MARKET WRAPS
Stocks:
European stocks traded lower again on Monday as investors continued to digest the Silicon Valley Bank fallout.
"The bank crisis will be sitting in the headlines, as solutions and possible contagion beyond the banking sector and beyond the US borders will be on the menu of the week," Swissquote Bank said.
"The latter will likely interfere with the Federal Reserve rate hike expectations,..., as the Fed may want to think twice before stepping on the gas this month; Mr. Powell certainly doesn't want to go down in history as the clumsiest Fed President in the history of the Fed," Swissquote said.
"Activity in Fed funds futures now assesses more than 98% chance for a 25bp hike in March," Swissquote said, "because the Fed can't ignore the issues caused by the steep interest rate increases in the banking sector and can't afford to trigger a financial crisis to bring inflation back to 2%."
Economic data will be important, but the developments across the banking sector could overshadow the data, it added.
SVB
The collapse of Silicon Valley Bank has limited read-across to the European banking sector, which generally have a deposit base less concentrated on one sector, as SVB was disproportionately with tech start-up firms, Citi said.
European banks are still seeing relatively healthy deposit flows, operate with large liquidity portfolios, and remain well capitalized, it said.
Importantly, banks in Europe are still seeing system-wide deposit inflows, compared to outflows in U.S., though deposit growth is beginning to slow, especially among commercial clients, Citi added.
Read Credit Suisse Hits Another Record Low as SVB Contagion Fears Bite
---
The events surrounding Silicon Valley Bank demonstrate that risks from tightening monetary policy and slowing economic growth are beginning to crystallize, Liberum said.
"Inappropriately dressed swimmers are being revealed as the tide goes out."
It noted the main takeaway for banks and fintechs is the risk to profitability as net interest margins are squeezed by increasing competition for deposits.
The banks' return on equity will also likely have peaked given inflationary pressures on cost bases and the turn in the credit quality cycle, Liberum said, adding that solvency is not an issue.
U.S. Markets:
Stock futures wavered between gains and losses after regulators moved to limit the impact of the collapse of SVB.
Stocks to Watch
First Republic Bank was falling 64% in premarket trading. The bank said Sunday it "further enhanced and diversified its financial position" through additional liquidity from JPMorgan and the Fed.
Provention Bio was soaring 262.5% to $24.29 after the company agreed to be acquired by Sanofi for $25 a share, or about $2.9 billion.
PacWest Bancorp shares were down 26% premarket and Western Alliance Bancorp fell 17%, as investor jitters spread to other regional lenders, after Signature Bank was closed by regulators on Sunday.
Forex:
U.S.-eurozone interest rate differentials have narrowed in favor of the euro-dollar exchange rate due to worries about stress in the U.S banking system after the collapse of SVB, ING said.
"The dramatic re-pricing of the Federal Reserve policy curve has seen two-year EUR:USD swap rate differentials narrow inside 100 basis points-the narrowest since October 2021," ING added.
Unless there's a massive rally in U.S. banking stocks Monday that suggested U.S. authorities were successful in containing bank risks, EUR/USD looks biased to the 1.0780-1.0800 area, it said.
---
The dollar fell as U.S. banking crisis fears reduced the prospect of the Fed stepping up the pace of interest rate rises at its March 22 meeting, Swissquote Bank said.
---
Read Swiss Franc, Japanese Yen Rise as SVB Collapse Boosts Safe Havens
Bonds:
The 10-year German Bund yield is expected to trade in a range between 2.45% and 2.80% until the start of the summer, Morgan Stanley said.
The weakness on U.S. financials pushed back the 10-year Bund yield to the 2.45%-2.50% area, Morgan Stanley said, adding that this was in line with their view a week earlier.
Back then they said that with the 10-year Bund yield around the 2.75% psychological level, a significant discount versus the spot value and still a decent cumulative short base on Eurex German futures, the scenario of a near-term rebound was credible.
---
Eurozone government-bond yields eased as money markets continued to price out some interest-rate rises by both the ECB and the Fed, Mizuho said.
"Pricing for next week's Fed meeting fell to 34bp, but we think that the risk for a 50bp hike is still worth considering."
Stress in the financial sector and the less-than-definitive payrolls report suggest that whether the Fed decides to re-accelerate the pace of interest-rate rises in March will likely depend on the CPI release on Tuesday, Mizuho added.
---
In addition to a likely 50 basis point interest-rate rise, the ECB's meeting is expected to deliver some soft guidance for May, hinting at another 50bp move unless the outlook for core inflation improves between now and then, Bank of America said.
