Stocks Set to Open Lower as Investors Await Fed Meeting, Banking Sector Remains in Focus

June S&P 500 futures (ESM23) are down -0.13%, and June Nasdaq 100 E-Mini futures (NQM23) are down -0.10% this morning after three major U.S. benchmark indices closed in the red on Friday as ongoing concerns about the banking sector continued to weigh on market sentiment, with investors looking ahead to the Federal Reserve’s upcoming interest rate decision.

Over the weekend, UBS Group AG announced it would buy Credit Suisse Group AG for 3 billion Swiss francs in a stock-based transaction. Swiss authorities played a crucial role in facilitating the deal as regulators looked to shore up the global banking system. Last week, Credit Suisse’s shares dropped over -24% amid a string of scandals that had eroded clients’ and investors’ confidence. Under the terms of the deal, UBS will pay 0.76 francs a share in its own stock, compared to Credit Suisse’s closing price of 1.86 francs on Friday. Also, the Swiss National Bank pledged to inject over 100 billion Swiss francs of liquidity to support the merger.

Meanwhile, top central banks, including the U.S. Federal Reserve, the European Central Bank, and the Bank of Japan, on Sunday pledged to enhance the provision of liquidity by increasing the frequency of seven-day dollar-swap operations from weekly to daily.

In Friday’s trading session, the benchmark S&P 500 and the blue-chip Dow closed down over -1% as regional bank stocks resumed slide, with First Republic Bank plunging over -32% after the bank suspended its dividend. At the same time, the tech-heavy Nasdaq dropped -0.7% as the plunge in Treasury yields helped limit losses in interest rate-sensitive technology stocks. 

The University of Michigan’s preliminary reading on Friday showed that the U.S. consumer sentiment index unexpectedly fell for the first time in four months to 63.4 in March, while one-year inflation expectations fell to an almost 2-year low of 3.8% in March, from 4.1% in February. Also, U.S. manufacturing production unexpectedly rose +0.1% m/m in February, stronger than expectations of -0.2% m/m.

In the coming week, the U.S. Federal Reserve interest rate decision and Fed Chair Jerome Powell’s post-policy meeting press conference will be the main highlight. U.S. rate futures have priced in a 55.4% chance of a 25 basis point rate increase and a 44.6% chance of no hike on Wednesday. 

In addition, market participants will be eyeing a spate of economic data, including U.S. Existing Home Sales, Crude Oil Inventories, Building Permits, Initial Jobless Claims, New Home Sales, Durable Goods Orders, Core Durable Goods Orders, Manufacturing PMI (preliminary), S&P Global Composite PMI (preliminary), and Services PMI (preliminary).

The U.S. economic data slate is mainly empty on Monday.

In the bond markets, United States 10-Year rates are at 3.397%, down -0.01%.

The Euro Stoxx 50 futures are up +0.85% this morning as market participants assessed a historic deal to rescue embattled bank Credit Suisse. Also, ECB President Christine Lagarde said Sunday that “the central bank hopes the Swiss-brokered rescue of Credit Suisse will restore calm in financial markets,” adding that the ECB remains ready to support Eurozone banks with loans if needed. Focus this week is on the outcome of the upcoming U.S. Federal Reserve’s policy-setting meeting. Also, the Bank of England and the Swiss National Bank are set to deliver their interest rate decisions on Thursday.

Germany’s PPI and Eurozone’s Trade Balance data were released today.

The German February PPI has been reported at -0.3% m/m and +15.8% y/y, stronger than expectations of -0.5% m/m and +14.5% y/y.

Eurozone January Trade Balance stood at -30.6B, weaker than expectations of -12.5B.

In addition, investors will likely focus on comments from ECB President Christine Lagarde as she appears before the European Parliament’s economic committee.

Asian stock markets today settled in the red. China’s Shanghai Composite Index (SHCOMP) closed down -0.48%, and Japan’s Nikkei 225 Stock Index (NIK) closed down -1.42%.

China’s Shanghai Composite today closed lower as continued fears of a global banking crisis overshadowed Beijing’s fresh monetary-easing measures. The People’s Bank of China unexpectedly cut its reserve requirement ratio by 25 basis points on Friday, effective March 27th, to help keep liquidity ample. Also, China’s central bank kept its key loan prime rate unchanged at record lows on Monday as it moves to shore up an economic recovery.

“The reserve requirement ratio cut reflects the new government’s desire to send a ‘pro-growth’ signal and perhaps to be extra cautious on liquidity management amid significant banking stress overseas,” Goldman Sachs economist Hui Shan said in a note.

Japan’s Nikkei 225 Stock Index closed sharply lower and hit a new 1-month low as the yen strengthened and the economic outlook darkened amid concerns over the potential banking crisis. The index’s downward momentum was fueled by losses in the Chemical, Petroleum & Plastic, Steel, and Shipbuilding sectors. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down 9.83% to 19.45.

Pre-Market U.S. Stock Movers

Cryptocurrency-exposed stocks are moving higher in pre-market trading, with the price of Bitcoin pushing past $28,000. Marathon Digital (MARA) is up more than +6%. Also, Hut 8 Mining (HUT) is up over +6%, and Riot Platforms (RIOT) is up about +8%.

UBS Group AG (UBS) plunged over -8% in pre-market trading after the bank secured a 3 billion Swiss franc emergency rescue of its embattled peer Credit Suisse. Meanwhile, shares of Credit Suisse Group (CS) cratered more than -57% in pre-market trading.

First Republic Bank (FRC) tumbled more than -16% in pre-market trading after S&P Global Ratings lowered its long-term issuer credit rating on the bank to “B+” from “BB+.”

Connect Biopharma Holdings Ltd (CNTB) surged over +18% in pre-market trading after announcing positive Phase 2b CBP-201 data. 

Prologis Inc (PLD) rose about +1% in pre-market trading after Mizuho initiated coverage on the stock with a buy rating.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Monday - March 20th

PDD Holdings DRC (PDD), Legend Bio (LEGN), Yamana Gold (AUY), Dlocal (DLO), Sprott Physical Gold and Silver Trust (CEF), Foot Locker (FL), Lithium Americas (LAC), Embotelladora Andina (AKOa), Burford (BUR), ETV Limited Duration (EVV), Navigator Holdings (NVGS), Tyra Biosciences (TYRA), Secureworks (SCWX), Riley Exploration Permian (REPX), Avadel Pharma (AVDL), Marketwise (MKTW), Terns Pharmaceuticals (TERN), DXP Enterprises (DXPE), Apollo Endosurgery (APEN), Biomea Fusion (BMEA), Vaalco Energy (EGY), GreenTree Hospitality (GHG), DouYu (DOYU), Sanara Medtech (SMTI), Niu Tech (NIU), Lilium NV (LILM), Urban One Inc (UONE), Maui Land&Pineapple (MLP).

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