LONDON, March 27 (Reuters) – U.S. stock futures rose on Monday, after First Citizens BancShares (FCNCA.O) helped calm unsettled markets by saying that it would take the deposits and loans of failed Silicon Valley Bank (SIVB.O).
The deal offered markets some respite after weeks of turmoil set off by the collapse of tech-focused SVB earlier this month and punctuated by more bank failures and rescues orchestrated by authorities.
S&P 500 futures traded up 0.5% and Nasdaq futures edged up 0.3% as of 1145 GMT.
The pan-European STOXX 600 (.STOXX) index rose up 1.3%. The STOXX banks index (.SX7P) jumped 2.3% in early trading and was last up 1.6%.
Deutsche Bank shares (DBKGn.DE) rose about 5% after leading declines in the sector on Friday, when the cost of insuring the German bank’s debt against the risk of default jumped.
China saw profits for industrial firms shrink 22.9% in the first two months of this year, as its factories struggled to come out of the COVID-related disruptions, which pushed Chinese blue chips (.SSEC) down 0.4%.
The SVB deal helped sentiment, but was not enough to completely dispel jitters over banking stress and the impact of higher rates on global growth.
Last week, Credit Suisse became the highest profile casualty of market turmoil, as Switzerland’s second-largest bank needed to be rescued by local rival UBS(UBSG.S) in a deal engineered by Swiss authorities.
“Banks have been under an immense amount of pressure. SVB and Credit Suisse put banks under a microscope on the impact that higher rates would have on certain credits,” said Victor Balfour, investment strategist at Rothschild & Co. in London.
“But we don’t think these specific names are symptomatic of the wider banking system,” he said.
While inflation has not yet subsided, focus should shift in the coming months to corporate earnings expectations, which fell during the second half of last year, Balfour said.
In the United States, depositors have been fleeing smaller banks for their larger cousins 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.
Deposit outflows will have a knock-on effect in commercial real estate causing lending to tighten, said Vijay Modhvadia, managing director of Deuterium Capital Management.
“The next market worry is on refinancing in commercial real estate markets. Small to medium sized banks are a big part of that,” Modhvadia said. He added he believed this would stick with markets for a while.
PRICED FOR FED CUTS
Minneapolis Fed President Neel Kashkari said on Sunday officials were watching “very, very closely” to see if the banking stress led to a credit crunch that threatened to tip the economy into recession.
That, in turn, meant the Fed was closer to a peak in rates, he added. Markets are well ahead of the central bank in pricing around an 80% chance rates have already peaked, while a first rate cut is odds-on for as early as July.
Fed Governor Philip Jefferson speaks later on Monday, while Fed Vice Chair for Supervision Michael Barr testifies on “Bank Oversight” before the Senate on Tuesday.
Yields on two-year Treasuries , which have fallen nearly 90 basis points so far this month, were last up 15.5 basis points at 3.92% on Monday.
That dive has sometimes been a drag on the dollar, at least against the safe-haven Japanese yen, trading at 131.52 yen , having touched a seven-week low of 129.65 last week.
The euro suffered its own reversal on Friday over the worries about Deutsche, and it was last at $1.0765 and well off last week’s $1.0930 high.
The drop in yields has combined with the run from risk to burnish gold, which was trading at $1,949 an ounce after reaching a high above $2,009 last week.
Oil prices were little changed, nursing losses of almost 10% for the month as worries about global growth undermine commodities in general.
Brent and U.S. crude both rose slightly over 1% to $75.75 a barrel and $69.99 per barrel, respectively.
Reporting by Nell Mackenzie and Wayne Cole; Editing by Sam Holmes, Jacqueline Wong, Peter Graff and Tomasz Janowski
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