Selling in bank stocks continued Tuesday as Asian markets fell as the SVB fallout failed to end despite an effective bailout and reassurances from the White House. After suffering heavy losses on Monday, European equity markets tried to make gains in early trading after a broad sell-off in Asia overnight. We saw a sluggish start in mainland Europe but the major bourses were up a bit, though London held losses in the first hour of trading this morning. US stock markets were mixed yesterday with the Nasdaq actually eking out a gain of almost half a per cent as growth/tech picked up some bid on lower rates. Treasury rates tumbled yesterday and have only seen very mild bounces off their lows – once-in-a-generation type moves in bond markets will have left many offside so we could see some funds stressed. Futures in the US are firmer this morning as investors look to turn this around.
US banks hit
The KRE US regional bank ETFs tumbled more than 12 per cent on Monday but have risen almost 4 per cent in the after-hours market. First Republic dropped 62 per cent but has popped 14 per cent in extended trading as investors try to figure out if there really is any deposit flight risk. Big banks were also hit – Wells Fargo –7 per cent, Bank of America –6 per cent, with JPM and GS taking less of a hit but still falling. The point is the Fed and co have effectively backstopped every deposit, so I don’t see what risk is left now except in serious headwinds to earnings as the cost of deposits will rise and regulation will surely tighten.
International fallout
European and Japanese banks have fallen sharply, albeit to a lesser extent. Credit Suisse fell another 4 per cent as it identified ‘material weaknesses’ in its financial reporting controls – never rains but it pours for CS. Banks in London were mainly lower again with HSBC and StanChart both off by more than 1 per cent in early trade.
Fed to cut?
Markets have repriced terminal rates aggressively in the wake of SVB’s collapse and subsequent roiling of financial stocks. Barclays, Goldman Sachs and NatWest have called for the Fed to pause rate hikes; Nomura has gone further and predicted a cut this month. If the Fed even pauses, its inflation-fighting reputation will be in tatters. Market pricing is at evens for 25bps or a pause. We saw how the Bank of England was able to deliver emergency stimulus to prevent financial instability without disrupting its longer-term monetary policy goals.
Inflation
As it happens, US inflation figures are due this lunchtime. Headline consumer prices are seen +0.4 per cent month-on-month in February, a slight slowing from the +0.5 per cent in January; while the annual rate of headline inflation is expected to ease back to 6 per cent from 6.4 per cent. Core CPI is seen rising +0.4 per cent month-on-month in February, matching the January pace, +5.5 per cent year-on-year.
Neil Wilson is chief market analyst at Finalto
