Stocks Higher as Banking Turmoil Eases

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.77%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.74%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.54%.

U.S. stock indexes this morning are moderately higher, with the S&P 500 and Dow Jones Industrials posting 1-1/2 week highs and the Nasdaq 100 posting a 1-1/2 month high.  An easing of banking concerns is lifting the broader market higher.  Bank stocks are also climbing following a Bloomberg report that U.S. officials are studying ways they might temporarily expand Federal Deposit Insurance coverage to all bank deposits. 

First Republic Bank surged more than +38% following a proposal from JPMorgan Chase to boost the bank’s capital.  Also, UBS Group AG is up more than +8% on optimism about its takeover of Credit Suisse Group AG. 

The FOMC begins its 2-day meeting today, and the federal funds futures market is discounting an 80% chance for the Fed to raise its federal funds target range by 25 bp to 4.75-5.00% from the current 4.50-4.75%.  However, stocks are also climbing on speculation the Fed may adopt a more cautious approach to tightening monetary policy and could slow or pause its pace of quantitative tightening to keep ample liquidity in the financial system.

A Bloomberg report said U.S officials are studying ways they might temporarily expand Federal Deposit Insurance coverage to cover all deposits greater than the $250,000 cap on most accounts.  The Mid-Size Bank Coalition of America, which includes banks with assets up to $100 billion, expressed concern that, if another regional lender fails, more depositors will move their money to the nation's largest banks, regardless of the underlying health of their smaller competitors.

Global bond yields are climbing this morning as banking turmoil eases and stocks rally.  The 10-year T-note yield today is up +5.3 bp at 3.537%, the 10-year German bund is up +11.9 bp at 2.244%, and the 10-year UK gilt yield is up +3.8 bp at 3.348%. 

Overseas stock markets are higher.  The Euro Stoxx 50 today is up +1.69%.  China’s Shanghai Composite stock index closed up +0.64%, and Hong Kong’s Hang Seng Index closed up +1.36%.  Japan was closed today for the Vernal Equinox Day holiday. 

Today’s stock movers…

First Republic Bank (FRC) is up more than +38% to lead gainers in the S&P 500 on a JPMorgan Chase plan to convert some or all of the $30 billion deposit injection by a group of the largest U.S. banks into a capital infusion, which would substantially strengthen the bank’s balance sheet and financial health. 

Bank stocks are climbing today on a report from Blomberg that said U.S. officials are studying ways they might temporarily expand Federal Deposit Insurance coverage to all bank deposits.  As a result, US Bancorp (USB) and Comerica (CMA) are up more than +6%.  Also, Bank of America (BAC), Capital One Financial (COF), Zions Bancorp (ZION), State Street (STT), Lincoln National (LNC), KeyCorp (KEY), Synchrony Financial (SYF), M&T Bank (MTB), and Regions Financial (RF) are up +4% or more.  Goldman Sachs (GS) is up more than +3% to lead gainers in the Dow Jones Industrials.

Charles Schwab (SCHW) is up more than +4% on signs of insider buying after an SEC filing showed Bernard Clark, head of Schwab’s advisor services, bought $274,154 of his company’s stock last Friday.

Electric vehicle makers are moving higher today BNEF reported that 2022 electric vehicle sales jumped +60% y/y to 10.4 million units. Lucid Group (LCID) is up more than +5% to lead gainers in the Nasdaq 100.  Also, Tesla (TSLA) is up more than +4%, and Rivian Automotive (RIVN) is up more than +3%.

Harley-Davidson (HOG) is up more than +4% after Morgan Stanley upgraded the stock to overweight from equal weight. 

Emerson Electric (EMR) is up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight. 

Utility stocks are under pressure today from higher bond yield and reduced demand as a safe haven due to today’s rally in the broader market.  Alliant Energy (LNT) is down more than -3% to lead losers in the S&P 500.  Also, Xcel Energy (XEL) is down more than -3% to lead losers in the Nasdaq 100.  In addition, Ameren Corp (AEE), Consolidated Edison (ED), WEC Energy (WEC), American Electric Power Co (AEP), CenterPoint Energy (CNP), CMS Energy (CMS), Duke Energy (DUK), NiSource (NI), Eversource Energy (ES), and Sempra Energy (SRE) are down more than -2%.

Intel (INTC) is down more than -3% to lead losers in the Dow Jones Industrials and Nasdaq 100 as the Commerce Department said the $50 billion CHIPS and Science Act would bar firms that win grants from expanding output by 5% for advanced microchips and 10% for older technology.

Across the markets…

June 10-year T-notes (ZNM23) today are down -20 ticks, and the 10-year T-note yield is up +5.3 bp at 3.537%.  An easing of banking concerns has sparked a rally in stocks today and curbed safe-haven demand for T-notes.   Also, supply pressures are weighing on T-notes as the Treasury will auction $12 billion of 20-year T-bonds later today.  In addition, position squaring and long liquidation is undercutting T-note prices ahead of the conclusion of the 2-day FOMC meeting on Wednesday. 

The dollar index (DXY00) today is down by -0.20%.  The dollar has fallen for four consecutive sessions and posted a 5-week low today.   An easing of U.S.-European banking turmoil has reduced liquidity demand for the dollar. On Monday, the BOE and BOJ received zero bids to secure dollars via the Fed’s new swap line, while the ECB allotted just $5 million to a single bidder.  The dollar is also under pressure on speculation that the Fed may adopt a less hawkish tone during the Tue/Wed FOMC meeting.

EUR/USD (^EURUSD) today is up by +0.54% and posted a 5-week high. Dollar weakness today is supporting moderate gains in the euro.  The euro today is also moving higher on hawkish ECB comments from ECB Governing Council member Kazaks who said the ECB was not yet finished raising interest rates.

Today’s Eurozone economic news was mixed for the euro.  On the positive side, Eurozone Feb new car registrations rose +11.5% y/y to 803,000 units, the seventh consecutive monthly increase.  Also, Eurozone Jan construction output rose +3.9% m/m, the largest increase in 1-3/4 years.  Conversely, the German Mar ZEW expectations of economic growth index fell -15.1 to 13.0, weaker than expectations of 15.0.

USD/JPY (^USDJPY) today is up by +0.73%.  Higher T-note yields today are weighing on the yen.  Also, an easing of the U.S. and European banking turmoil has reduced the safe-haven demand for the yen.   Trading activity in the yen is subdued, with Japanese markets closed today for the Vernal Equinox Day holiday.

April gold (GCJ3) this morning is down -24.2 (-1.22%), and May silver (SIK23) is down -0.141 (-0.62%).  Precious metals prices this morning are moderately lower as an easing of the U.S.-European banking turmoil has sparked a rally in stocks and curbed the safe-haven demand for precious metals.  Also, higher global bond yields today are bearish for metals.  However, losses in metals are limited after the dollar index today dropped to a 5-week low.

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