Minutes before the opening bell, U.S. stock futures are suggesting a continuation of yesterday’s rally. In overnight trading, markets in Asia closed mostly up, and the major European indexes are showing solid gains. Elsewhere, oil prices have regained some lost ground, with West Texas Intermediate up 1.5%, to around $68.70 a barrel.
It appears that investor concerns over the banking sector eased somewhat, at least temporarily, following the announced takeover of Credit Suisse (CS) by UBS (UBS). Notably, regional banks, as a group, rebounded about 1.1% on Monday, but they still have a long way to go to recoup last week’s double-digit losses. However, we are not out of the woods just yet. Despite a recent $30 billion infusion from JPMorgan Chase (JPM) and 10 other large banks, First Republic Bank (FRC) saw its stock collapse by 47% on the session. Similar to the now-defunct Silicon Valley Bank, First Republic is grappling with large cash outflows from uninsured depositors. News reports indicate that strategic alternatives are being discussed, including raising capital or an outright sale. Altogether, FRC shares have shed 90% of their market value since the beginning of March.
The instability facing the banking sector makes the Federal Reserve’s battle against inflation even more challenging. At the moment, the consensus is calling for the central bank to hike its overnight lending rate by another quarter percentage point when it wraps up its meeting on Wednesday. There are also some market participants that are looking for the Fed to take a breather, and pass on a rate increase this time around to allow the financial sector to settle down some. This would mark a considerable departure from just a few weeks ago, when the lead bank hinted it might have to take a more aggressive stance to combat the stubbornly high inflation rate. Either way, with lenders more focused on preserving capital, economic growth is likely to take a hit in the months ahead.
Looking at the rest of the economic calendar for this week, this morning brings us existing home sales for February, where a slight uptick from January’s reading is expected. This will be followed by last month’s sales figures for new homes, where the consensus is calling for some deceleration versus January. On Friday, we get the statistics on durable goods orders for February, which are widely expected to show a much more modest contraction compared to January’s 4.5% decline.
Altogether, the Dow Jones Industrials charged 382 points higher on Monday, or 1.2%, the S&P 500 gained 34 points (0.9%), while the tech-focused NASDAQ tacked on 45 points, or 0.4%. – Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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