves in oil prices.
"Crude oil surged higher after investors were emboldened by promised support for the U.S. banking sector," ANZ Bank said.
Metals:
Metal prices were mixed in early London trading, with gold slightly firmer, as investors feel more optimistic about bank risks and oil's recovery is rippling through commodity and currency markets, Peak Trading Research said.
"Investors feel more optimistic about bank risks and crude oil's recovery is rippling through commodity and currency markets."
Rare Earths
The rare-earths market's reaction to Tesla saying it won't use rare earths in next-generation motors was overdone, according to Macquarie, which highlighted that no reliable high-performing magnets without neodymium have been used in EV manufacturing to date.
"Impacts would be limited in the short term."
Still, Macquarie expects a small market surplus near term, with rare-earths supplies likely to be boosted by higher mining and refining quotas in China. That prompted downgrades to the bank's rare-earths price forecasts.
TODAY'S TOP HEADLINES
New Shell CEO Faces Big Dilemma: Should the Company Pump More Oil?
HOUSTON-Wael Sawan knows he is about to make some people very unhappy.
The new chief executive of Shell PLC is in the midst of crafting his business plan for the London-based energy giant, including whether to increase oil production. Doing so would please many investors looking to build on last year's oil-and-gas bonanza, which produced record annual earnings for Shell.
Facebook Parent Plans Lower Bonus Payouts for Some Staff
Facebook parent Meta Platforms Inc. 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.
Employees who are given a rating of "met most expectations" in their 2023 year-end reviews are set to receive a smaller percentage of their bonus and restricted stock award due in March 2024, the social-media giant on Monday told managers in a memo viewed by The Wall Street Journal. The bonus multiplier for that grade has been cut to 65%, according to the memo. It was 85%, according to an internal document viewed by the Journal.
Adidas and Beyoncé to Part Ways After Ivy Park Sales Struggles
Beyoncé and Adidas AG have decided to end their fashion partnership, according to people familiar with the matter, splitting up after years of lackluster sales for her Ivy Park line of apparel.
The partnership will end after the company releases Ivy Park collections of merchandise that are already planned for this year, the people said. The Hollywood Reporter earlier reported that the two sides were breaking up.
Binance Sued by CFTC Over Evading U.S. Rules
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03-28-23 0617ET
