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Global Markets: Stocks eke out gains with banks reversing selloff

The Global Markets, S&P 500 recovered from a slide that had reached 1% earlier in the session to record its second consecutive week of gains. A gauge of major US financial institutions rose from its low point since November 2020. Citizens Financial Group Inc. and Zions Bancorporation both gained at least 2.9% as a result of battered regional lenders driving the recovery. This year’s decline in First Republic Bank has increased to 90%.

The sudden rise in the cost of insuring Deutsche Bank AG’s debt against default, which some attributed to hedge funds seeking to profit from the financial industry’s general turmoil, sparked an earlier selloff in lenders. Olaf Scholz, the German Chancellor, publicly backed the lender, describing it as a “very profitable bank” in response to the selloff.

Following the recent failure of some US regional lenders and the near-collapse of banking giant Credit Suisse Group AG prior to its government-brokered takeover by rival UBS Group AG, global authorities continued to attempt to restore calm to financial markets and bank depositors.

Depository Secretary Janet Yellen was set to gather the heads of top US monetary controllers Friday for a formerly unscheduled gathering of the Monetary Soundness Oversight Board. According to people familiar with the situation, Christine Lagarde, President of the European Central Bank, stated to leaders of the European Union that the region’s banking sector is robust.

According to Mark Haefele at UBS Global Wealth Management, this episode appears unlikely to develop into something similar to the 2008–2009 meltdown because of regulations enacted following the global financial crisis to boost bank capital and liquidity ratios and the magnitude of responses from policymakers over the last few weeks.

Haefele made the following observation: “Confidence is still fragile, volatility is likely to remain high, and policymakers may yet have to go further to ensure that faith in the global financial system stays solid.” Nonetheless, the risk will rise as financial conditions are likely to tighten. even if central banks ease off on interest rate hikes, of an economic hard landing.”

Even though Chair Jerome Powell stated that cuts are not his “base case,” traders added to bets that the Federal Reserve would cut interest rates as early as June and abandon bets that it would raise rates in May. Traders no longer price in an additional quarter-point rate hike for the ECB and the Bank of England. Treasury two-year yields fell to their lowest level since September as global bonds rallied. Over 30 basis points were lost in German two-year rates. points.

Three officials said this week’s tightening was clearly needed to control an economy that was running hotter than expected, echoing Powell’s determination to restore price stability. James Bullard, president of the St. Louis Fed, also stated that he now anticipates raising rates to 5.625 percent this year, 50 basis points more than his colleagues’ median projection.

A gauge of US inflation activity slowed to its lowest level since 2021, according to Fed Bank of New York data earlier in the day.

In a week of banking stress that has roiled markets, a record $60 billion was spent on a Fed facility that gives foreign central banks access to dollar funding. The demand spans the week of March 22 through the institution’s Foreign and International Monetary Authorities Repo Facility. Who accessed the funding was not disclosed by the Fed.

Because they are the conduit through which credit moves through the economy, banks are frequently on the front lines when concerns about a recession grow.

According to tweets, DoubleLine Capital LP’s chief investment officer, “Red Alert” Jeffrey Gundlach, anticipates a “substantial” rate cut from the Federal Reserve in the near future. He also said that the US yield curve was sending “red alert recession signals.”

Bank of America Corp. strategists predict that equity and credit markets will plummet in the coming months as concerns about an economic slowdown grow. Investors are fleeing to cash in the greatest rush since the pandemic began.

A group led by Michael Hartnett wrote, “Credit and stock markets too greedy for rate cuts, not fearful enough of recession.” The strategist, who was correct to be bearish throughout the entire year, predicted that investment-grade spreads and stocks would suffer losses in the three to six months to come.

According to the note, which cites EPFR Global data, global cash fund inflows reached nearly $143 billion on Wednesday, the highest level since March 2020. These inflows have totaled more than $300 billion over the past four weeks. Assets in money market funds have reached a record high of over $5.1 trillion. Hartnett stated that major Fed interest rate reductions in 2008 and 2020 coincided with previous surges.

Even though credit markets are rising on bets that the worst of the global banking crisis may be over, investors are staying away from the most vulnerable borrowers in corporate America.

Since the end of February, when three regional banks in the United States failed and Credit Suisse Group AG was quickly taken over, the gap in spreads between the two weakest tiers of typically issued corporate debt, B and CCC, has significantly increased. According to Bloomberg data, selling bonds now costs CCC issuers 531 basis points more than B rated issuers.

Some of the major market shifts:

stocks As of 4 p.m. New York time, the S&P 500 had gained 0.6%.
The Dow Jones Industrial Average increased by 0.4 percent, the MSCI World index decreased by 0.2 percent, the Bloomberg Dollar Spot Index increased by 0.4 percent, and the euro decreased by 0.7 percent to $1.0759.
To $1.2227, the British pound lost 0.5 percent.
At 130.76 dollars, the Japanese yen was little changed.

cryptocurrencies Ether declined by 3% to $1,764.21 bonds The yield on 10-year Treasuries decreased by six basis points to 3.37 percent.
The 10-year yield in Germany decreased by seven basis points to 2.13 percent. The 10-year yield in Britain decreased by eight basis points to 3.28%. Commodities West Texas Intermediate crude decreased by 1.1% to $69.18 a barrel. Gold futures decreased by 0.8% to $1,997.70 an ounce.

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