US equities climbed with Treasury yields on Thursday, after major US banks agreed to deposit US$30 billion at troubled First Republic Bank.
United States
The S&P500 posted the largest single day advance since January as the show of support by major banks in their regional counterparts helped alleviate concerns of wider contagion in the financial sector. Elsewhere, the Swiss banking giant Credit Suisse announced the Swiss Central bank opened a $54 billion credit line and offered to buy back debt to ward off investor concerns. Speaking on the impact of Silicon Valley Bank (SVB), Treasury Secretary Janet Yellen stated her department was monitoring for a potential contraction and the treasury would “re-examine our rules and supervision and make sure they’re appropriate”.
In economic data, the number of jobless claims rose at a slower pace in first week of March with 192k persons filing for unemployment, well below forecasts of 205k, and lower than the previous week’s -212k. Meanwhile, the Philadelphia Fed Manufacturing Index revealed a decline in productivity with the index falling to -23.2 in March from -24.3 in January, but still higher than forecasts of -15.6.
The S&P 500 closed 1.76% higher, boosted by information technology, communications, and financials rising 2.82%, 2.77%, and 1.95% respectively. Real estate and consumer staples were the only underperforming sectors closing slightly lower. The Dow rose by 1.17%, the Nasdaq jumped 2.48% and the Russell 2000 gained 1.45% with the VIX retreating 12.05% to 22.99 to be around levels prior to last Friday’s collapse of Silicon Valley Bank which sparked turmoil. The yield on the 2-year treasuries rose 27 basis points to 4.157% with both the 10 and 30-year rates 12.2 and 5.6 basis points higher respectively, while the US Dollar index edged 0.17% lower.
Europe
As forecast by economists, the ECB raised interest rates by 0.5% overnight taking their benchmark rate to 3.50% with a further 0.5% increase priced in by financial markets in June which is expected to represent a peak in rate increases for now. Equities were boosted by positive sentiment on Wall Street following efforts to protect the financial system from further turmoil. The Euro STOXX 600 Index rose 1.19% along with the CAC 2.03%, the DAX added 1.57%, and the FTSE100 gained 0.89%. Investors’ focus will shift towards the final reading of inflation for the Eurozone in February, expected to confirm core prices rose 5.6% over the year and headline prices eased modestly to 8.5%.
ECB Main Refinancing Rate
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is expected to open higher on Friday, with ASX futures up 27 points or 0.39% to 7,012. The ASX 200 closed 1.46% lower on Thursday at 6965.50, weighed by a drop on Wall Street on Wednesday. Major banks continued to come under pressure, ANZ lost -2.5%, Westpac declined -2.1%, NAB fell -1.7%, and Commonwealth Bank shed -0.1%. Energy stocks were notably lower following a slump in crude oil, Woodside Group sank 5.4% and Santos declined 4.9. Whitehaven Coal dropped by -5.0%, BHP -4.8%, Rio Tinto -4.0%. Individually, Liontown Resources was the star performer jumping 4.45% while IPH, the intellectual property law firm, plummeted by -10.61% following a trading halt earlier in the week after a cyberattack on two of its member firms. Elsewhere, shares in Latitude Group (LFS) were halted on Thursday after the company said it had been hit by a cyberattack resulting in 225k customer records being stolen.
In economic data, the unemployment rate in the country fell from 3.7% in January to 3.5% in February, slightly lower than economists’ expectations. The number of individuals employed in February jumped to 64.6k, well above forecasts of 48.5k. Despite the stronger-than-expected employment data, traders are betting that recent cracks in the US financial sector are likely to see central banks ease from their recent tightening, with no rate increase priced by financial markers for the early April meeting for the RBA and now expect nearly two rate cuts by September.
RBA Cash Rate Futures Pricing
Commodities
In commodities, oil prices rose with WTI and Brent crude firming 1.09 % and 1.37 % to a price of US$ 68.35 and US$ 74.70 respectively. In precious metals, spot gold edged up 0.05% to US$ 1,919.52 while spot silver fell by 0.36% to US$21.70. In industrial metals, copper added 0.75% to US$389, while iron ore futures slipped 2.29% on Thursday and are a further 0.74% lower this morning at US$128.20.
Economic Data
17th March 2023
EUR: Core Inflation Rate Final (YoY Feb) 9:00pm
18th March 2023
US: Industrial Production (MoM Feb) 12:15am
US: Michigan Consumer Sentiment (MoM Mar) 01:00am
US: CB Leading Index (MoM Feb) 01:00
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
