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Marietta Daily Journal

Stocks Higher, Inflation On Deck, First Republic Rebounds, SVB Sale Plans, Boeing Dreamliner Deal - Five Things To Know

By Martin Baccardax,

2023-03-14
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Stocks futures edge higher as SVB collapse echoes through global markets; February inflation report in focus as Fed rate bets crumble; First Republic rebounds as regional banks fight to assure fleeing depositors; Feds to auction SVB assets as new team takes over failed bank and Boeing nears $37 billion Dreamliner sale to Saudi Arabia.

Five things you need to know before the market opens on Tuesday March 14:

1. -- Stocks Futures Edge Higher As SVB Collapse Echoes Through Global Markets

U.S. equity futures edged modestly higher Tuesday, while Treasury yields steadied and the dollar extended its retreat in foreign exchange markets as investors continued to worry that the collapse of Silicon Valley Bank will ripple through global markets, particularly in the financial sector, and possibly induce a near-term recession in the world's biggest economy.

SVB Financial ( SIVB ) - Get Free Report collapse late Friday triggered a coordinated effort by the U.S. Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation to both protect bank deposits and shore-up concerns for the safety of regional lenders around the country.

Bank stocks were pounded again yesterday, however, as fears of contagion from the SVB failure ripped through markets around the world, clipping more than $90 billion in value from the biggest U.S. banking stocks in a single session.

The benchmark The KBW Bank Index, in fact, fell 12% yesterday, its biggest single-day decline since the summer of 2020.

Investors were also busy re-pricing interest rate markets amid speculation that the Federal Reserve, which is now offering one-year term loans to domestic banks in exchange for top-quality Treasury, agency and mortgage backed securities, may be forced to pause or even abandon its inflation fight in order to prevent the simmering crisis from turning into a full-scale bank run .

Benchmark 2-year notes rallied hard Tuesday, with yields falling the most in a single session since 2008, and traded briefly below the 4% level before recovering to around 4.24% in overnight Asia trading. Benchmark 10-year notes were pegged at 3.617%.

The CME Group's FedWatch, meanwhile, is pricing in a 16.6% chance that the Fed will make no changes to its benchmark interest rate at next week's policy meeting in Washington, with the chances of a rate by as early as July rising to around 58%.

At the same time, market volatility gauges have spiked, with the CBOE Group's VIX index rising past the 30 point market yesterday, and trading at around 26.6 points in the overnight session, suggesting traders see daily swings on the S&P 500 of around 64 points, or 1.66%, over the near term.

Heading into the start of the trading day on Wall Street , futures contracts tied to the S&P 500, which slipped into negative territory for the year at the lowest point of yesterday's session, were indicating a modest 10 point opening bell gain while those linked to the Dow Jones Industrial Average were looking at an 85 point bump. The rate-sensitive Nasdaq is looking at 26 point gain.

In overseas markets, Europe's Stoxx 600 edged 0.2% in early Frankfurt trading while Britain's bank-heavy FTSE 100 was marked 0.32% lower in London.

Overnight in Asia, the region-wide MSCI ex-Japan index was marked 1.72% lower into the close of trading while big loses for Japanese banks pulled the Nikkei 225 2.19% lower in Tokyo.

2. -- February Inflation Report In Focus As Fed Rate Bets Crumble

The Commerce Department will release what is now a crucial February inflation report Tuesday as the Federal Reserve grapples with the twin challenges of stemming the contagion unleased by the collapse of SVB while continuing to tamp down price pressures in the world's biggest economy.

The February CPI report, expected at 8:30 am Eastern time, highlights a relatively light week for data releases and corporate earnings now that the fourth quarter reporting season is largely complete, with markets now moving cautiously towards the March Fed rate decision.

Economists expect the February CPI report, slated for release at 8:30 am Eastern time, to show a modest decline in the year-on-year headline reading, to around 6%, with the closely-tracked core inflation tally edging 0.1% lower to 5.5%. On a monthly basis, core inflation will likely tick 0.4% higher, with a similar gain for the headline reading.

"Progress on inflation would give the Fed a peg on which to hang a pause, but both the CPI and PPI data have been unhelpful recently," said Ian Shepherdson of Pantheon Macroeconomics. "Sooner or later, the CPI measure will break clearly and rapidly to the downside, but we have no way of knowing when this will happen."

3. -- First Republic Rebounds As Regional Banks Fight to Assure Fleeing Depositors

Regional bank stocks rebounded firmly in pre-market trading Tuesday, a welcome move for investors worried that deposit flight from smaller banks would accelerate over the coming days following the collapse of SVB Financial on Friday and the takeover of New York's Signature Bank late Sunday.

First Republic Bank, a San Francisco-based lender and wealth manager with a top-tier client list, lost more than $9 billion in market value yesterday as investors dumped regional bank stocks amid concerns that depositors would pull their cash at place it at larger U.S. institutions amid the still-echoing turmoil created by SVB's spectacular downfall.

London's Financial Times, in fact, reported that big U.S. banks such as JPMorgan Chase, Citigroup and Bank of America were seeing a massive inflow of new funds, even after President Joe Biden made a nationally televised address to ensure faith in the country's banking system after the Treasury moved to guarantee SVB deposits and the Fed offered its new lending backstop to support bank balance sheets.

"Americans can have confidence that the banking system is safe," President Biden said. "Your deposits will be there when you need them."

First Republic Bank FRC shares were marked 20% higher in pre-market trading to indicate an opening bell price of $37.39 each. PacWest shares surged 33.75% to $13.01 each while Western Alliance Bancorporation was marked 17.3% higher at $30.65 each.

4. -- Feds To Auction SVB Assets As New Team Takes Over Failed Bank

U.S. Regulators are expected to make another attempt to auction off the assets of failed lender SVB Financial Tuesday, according to a report from the Wall Street Journal, after failing to find a buyer following its weekend collapse.

The Journal said the that Federal Deposit Insurance Corporation has informed Republican lawmakers in the Senate that, given SVB's potential threat to the U.S. financial system, the FDIC will be allowed extra time and more flexibility in finding a buyer for the tech-focused lender.

SVB itself named William Kosturos as its new chief restructuring officer, a role he held following the collapse of Washington Mutual in 2008, and plans to explore 'strategic alternatives' -- including the sale of separate divisions SVB Capital and SVB Securities -- following its takeover by California regulators on Friday.

New CEO Tim Mayopoulos, a former Fannie Mae executive who was appointed to the role on Sunday, has said he hopes to carry on doing business as usual, telling staff in a letter on Monday that "I look forward to getting to know the clients of Silicon Valley Bank ... I also come to this role with experience in these kinds of situations."

5. -- Boeing Nears $37 Billion Dreamliner Sale to Saudi Arabia

Boeing BA shares edged higher in pre-market trading following reports that the planemaker is close to completing a deal to sell nearly 80 of its 787 Dreamliners to Saudi Arabia.

Reuters, as well as the Wall Street Journal, said the deal could be announced as early as today, and could be worth around $37 billion at current list prices. The sale itself is expected to comprise of 78 787 Dreamliners, split between State-owned Saudi Arabian Airlines and Riyadh Air, with an option to purchase another 43 of the jumbo aircraft.

Last month, Boeing signed a $34 billion aircraft deal with Air India that would see the region's largest carrier purchase at least 20 787-9 Dreamliners, with an option for 20 more, in what President Joe Biden described as an "historic agreement" that would support more than a million American jobs over 44 states.

Boeing shares were marked 0.3% higher in pre-market trading to indicate an opening bell price of $204.00 each.

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