US stocks shed gains as banks rebound; Bonds Drop: Markets Wrap

(Bloomberg) – US stocks gave back gains while bonds slid as the banking sector bounced off recent lows on the prospect of further support from US authorities.

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The S&P 500 pulled back from gains of as much as 0.8% as the banking sector rallied. The policy-sensitive Nasdaq 100 reversed early gains.

First Citizens BancShares Inc. led a rally in regional lenders after agreeing to buy SVB Financial Group’s Silicon Valley Bank. First Republic Bank pounced on a Bloomberg report that US agencies are considering expanding an emergency lending facility that would give the lender more time to strengthen its balance sheet.

“They bought themselves some time, I have a hard time imagining this banking crisis is going to last a month and a half,” Win Thin, global head of currency strategy at Brown Brothers Harriman, told Bloomberg Television. “I think at that point we could give the all clear to actually proceed with the tightening.”

The weekend may have brought some relief to the banking sector but it continues to be closely watched. A measure of US regional banks has lost more than 90% since early February.

“While nervousness is evident, there is no doubt that the response so far has prevented the situation from getting much worse and confidence will gradually improve as long as no other banks get into trouble,” wrote Craig Erlam, enrolled senior market strategist at Oanda. “It’s obviously a big if at this point.”

recession risks

The yield on the 10-year Treasury rose about 12 basis points, while the rate-sensitive 2-year rose about 20 basis points. An inverted yield curve continues to signal a downturn.

Minneapolis Fed Chairman Neel Kashkari warned over the weekend that the strain on the financial sector has increased the risk of a US recession. HW avoided forecasting the central bank’s May meeting.

The story goes on

“The recent banking turmoil reinforces our belief that a deeper than expected recession will hit this year,” said Chris Senyek of Wolfe Research. He also sees increasing “explosion” risks. “We are already seeing early signs of deterioration in CRE and autos and we believe the widening in spreads portends further issues.”

estimates too high

While bonds are pricing in further recession potential, stocks have rallied and earnings estimates have yet to be lowered, according to Morgan Stanley’s Michael Wilson – one of the most prominent bearish voices on US equities.

“Given the events of the past few weeks, we believe forecasts are looking increasingly unrealistic and equity markets are at greater risk of pricing in much lower estimates before hard data turns,” Wilson wrote in a note Monday.

Investors will be closely watching the data on the consumer spending index, which is the Fed’s preferred measure of underlying price pressures, which will be released later this week to guide the Federal Reserve’s interest rate path.

Elsewhere, European Central Bank executive board member Isabel Schnabel pushed for this month’s decision statement to signal possible rate hikes in the future, according to people familiar with the matter.

Another indication of risk appetite, oil rose and gold slipped.

Important events this week:

• US Wholesale Stocks, US Conf. Consumer Confidence Board, Tuesday

• EIA Crude Oil Inventory Report, Wednesday

• Eurozone Economic Confidence, Consumer Confidence, Thursday

• US GDP, Initial Jobless Claims, Thursday

• Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin will speak at the event. Treasury Secretary Janet Yellen will also speak on Thursday

• China PMI, Friday

• Eurozone CPI, Unemployment, Friday

• US Consumer Income, PCE Deflator, University of Michigan Consumer Sentiment, Friday

• ECB President Christine Lagarde speaks on Friday

• New York Fed President John Williams speaks on Friday

Some of the key movements in the markets:

Shares

• The S&P 500 was up 0.3% at 10:39 a.m. New York time

• The Nasdaq 100 fell 0.1%

• The Dow Jones Industrial Average rose 0.5%

• The Stoxx Europe 600 rose 1%

• MSCI World Index up 0.3%

currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.2% to $1.0782

• The British pound rose 0.4% to $1.2281

• The Japanese yen fell 0.5% to 131.39 per dollar

cryptocurrencies

• Bitcoin fell 1.6% to $27,368.21

• Ether fell 1.4% to $1,737.95

Bind

• The 10-year government bond yield rose 10 basis points to 3.48%

• The 10-year German government bond yield rose nine basis points to 2.22%

• The 10-year UK government bond yield rose 7 basis points to 3.36%

raw materials

• West Texas Intermediate crude rose 1.8% to $70.49 a barrel

• Gold futures fell 1.4% to $1,974.60 an ounce

This story was created with the support of Bloomberg Automation.

–Assisted by Robert Brand and Namitha Jagadeesh.

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