(Bloomberg) – US stocks slid while Treasuries rallied on Friday, capping a turbulent week for global markets as concerns mounted that the turmoil rocking the banking sector will plunge the global economy into recession.
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The S&P 500 slipped after the index rose 1.8% yesterday as larger banks threw a lifeline to First Republic Bank, the latest US lender, to signal stress. That didn’t stop First Republic stock from slipping, but other regional lenders were also weak as the sector fell more than 10% this week. fedex corp was one of the benchmark’s bright spots, rising around 8% after the courier raised its earnings outlook.
The Nasdaq 100 continued its decline after oscillating between gains and losses. The rate-sensitive benchmark is still heading for its best week since November on expectations that the Federal Reserve will ease its tightening stance. The 10-year government bond yield deepened its fall after weaker-than-expected inflation expectations. An index of the dollar fell.
Banks including JPMorgan Chase & Co. and Citigroup Inc. joined forces Thursday to show their support for First Republic. While the rescue attempt initially boosted sentiment, billionaire investor Bill Ackman was among those wondering if it would be enough to stop the crisis. Meanwhile, US banks borrowed a combined $164.8 billion from two Federal Reserve backstop facilities over the last week, a sign of escalating funding problems following the collapse of the Silicon Valley bank.
“We do not expect a full-blown financial crisis, but one cannot ignore the underlying dynamics,” said Karsten Junius, chief economist at Bank J Safra Sarasin AG. “Financial conditions will most likely continue to tighten, increasing recession risks. We therefore advocate a defensive positioning on risk assets and a tactically cautious stance on the banking sector, although the constructive case for banks remains intact over the medium to longer term.”
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Friday’s quarterly triple witching, which sees all index futures, stock index options and stock options contracts expire, could add to the volatility in trading.
The Stoxx Europe 600 index fell, while shares in troubled Swiss lender Credit Suisse Group AG resumed their decline, falling as much as 13% after the idea of a forced merger with larger competitor UBS Group AG was scrapped . The stock was up 19% on Thursday after support from the Swiss central bank.
Markets also digested a 50 basis point rate hike by the European Central Bank. By making it clear that stress points in the banking industry – as well as economic data – will guide future rate decisions, ECB President Christine Lagarde paved the way for bond market volatility to remain elevated for the remainder of the year, as traders try to calculate out when the migration cycle ends.
US two-year yields are down at least 20 basis points a day for six straight sessions through Thursday as traders recalibrated their rate hike bets. Market prices for the Fed’s March 21-22 meeting have vacillated between another quarter-point hike and the first rate pause in more than a year. US overnight indexed money market swaps are now pricing in about a 60% chance of a 1/4 point Fed rate hike next week.
Wall Street remains divided over which direction the central bank should move. Anastasia Amoroso, chief investment strategist at iCapital, told Bloomberg Television that the confidence signaled by a 25 basis point hike in the Fed will “not go that far”.
“They have to rest,” said Amoroso. “The greatest vote of confidence would be to say that we are prepared for the topic. We want to take the time to ensure we have the right approach before resuming this cycle of rate hikes. That would be the best approach for me.”
The BlackRock Investment Institute does not expect cracks in the financial sector to stop central banks from raising interest rates further to curb inflation. She expects both the ECB and the Fed to “go as far as possible to differentiate their anti-inflationary campaigns from measures to deal with banking problems and protect the financial system,” a team of BlackRock analysts wrote in a statement.
Jack Manley, global markets strategist at JPMorgan Investment Management, expects some sort of Fed deferral next week and that could bring markets a “sigh of relief”.
“Financial stability is more important than inflation. And the Fed will have a very difficult time transmitting monetary policy through a banking system that is broken,” Manley told Bloomberg Television.
Bitcoin surged to its highest level since June amid a broad cryptocurrency rally. Other tokens like Ether, Solana, and Polkadot also surged. Oil is heading for its worst week so far this year. Golden Rose.
These are the main market movements:
Shares
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The S&P 500 was down 0.9% at 10:29 am New York time
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The Nasdaq 100 fell 0.2%
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The Dow Jones Industrial Average fell 1.1%
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The Stoxx Europe 600 fell 1.3%
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The MSCI World Index fell 0.5%
currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro rose 0.2% to $1.0631
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The British pound rose 0.3% to $1.2146
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The Japanese yen rose 1.3% to 132.02 per dollar
cryptocurrencies
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Bitcoin surged 7% to $26,475.13
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Ether was up 4.1% to $1,727.8
Bind
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The 10-year government bond yield fell 16 basis points to 3.42%
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The 10-year German government bond yield fell 18 basis points to 2.11%
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The 10-year UK government bond yield fell 18 basis points to 3.25%
raw materials
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West Texas Intermediate Crude fell 3% to $66.31 a barrel
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Gold futures rose 1.7% to $1,973.50 an ounce
This story was created with the support of Bloomberg Automation.
–With the support of Robert Brand.
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