Rebound in Bank Stocks Lifts Broad Market

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.62%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.29%.

U.S. stock indexes this morning are mixed.  A rally in bank stocks is lifting the broader market as authorities attempt to boost confidence in the banking sector.  UBS Group AG agreed to buy Credit Suisse Group AG for 3 billion francs ($3.2 billion) in a government-brokered deal.  Also, the Federal Reserve and five other central banks boosted liquidity to ease growing strains in the global financial system.  However, weakness in software and chip stocks is undercutting technology stocks and keeping the Nasdaq 100 in negative territory as a rebound in bond yields weighs on tech stocks.

UBS Group AG agreed to buy Credit Suisse Group AG for 3 billion francs ($3.2 billion) in a government-brokered deal in which the Swiss central bank is offering 100 billion francs in liquidity assistance to UBS and is granting a 9-billion franc guarantee for potential losses from assets UBS is taking over.

On Sunday, the Federal Reserve, along with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank, announced they would "increase the frequency of 7-day maturity operations from weekly to daily" to boost dollar funding and ease strains in the global financial system.

However, concern about banking system contagion remains, with First Republic Bank down more than -14% today after S&P Global cut First Republic Bank's long-term issuer credit rating for the second time in less than a week.

Global bond yields rebounded from overnight lows and are moving higher as attempts by authorities to shore up confidence in the banking sector boost bank stocks and reduce safe-haven demand for government debt.  As a result, the 10-year T-note yield today is up +1.5 bp at 3.444% after falling to a 6-month low in overnight trade of 3.286%.  Also, the 10-year German bund yield is up +0.4 bp to 2.111% after falling to a 3-month low of 1.924%.

Overseas stock markets are mixed.  The Euro Stoxx 50 today is up +1.28%.  China’s Shanghai Composite stock index closed down -0.48%, and Japan’s Nikkei Stock Index closed down -1.42%. 

Today’s stock movers…

Bank stocks recovered from overnight losses and are moving higher after UBS Group AG agreed to buy Credit Suisse Group AG for 3 billion francs ($3.2 billion) in a government-brokered deal as authorities attempt to boost confidence in the banking sector.  Comerica (CMA) is up more than +7% to lead gainers in the S&P 500.  Also, Zions Bancorp (ZION) and Fifth Third Bancorp (FITB) are up more than +5%.  In addition, Citizens Financial Group (CFG) and Truist Financial (TFC), KeyCorp (KEY), Lincoln National Corp (LNC), and Regions Financial (RF) are up more than +4%.

US Bancorp (USB) is up more than +7% after Baird upgraded the stock to outperform from neutral.

Westrock (WRK) is up more than +4% after Citigroup upgraded the stock to buy from neutral.

Cryptocurrency-exposed stocks are moving higher today, with the price of Bitcoin up more than +4% at a 9-month high.  Marathon Digital (MARA), Riot Platforms (RIOT), Coinbase Global (COIN), Hive Blockchain (HIVE), and Stronghold Digital (SDIG) are up +4% or more.

First Republic Bank (FRC) is down more than -14% to lead losers in the S&P 500 after S&P Global cut First Republic Bank's long-term issuer credit rating to B+ from BB+, the second cut in its credit rating in a week.

A rebound in bond yields today is weighing on software and chip stocks.   Advanced Micro Devices (AMD), Datadog (DDOG), ServiceNow (NOW), and Atlassian Corp (TEAM) are down more than -3%.  Also, Microsoft (MSFT) is down more than -2% to lead losers in the Dow Jones Industrials.  In addition, Intel (INTC), Nvidia (NVDA), and Intuit (INTU) are down more than -1%.

PDD Holdings (PDD) is down more than -14% to lead losers in the Nasdaq 100 after reporting Q4 revenue of 39.82 billion yuan, well below the consensus of 41.95 billion yuan.

Amazon.com (AMZN) is down more than -1% after announcing it will cut its workforce by an additional 9,000 workers. 

Across the markets…

June 10-year T-notes (ZNM23) today are down -3 ticks, and the 10-year T-note yield is down -0.8 bp at 3.421%.  T-note prices fell back from a 7-week high, and the 10-year T-note yield dropped to a 6-month low of 3.286%.  T-note prices gave up overnight gains and are slightly lower on reduced safe-haven demand after stocks moved higher.   Reduced liquidity concerns gave stocks a lift and weighed on T-notes after the Fed, and five other central banks, boosted dollar funding by increasing the frequency of 7-day maturity operations from weekly to daily. 

The dollar index (DXY00) today is down by -0.32% and posted a 1-month low. A rebound in stocks and the action by the Fed and five other central banks to boost dollar funding has reduced liquidity demand for the dollar.  The dollar is also under pressure on speculation that the Fed may adopt a more cautious tone during the Tue/Wed FOMC meeting.  In addition, the fall in T-note yields today has weakened the dollar’s interest rate differentials.

EUR/USD (^EURUSD) today is up by +0.55%.  The euro today is moving higher on dollar weakness, and reduced European banking concerns after UBS Group AG agreed to buy Credit Suisse Group AG for 3 billion francs ($3.2 billion) in a government-brokered deal. Hawkish comments today from ECB Governing Council member Kazaks also gave EUR/USD a boost when he said price pressures remain too strong and warrant further action from the ECB. 

German Feb PPI eased to +15.8% y/y from +17.6% y/y in Jan, the slowest pace of increase in 17 months.

ECB Governing Council member Kazaks said price pressures remain too strong and warrant further action, assuming the market turmoil that rocked the banking sector doesn't worsen to derail Europe's economy.

USD/JPY (^USDJPY) today is down by -0.20%.  The yen today rose to a 5-week high against the dollar as ongoing U.S. and European banking woes boost the safe-haven demand for the yen. Also, the fall in the 10-year T-note yield to a 6-month low today strengthened the yen.  In addition, the -1.4% fall in the Nikkei Stock Index today boosted safe-haven demand for the yen.   

April gold (GCJ3) this morning is up +14.3 (+0.72%), and May silver (SIK23) is up +0.108 (+0.48%).  Precious metals prices this morning are moderately higher, with gold climbing to a 1-year high and silver posting a 6-week high.  A fall in the dollar index today to a 1-month low is bullish for metals.  Also, the banking turmoil in the U.S. and Europe is boosting the safe-haven demand for precious metals.   Fund buying of gold is supporting prices as gold holdings in exchange-traded funds (ETFs) have risen five straight days through last Friday to a 3-1/2 week high. Precious metals fell back from their best levels today after a stock recovery boosted global bond yields.

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