Morning Bid Americas: Brittle banks find a berth

First Citizens Bancshares (Tennessee)

27/03/2023 11:01

A look at the day ahead in U.S. and global markets from Mike
Dolan
    The final week of a turbulent month and volatile quarter for
world markets has kicked off with relative stability in the
battered banking sector at the heart of the latest upheaval.
    Two developments on the U.S. side of the banking disturbance
acted as a boon. 
    First Citizens BancShares  FCNCA.O  said on Monday it will
acquire all the loans and deposits of failed U.S. lender Silicon
Valley Bank. Customers retain access to their accounts, the
North Carolina-based bank said, and branches open on Monday.
    Secondly, reports circulated at the weekend that U.S.
authorities are considering expanding the Federal Reserve's
emergency lending program that would offer banks more support,
in an effort that could give First Republic Bank  FRC.N  more
time to shore up its balance sheet.
    First Republic's shares jumped 25% before the bell on
Monday, with the wider S&P500 stock futures up 0.3%. With few
fresh weekend developments on the European bank stock rigor late
last week, European bourses and bank stocks found a level too.
    Deutsche Bank, whose stock lurched lower on Friday amid
fears about rising bank funding costs, regained about 3% on
Monday. UBS, in the middle of a shotgun marriage with failed
rival Credit Suisse, edged 1% lower.
    At the heart of the U.S. problem remains depositor flight
from smaller banks toward their bigger and better regulated
rivals - and to money market funds, which have seen an inflow of
more than $300 billion in the past month to a record $5.1
trillion.
    Deposits at small banks fell by $120 billion in the week to
March 15, while borrowing jumped $253 billion. 
    Many analysts now see the only viable solution as either big
rises in deposit rates at smaller banks - where deposit rates
lagged sharp Fed rate rises before the crisis hit - or a severe
cutback on lending that could seed a credit crunch in the wider
economy, or both.
    These sorts of moves to cash money funds have in the past
prompted the Fed to ease monetary policy. And futures now show a
two thirds chance the Fed stands pat in May, while a July cut is
priced at about 90%.
    U.S. two-year Treasury yields nudged higher 3.88% on Monday,
but the yield curve between three months and 10 years briefly
dipped to its most inverted level in 42 years - signalling
heightened fears of recession ahead.
    The conundrum for central banks is that inflation remains
high even as the banking stress mounts. Fed officials will watch
the release on Friday of core PCE inflation data for February
while March numbers for the euro zone are due out this week too.
    Economists polled by Reuters expect the headline
year-on-year inflation rate to have cooled to 7.2% from 8.5% in
February. But they see the core rate - which strips out volatile
food and energy prices - hitting a new record of 5.7%.
    Above-forecast German business activity readings for March
only adds to the policy headache, as does waves of labour
strikes across Europe's biggest economy.    
    U.S. core PCE is expected to have stuck at 4.7% last month.
 
Key developments that may provide direction to U.S. markets
later on Monday:
* U.S. March Dallas Fed manufacturing survey 
* U.S. Federal Reserve Board Governor Philip Jefferson speaks;
Bank of England governor Andrew Bailey speaks; European Central
Bank board member Isabel Schnabel speaks in NY.
* U.S. Treasury auctions 2-year notes
* U.S. corporate earnings: Carnival

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
U.S. bank deposits    https://tmsnrt.rs/3z7mAO6
Global business activity strengthened in March     https://tmsnrt.rs/3ZleRa8
U.S. bank selloff    https://tmsnrt.rs/3z8Fqo9
Big stocks beat the market    https://tmsnrt.rs/3nhSCob
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (By Mike Dolan, editing by Ed Osmond,
mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)
 ((mike.dolan@thomsonreuters.com; +44 207 542 8488; Reuters
Messaging: mike.dolan.reuters.com@thomsonreuters.net))