Stocks Slide Before the Open as First Republic Shares Fall Despite Rescue Deal

June S&P 500 futures (ESM23) are trending down -0.68% this morning after three major U.S. benchmark indices rallied on Thursday as 11 of the nation’s biggest banks injected $30 billion in deposits into First Republic Bank in an attempt to bolster confidence in the banking system. Three major U.S. stock indexes were fueled primarily by gains in the Technology, Consumer Services, and Financials sectors.

In Thursday’s trading session, Wall Street’s main indexes ended solidly in the green, with the tech-heavy Nasdaq marking its best single-day performance since early February. U.S. regional bank stocks staged a strong rebound on Thursday, with First Republic Bank (FRC) jumping about +10% after a group of big Wall Street banks, including Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, and others, agreed to deposit $30 billion into the beleaguered bank. Federal regulators and the Treasury Department Thursday welcomed a decision by 11 larger banks and said it showed the resilience of the U.S. banking system. However, First Republic Bank’s shares dropped over -11% in pre-market trading on Friday after the bank suspended its dividend and said it borrowed tens of billions of dollars from the Federal Reserve and the Federal Home Loan Bank over the past week.

Treasury Secretary Janet Yellen told the Senate Finance Committee Thursday that the U.S. banking system “remains sound” and Americans “can feel confident” about their deposits.

The Labor Department’s report on Thursday showed claims for state unemployment benefits unexpectedly fell -20K to 192K last week, stronger than expectations of 205K, indicating a still-tight labor market. At the same time, U.S. housing starts rose to a 5-month high of 1.450M in February, stronger than expectations of 1.310M, while U.S. building permits also rose to a 5-month high of 1.524M in February, above expectations of 1.340M. AIso, the Philadelphia Fed’s manufacturing index, a key measure of U.S. manufacturing activity, improved marginally to -23.2 in March but was below expectations of -15.6.

Meanwhile, U.S. rate futures have priced in an 81.9% chance of a 25 basis point rate increase and an 18.1% chance of no hike at the upcoming monetary policy meeting concluding on March 22nd.

Today, all eyes are focused on the preliminary reading of the U.S. Michigan Consumer Sentiment index in a couple of hours. Economists, on average, forecast that the Michigan Consumer Sentiment Index will stand at 66.9 in March, compared to the previous value of 67.0.

Also, investors are likely to focus on the U.S. Michigan Consumer Expectations preliminary reading, which was at 64.7 in February. Economists foresee the new figure to be 64.5.

U.S. Industrial Production data will be reported today. Economists foresee this figure to stand at +0.2% m/m in February, compared to the previous number of 0.0% m/m.

U.S. Manufacturing Production data will come in today as well. Economists expect February’s figure to be -0.2% m/m, compared to the previous number of +1.0% m/m.

In the bond markets, United States 10-Year rates are at 3.541%, down -1.17%.

The Euro Stoxx 50 futures are up +0.37% this morning as bank lifelines in Europe and the United States eased concerns over financial stability. The European Central Bank raised its key interest rates by 50 basis points on Thursday, despite talk of a smaller rate increase after the turmoil in global financial markets. The ECB’s decision “reflects the central bank’s priority to combat inflation and also signals strong confidence in the strength of European banks,” said French ECB policymaker Francois Villeroy de Galhau on Friday. At the same time, the ECB refrained from providing guidance on future rate hikes. Goldman Sachs now expects rates to peak at 3.5%, compared with a previous forecast of 3.75%. Meanwhile, Eurozone CPI has been reported at +0.8% m/m and +8.5% y/y in February, in line with expectations.

Eurozone’s Core CPI data was also released today.

Eurozone February Core CPI stood at +0.8% m/m and +5.6% y/y, in line with expectations.

Asian stock markets today closed in the green. China’s Shanghai Composite Index (SHCOMP) closed up +0.73%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +1.20%.

China’s Shanghai Composite today closed higher in tandem with global equities as concerns about the global financial sector eased, while investors also digested signs of an economic rebound in China. New home prices in 70 Chinese cities rose +0.3% m/m in February, the fastest pace since July 2021, pointing to stabilization in the country’s property market. Also, Morgan Stanley said it continues to believe China’s recovery is on track and intact.

“Post last week’s less-encouraging NPC targets, investor sentiment has started to recover as macro data for January and February came in sanguine and confirmed that China’s strong growth rebound is on track,” Morgan Stanley analysts said in a note.

Japan’s Nikkei 225 Stock Index closed sharply higher today but ended the week lower as major financial stocks were sold off on banking crisis fears. Also, Nikkei reported that Japan’s government and central bank officials were planning to meet on Friday to discuss the latest global financial developments. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 9.76% to 19.42.

The Japanese February Tertiary Industry Activity Index stood at +0.9% m/m, stronger than expectations of +0.5% m/m. 

Pre-Market U.S. Stock Movers

Enzo Biochem Inc (ENZ) spiked over +86% in pre-market trading after the company said it sold its Clinical Laboratory division to Labcorp. 

FedEx Corporation (FDX) climbed more than +11% in pre-market trading after reporting stronger-than-expected Q3 profits and lifting its full-year EPS forecast.

United Parcel Service Inc (UPS) rose over +3% in pre-market trading following strong results from FedEx.

NVIDIA Corporation (NVDA) gained about +1% in pre-market trading after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $304, up from $255.

United States Steel Corporation (X) soared over +5% in pre-market trading after the steel producer said it expects Q1 adjusted EBITDA to be about $375 million and Q1 adjusted net EPS to be $0.58-$0.63.

Sarepta Therapeutics Inc (SRPT) plunged about -22% in pre-market trading after disclosing the FDA advisory committee meeting to be held for SRP-9001. 

Warner Bros Discovery Inc (WBD) rose over +2% in pre-market trading after Wells Fargo upgraded the stock to overweight from equal weight.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Friday - March 17th

Legend Bio (LEGN), Xpeng (XPEV), Algonquin Power (AQN), Lithium Americas (LAC), Ballard (BLDP), Orla Mining (ORLA), Tuniu Corp (TOUR), Actinium Pharmaceuticals (ATNM), Nkarta (NKTX), Dynagas LNG (DLNG).

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