Credit Suisse Plunges to a Record Low and Hammers Global Financial Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.75%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.88%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.19%.

U.S. stock indexes this morning are sharply lower, with the Dow Jones Industrials falling to a 4-1/2 month low on fresh turmoil in the banking sector.  A selloff in European bank stocks today is pressuring U.S. bank stocks and has weakened market sentiment after Credit Suisse AG plunged to a record low when its top shareholder ruled out any additional assistance for the bank.  However, stock indexes recovered from their worst levels, and bond yields fell further after this morning’s U.S. economic news showed an easing of producer price pressures.

This morning’s stock slump amid fresh banking turmoil has boosted the safe-haven demand for government debt and knocked global bond yields lower.  As a result, the 10-year T-note yield today sank to a 5-week of 3.380%.  Also, the 10-year German bund yield dropped to a 5-week low of 2.112%, and the 10-year UK gilt yield tumbled t a 1-month low of 3.251%.

U.S. Feb PPI final demand fell -0.1% m/m and rose +4.6% y/y, weaker than expectations of +0.3% m/m and +5.4% y/y with the +4.6% y/y gain the slowest year-on-year increase in nearly two years.  Also, Feb PPI ex-food and energy was unch m/m and rose +4.4% y/y, weaker than expectations of +0.4% m/m and +5.2% y/y, with the +4.4% y/y gain the slowest year-on-year increase in nearly two years. 

U.S. Feb retail sales fell -0.4% m/m, right on expectations.

The U.S. Mar Empire manufacturing survey general business conditions fell to -18.8 to -24.6, weaker than expectations of -7.9.

U.S. Jan business inventories unexpectedly fell -0.1% m/m versus expectations of no change, which supports the economy as the drop in inventories may spark an increase in production as companies replenish depleted supplies.

The U.S. Mar NAHB housing market index unexpectedly rose +2 to a 6-month high of 44, stronger than expectations of a decline to 40.

Overseas stock markets are mixed.  The Euro Stoxx 50 today is down sharply by  -3.11%. China’s Shanghai Composite stock index closed up +0.55%, and Japan’s Nikkei Stock Index closed up +0.03%. 

Today’s stock movers…

First Republic Bank (FRC) is down more than -17% to lead losers in the S&P 500 after S&P Global Ratings cut the company’s debt rating to a junk score of BB+ from A- on elevated risk of deposit outflows. 

Bank stocks are falling this morning on fresh concerns about the sector after Credit Suisse Group AG plunged to a record low after the bank’s biggest shareholder ruled out any additional assistance for the bank.  Synchrony Financial (SYF), Citigroup (C), Lincoln National Corp (LNC),  and Fifth Third Bancorp (FITB) are down more than -5%.  Also, Goldman Sachs (GS) is down more than -4% to lead losers in the Dow Jones Industrials.  In addition, Morgan Stanley (MS), JPMorgan Chase (JPM), and Huntington Bancshares (HBAN) are down more than -4%. 

Energy stocks and energy service providers are falling sharply today, with the price of WTI crude down more than -3% to a 14-3/4 month low.  Haliburton (HAL) is down more than -8%.  Also, Marathon Oil (MRO) and Devon Energy (DVN) are down more than -6%.  In addition, Diamondback Energy (FANG) is down more than -5% to lead losers in the Nasdaq 100.  Finally, Schlumberger (SLB), Hess Corp (HES), and Occidental Petroleum (OXY) are down more than -5%.

Charles Schwab (SCHW) is up more than +2% to lead gainers in the S&P 500 after Credit Suisse Group AG upgraded the stock to outperform from neutral.

Lennar (LEN) is up more than +2% after reporting Q1 revenue of $6.49 billion, better than the consensus of $5.99 billion.

Jack Henry & Associates (JKHY) is up more than +1% after UBS raised its recommendation on the stock to buy with a price target of $184.

Consumer staple stocks are higher today as investors buy them on a defensive play against weakness in the broader market.  PepsiCo (PEP) and Hershey (HSY) are up more than +1%.  Also, General Mills (GIS), Kellogg (K), Campbell Soup (CPB), and JM Smucker (SJM) are up at least +0.5%

Across the markets…

June 10-year T-notes (ZNM23) today are up +1-22/32 points, and the 10-year T-note yield is down -27.7 bp at 3.412%. June 10-year T-notes this morning rallied to a 5-week high, and the 10-year T-note yield sank to a 5-week low of 3.380%. Fresh turmoil in the banking sector sent stocks plunging today and boosted safe-haven demand for T-notes after Credit Suisse Group AG sank to a record low on liquidity concerns.  T-notes also garnered support from this morning’s weaker-than-expected U.S. economic reports on Feb PPI and the March Empire manufacturing survey of general business conditions.  Finally, a plunge in European government bond yields underpins T-note prices after the 10-year German bund yield dropped to a 5-week low of 2.112%.

The dollar index (DXY00) today is up sharply by +1.22%.  Concerns about the health of the European banking system hammered EUR/USD down to a 2-1/4 month low and sparked safe-haven buying of the dollar after Credit Suisse Group AG sank to a record low on liquidity concerns. Also, the slump in stocks today has boosted the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down sharply by -1.71% and sank to a 2-1/4 month low.  A plunge in Credit Suisse AG to a record low today has fueled concerns about the health of Europe’s banking system and is undercutting the euro.  EUR/US is also under pressure on speculation that the ECB may not raise interest rates by 50 bp as originally expected Thursday due to the turmoil in the banking system.  In addition, today’s plunge in the 10-year German bund yield to a 5-week low weakens the euro’s interest rate differentials.

Today’s Eurozone economic news was mixed for the euro.  On the negative side, the German Feb wholesale price index eased to +8.9% y/y from +10.6% y/y in Jan, the slowest pace of increase in 1-3/4 years.  Conversely, Eurozone Jan industrial production rose +0.7% m/m, stronger than expectations of +0.3% m/m.  Also, France's Feb CPI (EU harmonized) was revised upward by +0.1 to a record high 7.3% y/y.

USD/JPY (^USDJPY) today is down by -1.13%.  The yen today is sharply higher from a plunge in T-note yields. Also, higher Japanese government bond yields were supportive for the yen after the 10-year JGB bond yield rose +5.5 bp to 0.329% when the BOJ offered to buy only 50 billion yen ($372 million) of bonds maturing in 25 years or longer, compared with its initial purchase of 100 billion yen.

April gold (GCJ3) this morning is up +19.2 (+1.00%), and May silver (SIK23) is up +0.210 (+0.95%).  Precious metals prices this morning are moderately higher, with gold posting a 5-week high and silver posting a 1-month high.  Turmoil at Credit Suisse Group AG added to heightened concerns about the global financial sector and sparked safe-haven buying today of precious metals.  Also, the plunge in global bond yields is bullish for metals.  A stronger dollar today is limiting the upside in metals prices.  Also, today’s slower-than-expected increase in U.S. Feb producer prices has reduced the demand for gold as an inflation hedge.

• Stocks Back in Bearish Mode- It was Quiet Before a Potentially Volatile Storm
• Markets Today: Stock Index Futures Sink Amid Fresh Banking Woes
• S&P Futures Plunge Ahead of Key U.S. PPI and Retail Sales Data
• Finding Opportunity in Chaos: 3 Opportunities for Dividend Growth Investors