S&P Futures Jump On SVB Backstop, Dovish Fed Bets: Markets Wrap

(Bloomberg) — U.S. stock futures were up more than 1% on Monday and the dollar slipped against key peers as traders digested steps taken by regulators to reinvigorate America’s financial sector following the Silicon to prop up Valley Bank.

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Treasury Secretary Janet Yellen said her office would protect “all depositors” at the bank, whose collapse on Friday was the biggest such event since 2008. The government’s actions will also include a new lending program that Federal Reserve officials said would be large enough to protect uninsured deposits in the broader US banking system.

Two-year Treasury yields contributed to their sharp decline over the past week, falling as much as 15 basis points before paring the move amid bets on slower Fed rate hikes. Yields on the 10-year term rose slightly.

Australian and New Zealand government bond yields tumbled as traders worldwide reassess the path of rate hikes and the economic costs the tightening cycle has already incurred. Japan’s benchmark 10-year yield also fell. The problems at SVB Financial Group’s bank were in large part caused by the fallout from higher US interest rates.

“The tightening of currency cycles often ends abruptly when ‘something breaks’ and triggers a financial crisis,” Ed Yardeni, founder of Yardeni Research, said in a statement. “If the run on Silicon Valley Bank is right, it could mean ends are tightening earlier and bond yields have peaked. We cannot say with certainty that this is the case, but we can say that the debacle should keep the tech sector in its rolling recession much longer.”

A benchmark for Asian equities was set at the lowest close since early January. Japanese equities led the region’s losses, with financials being the main drag on benchmark indicator Topix. The index headed for its biggest two-day loss in a year as the yen continued to strengthen.

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Meanwhile, stocks in Hong Kong and mainland China rose amid positive signs of policy continuity, with China’s central bank governor Yi Gang and finance and trade ministers remaining at their posts. President Xi Jinping also promised in his closing speech at the National People’s Congress to strive for reasonable economic growth and independence from technology.

Market action on Monday comes after risk assets took a hit last week, with the US equity benchmark having its worst week since September. Wall Street’s so-called “fear gauge” soared, with the Cboe volatility index hitting its highest this year. Two-year government bond yields fell 28 basis points to 4.59%.

Concern is also high ahead of this week’s CPI report, particularly after Fed Chair Jerome Powell recently stressed that a move to a faster pace of tightening would be based on the “all the data”.

But for now, the assurances given to the SVB by US regulators are having the desired effect.

“This will bring back confidence in the markets. But from the Fed’s perspective, there are additional dangers that need to be reviewed, which will take time,” Pepper International’s Carol Pepper said on Bloomberg TV. “So I hope this will help them have a good reason to stop, because frankly, creating financial stability is the most important job at the Fed.”

Elsewhere in the markets, oil reversed an earlier gain, while gold rose on its haven appeal. Bitcoin rose, reflecting relief among investors.

Important events this week:

• China Retail Sales, Industrial Production, Medium-Term Lending, Polled Unemployment Rate, Wednesday

• Eurozone industrial production, Wednesday

• US Corporate Inventories, Retail Sales, PPI, Empire Manufacturing, Wednesday

• Eurozone interest rate decision, Thursday

• US housing starts, initial jobless claims, Thursday

• Janet Yellen appears before the Senate Finance Committee on Thursday

• University of Michigan Consumer Sentiment, Industrial Production, Conference Board Headline Index, Friday

Some of the key movements in the markets:

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• S&P 500 futures were up 1.2% as of 11:09 a.m. Tokyo time. The S&P 500 fell 1.5% on Friday

• Nasdaq 100 futures rose 1.2%. The Nasdaq 100 fell 1.4%

• Japan Topix Index fell 2.1%

• Hong Kong’s Hang Seng index rose 0.8%

• China’s Shanghai Composite Index up 0.3%

• Australia’s S&P/ASX 200 index fell 0.4%

currencies

• The Bloomberg Dollar Spot Index fell 0.4%

• The euro rose 0.3% to $1.0676

• The Japanese yen rose 0.4% to 134.55 per dollar

• The offshore yuan rose 0.3% to 6.9169 per dollar

• The Australian dollar rose 0.6% to $0.6618

cryptocurrencies

• Bitcoin surged 4.8% to $22,528.72

• Ether was up 3.6% to $1,613.43

Bind

• The 10-year government bond yield rose two basis points to 3.72%

• Japan’s 10-year yield fell 6.5 basis points to 0.33%

• Australia’s 10-year yield fell eight basis points to 3.50%

raw materials

• West Texas Intermediate Crude fell 0.3% to $76.48 a barrel

• Spot gold rose 0.4% to $1,875.37 an ounce

This story was created with the support of Bloomberg Automation.

–Assisted by Vildana Hajric and Isabelle Lee.

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