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Wall St equities gain, Treasury yields rise as bank worries ease

2023-03-27T19:43:46Z

Wall Street equities gained while U.S. Treasury yields rose on Monday as investor concerns about the financial system were calmed after First Citizens BancShares (FCNCA.O) said it would take on the deposits and loans of failed Silicon Valley Bank (SIVB.O).

The deal offered a respite after weeks of turmoil prompted by the collapse of tech-focused Silicon Valley Bank and punctuated by more bank failures and rescues. And on Saturday Bloomberg News reported that U.S. authorities are considering the expansion of an emergency lending facility that would offer banks more support, easing concerns about contagion.

U.S. Treasury yields rose on optimism that stress in the banking sector could be contained, and US 2-Year Treasury yields rose to a session high after an auction.

The S&P 500 bank index (.SPXBK), after closing down more than 22% for the month-to-date on Friday, was up more than 3% on Monday. In Europe, Deutsche Bank shares (DBKGn.DE) rose 6% after leading declines in the sector on Friday, when investors fled as the cost of insuring the bank’s debt against default had jumped.

“The main driver to today’s sentiment has been the banking news over the weekend,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

Citing the First Citizens deal and the potential for expansion of emergency U.S. lending, James said there was a “sigh of relief” on Monday for the banking sector “which has had a giant anchor around its neck for the last three weeks.”

Still while the weekend’s news helped Monday’s mood, it did not completely dispel concerns about the bank sector and the impact of higher interest rates on the global economy, which has also been struggling with stubbornly high inflation.

For underperformance of rate sensitive sectors such as technology on Monday, James pointed to an increased probability the U.S. Federal Reserve would raise interest rates in May compared with traders expectations on Friday as the central bank continues to battle inflation.

“The greater the likelihood of no additional bank failures the easier potentially it would be for the Fed to continue rate hikes, he said.

The Dow Jones Industrial Average (.DJI) rose 297.02 points, or 0.92%, to 32,534.55, the S&P 500 (.SPX) gained 22.08 points, or 0.56%, to 3,993.07 and the Nasdaq Composite (.IXIC) dropped 0.48 points, to 11,823.48.

The pan-European STOXX 600 index (.STOXX) had closed up 1.05% while MSCI’s gauge of stocks across the globe (.MIWD00000PUS) gained 0.52%.

Emerging market stocks (.MSCIEF) lost 0.76%. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 0.81% lower, while Japan’s Nikkei (.N225) rose 0.33%.

In U.S. Treasuries, benchmark 10-year notes were up 14.8 basis points to 3.526%, from 3.378% late on Friday. The 30-year bond was up 11.3 basis points to yield 3.7569% and the 2-year note was last was up 22.9 basis points to yield 4.0057%.

The dollar rose to a two-day high against the Japanese yen but the U.S. currency traded in a narrow range against most major currencies as investors appeared hesitant to place big wagers as they sought clarity on the fallout from the recent collapse of two U.S. lenders and the rescue of Credit Suisse (CSGN.S).

Credit Suisse last week became the highest-profile casualty in the financial sector crisis, as Switzerland’s second-largest bank was rescued by rival UBS (UBSG.S).

In the United States, depositors have been fleeing smaller banks for larger institutions or to money market funds. Flows to such funds have risen by more than $300 billion in the past month to a record above $5.1 trillion, according to Bank of America, citing figures from EPFR data provider.

The dollar index fell 0.146%, with the euro up 0.34% to $1.0796. The Japanese yen weakened 0.67% versus the greenback at 131.58 per dollar.

Sterling was last trading at $1.229, up 0.50% on the day while the Mexican peso gained 0.45% versus the U.S. dollar and the Canadian dollar rose 0.69% versus the greenback.

Oil prices rallied after Iraq was forced to halt some crude exports from its semi-autonomous Kurdistan region, with an additional boost from steps to stem a potential banking crisis that could potentially have hit oil demand.

U.S. crude prices settled up 5.13% to $72.81 per barrel and Brent finished at $78.12, up 4.17% on the day.

Gold prices slipped as investors scaled back on safe haven trades as investors dipped into riskier bets such as equities.

Spot gold dropped 1.1% to $1,955.96 an ounce. U.S. gold futures fell 1.26% to $1,952.40 an ounce.

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 22, 2023. REUTERS/Brendan McDermid

A man is reflected on an electronic board displaying various companies’ stock prices outside a brokerage in Tokyo, Japan, February 22, 2022. REUTERS/Kim Kyung-Hoon/File Photo
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