However, markets might not get what they look for, BofA said ahead of ECB's meeting on Thursday.
"We think the Governing Council is too divided to agree on the policy path beyond, at most, May," BofA said, adding that the risk therefore is that the ECB won't provide a signal on what comes after the March meeting.
Energy:
Oil edged higher thanks to a weaker dollar and as investors balanced hopes for Chinese demand with a weak outlook in the U.S.
"Oil markets are torn between factually robust data from the East and an expected run of soft data from the West, where hawkish Fed rhetoric has revived recession fears," SPI Asset Management said.
Metals:
Base metal and gold prices were pushing higher after the Fed said it is stepping in to shore up confidence in the U.S. banking system following SVB's collapse.
Gold
Gold's bullish momentum may persist after its price rose above the key technical resistance at $1,845/oz, although some caution over a possible false breakout should be taken, ANZ said.
The rise in gold's price has come following the U.S. employment report and the collapse of SVB on Friday, it noted.
With gold having earlier risen above $1,850/oz, the precious metal's next resistance is at $1,960/oz, based on ANZ's technical analysis.
DOW JONES NEWSPLUS
EMEA HEADLINES
Silicon Valley Bank's U.K. Arm to Be Bought by HSBC
HSBC will buy the U.K. subsidiary of Silicon Valley Bank for just over $1, after a frantic weekend for regulators who tried to find a way to protect the bank's depositors after its U.S. parent collapsed.
The deal meant the bank avoided being placed into insolvency, which the Bank of England had planned to impose if it couldn't find a buyer. The central bank said the sale would support confidence in the U.K.'s financial system.
Silver Lake Consortium to Acquire Nasdaq-Listed Qualtrics
U.S. private-equity firm Silver Lake and Canada Pension Plan Investment Board have agreed to acquire experience-management software company Qualtrics International Inc. in a deal that values the Nasdaq-listed company at around $12.5 billion.
The acquisition value includes purchasing all of SAP SE's majority stake for approximately $7.7 billion, SAP said in a statement Monday.
Sanofi to Acquire Provention Bio for Around $2.9 Bln
Sanofi SA said Monday that it has entered into an agreement to acquire U.S.-based biopharmaceutical company Provention Bio, Inc. for around $2.9 billion, or $25 a share.
The French pharma major said that the agreement's conditions include the tender of a majority of Provention Bio's outstanding shares, including shares that Sanofi already owns.
MTN Group 2022 Net Profit Rose on Robust Demand, Backs Midterm Views
MTN Group Ltd. said Monday that 2022 net profit rose on the back of higher demand for data and sustained fintech, and that it backed its mid-term targets despite the macroeconomic pressures.
The South Africa-based telecommunications group made a net profit of 19.34 billion South African rand ($1.06 billion) compared with ZAR13.75 billion in 2021.
Russia's War in Ukraine Hurts Its Arms Industry, Creates Openings for Rivals
Among the casualties of Russia's war in Ukraine: its own lucrative arms-export industry.
Russia has long been the world's second-largest arms exporter, after the U.S., but its sales have been in decline ever since Moscow-backed forces seized parts of Ukraine in 2014.
Saudi Aramco Posts Record $161 Billion Profit for 2022
Saudi Arabia's national oil company reported record annual profit of $161 billion for 2022, the largest ever by an energy firm, boosting the kingdom's coffers as it looks to showcase its global business and foreign-policy ambitions and limit its heavy reliance on oil.
Saudi Arabian Oil Co., known as Aramco, said its yearly profit swelled by 46% in 2022 amid a rise in oil prices that has helped cement the kingdom's dominance as the world's most important oil producer and reinforce its geopolitical power at a time of shifting alliances in the Middle East.
Saudi Arabia Unveils New Airline Amid Jet Talks With Boeing
RIYADH, Saudi Arabia-This oil rich kingdom unveiled a new international airline called Riyadh Air, aiming to compete with a handful of other Middle Eastern carriers that have used their geography to build world-class airlines and attract business travelers and tourists.
Saudi Arabia's sovereign-wealth fund, the Public Investment Fund, is close to committing to a big order of Boeing Co. jets to underpin the new airline, The Wall Street Journal first reported over the weekend. A deal, which could be announced as early as this week, would be a boon for the aircraft maker and a big bet by Riyadh that it can compete in an already-crowded regional aviation market.
Saudi Arabia-Iran Pact Marks Setback to Israel's Efforts to Counter Tehran
(MORE TO FOLLOW) Dow Jones Newswires
03-13-23 0719ET
