Stock futures rise as bank shares rally; Week ahead: Inflation data in focus as Fed rate bets fade; First Citizens agrees to buy Silicon Valley bank loans and deposits; US bank stocks rise, but deposit outflows accelerate and Israeli protests add pressure on Prime Minister Netanyahu.
Five things to know before the market opens on Monday, March 27:
1. — Stock futures rise as bank stocks recover
US stock futures rose on Monday, while the dollar steadied against global peers and bank stocks rose, as markets calmed on the sale of Silicon Valley Bank and reports of extended support from the US. national financial system in general.
Silicon Valley Bank Bridge, the remaining assets of failed SVB Financial held by the FDIC, were sold to First Citizens bank late Sunday in a move that appears to have assuaged concerns about a short-term run on deposits at the regional banking system. .
The auction followed a meeting on Friday of the US Financial Stability Oversight Board, a group made up of Federal Reserve regulators, the SEC and the FDIC chaired by Treasury Secretary Janet Yellen, which discussed the ” ongoing efforts in member agencies to monitor financial developments”.
“The Council discussed current conditions in the banking sector and noted that while some institutions have come under pressure, the US banking system remains strong and resilient,” the FSOC said in a brief statement.
Stocks are certainly finding support in Monday’s push, with European bank shares mounting a solid rally from Friday’s selloff and US regional bank shares moving firmly higher in premarket trading.
Bond yields are also on the move, with benchmark 2-year notes rising to 3.925% in overnight trade, and ahead of a $42bn auction later today, amid renewed recession concerns linked to the pullback in loan growth linked to the crisis in the banking sector.
“What’s not clear to us is how much of these bank stresses are leading to widespread credit crunch,” Minneapolis Fed President Neel Kashkari told CBS’s “Face The Nation” on Sunday. “That credit crunch would slow down the economy. It definitely brings us closer (to recession).”
Those concerns are also weighing on the Fed’s interest rate forecast, following last week’s 25 basis point hike in the key fed funds rate, which now sits between 4.75% and 5%. %.
CME Group’s FedWatch suggests a 67.5% chance the Fed will hold rates steady at its next meeting in May, with a near 70% chance of a rate cut by the end of July. That’s adding more pressure to the US dollar index, which is down about 1.6% against global peers so far this month and was last seen trading at 103,150 in overnight trading.
However, stocks look poised for at least a strong start to the Monday session, as futures contracts linked to the S&P 500 indicate an opening bell gain of 19 points and those linked to the Dow Jones Industrial Average suggest a rise. of 140 points. Nasdaq-linked futures indicate a more modest gain of 34 points as tech stocks face a headwind from higher Treasury yields.
Overnight in Asia, the MSCI ex-Japan index of the entire region was down 0.76% at the close of trading, while Japan’s Nikkei 225 fell 0.0.33% for its third consecutive decline.
In Europe, the Stoxx 600 rose 1% in early Frankfurt trading, with bank shares leading the gain on a 3% rally in Deutsche Bank shares, while the FTSE 100 rose 0.56% in London.
2. — Week ahead: Inflation data in focus as Fed rate bets fade
Friday’s release of the Fed’s preferred inflation gauge will highlight another quiet week for data and earnings releases in the coming days as traders wrap up the final session of a brutal March ahead of the start of the US reporting season. first trimester.
The Bureau of Economic Analysis will release data for the PCE Price Index on Friday at 8:30 am ET, with investors looking for an easing of inflationary pressures that could justify bets on a short-term pause in price gains. rates by the Fed as it deals with the fallout from the collapse of SVB Financial and the turmoil in the banking sector in general.
Analysts see a modest decline in the monthly core PCE reading, which is expected to hit 0.4%, with the year-on-year reading holding at 4.7%.
On the earnings front, the Dow Walgreen Boots Alliance component (WBA) – Get a free reportwill post its second-quarter earnings on Wednesday, before the start of trading, with chipmaker Micron Technology (IN) – Get a free reportand luxury clothing retailer Lululemon (LULU) – Get a free reportreport after the closing bell.
Another big event this week is likely to be the testimony of Michael Barr, the Fed’s vice president for supervision, before the Senate Banking Committee on Tuesday and before the House Financial Services Committee on Wednesday.
The Treasury’s auction of $42 billion in 2-year notes, scheduled for Monday with results expected at 1:00 p.m. Fed monetary policy meeting on March 22.
3. — First Citizens agrees to purchase Silicon Valley Bank loans and deposits
First Citizens BancShares (FCNCA) – Get a free reportagreed to buy bankrupt Silicon Valley Bank in a deal that could support regional banks and bolster confidence in the country’s broader financial system.
North Carolina-based First Citizens will take on about $56 billion in deposits from Silicon Valley Bank and take over the tech lender’s $72 billion loan book at a discount of about $165 billion.
In a nod to Signature Bank New York Community Bancorp’s purchase last week, First Citizens has agreed to offer $500 million in capital improvement to Federal Deposit Insurance Corp., which will ultimately take a hit of about $20 billion for its intervention. in Silicon Valley. Bank.
“We look forward to building relationships with our new customers and positioning our company for continued success while affirming our commitment to supporting the integrity of our nation’s banking system,” said Frank Holding, CEO of First Citizens.
First Citizen shares closed at $582.55 each Friday on the Nasdaq, after falling about 1.11% in the session to extend the stock’s year-to-date slide to about 23.2%. .
4. — US bank shares rise, but deposit outflows accelerate
U.S. bank shares were active again in premarket trading after data late Friday showed deposits at smaller regional lenders fell to the highest recorded after the collapse of SVB Financial on March 10.
Deposits at the smallest US banks, defined as those outside the top 25 in terms of asset size, fell $119 billion to $5.46 trillion during the seven-day period ending March 15. , according to Fed data. Some of that flight went to the biggest banks, though, and data shows deposits at biggest institutions rose $67 billion to $10.74 trillion.
While not apparent from the Federal Reserve data, much of the cash leaving smaller banks could be making its way into money market funds, according to Bank of America’s ‘Flow Show’ report, followed by close, which suggested an addition of more than $300 billion. over the past month, bringing the total bill to a record $5.1 billion.
First Republic (FRC) – Get a free reportThe shares marked up 24.7% in pre-market trade to indicate an opening bell price of $15.41 each. westpac (PACW) – Get a free reportshares rose 8% to $10.31 apiece, while Western Alliance Bancorp. (walpl) earned 5% to $34.70
5. — Protests in Israel increase pressure on Prime Minister Netanyahu
Israeli Prime Minister Benjamin Netanyahu remained under intense political pressure Monday amid nationwide protests and political chaos related to his controversial plans to reform the country’s judicial system.
Netanyahu, trying to hold together a coalition government of hardline nationalists and religious leaders, fired his Defense Minister Yoav Gallant on Sunday, sparking a series of nationwide protests after Gallant made public comments. against Netanyahu’s plans.
However, supporters of the Likud party are reportedly heading to the Knesset to endorse Netanyahu and the coalition, raising concerns about potential political violence in the capital city of Jerusalem, with Israeli President Isaac Herzog recently warning that the country is “within arm’s reach” of a civil war.
Meanwhile, US officials urged Israeli leaders to find a compromise.
“As the president recently discussed with Prime Minister Netanyahu, democratic values have always been and must continue to be a hallmark of the relationship between the United States and Israel,” said White House National Security Council spokeswoman Adrienne Watson. , it’s a statement.
“Democratic societies are strengthened by checks and balances, and fundamental changes should be sought in a democratic system with the broadest possible base of popular support,” Watson added.
