Market Update
Fed's Decision Awaited Amid High Inflation and Elevated Bank Stress
Barry Adams
21 Mar, 2023
New York City
A sharp rebound in regional banks led benchmark indexes higher after Investors put their faith in government reassurances.
Benchmark indexes advanced for the second day this week after investors bid up regional banks following comments from the U.S. Treasury Secretary.
Secretary Janet Yellen showed the government's willingness to extend financial guarantee to uninsured deposits at all regional banks "if needed."
The supportive comments lifted stocks of battered down mid-sized banks.
A third of all U.S. lending to businesses and consumers is provided by about 75 mid-sized banks with assets between $50 billion and $200 billion.
Investors are increasingly focused on the health of the U.S. banking system after the sudden collapse of Silicon Valley Bank and the $30 billion deposit infusion in the First Republic Bank.
Customers with uninsured deposits with balances larger than $250,000 may move deposits to larger banks in the event of a panic, leading to wider bank runs.
Across the Atlantic, banks also rebounded after the ECB president reassured lawmakers that financial institutions have capital and liquidity above demanded by regulators.
Despite the reassurances from the two top central banks in the world, fears of the 2007-08 crisis haunted investors and equity-like volatility was palpable in Treasury debt trading.
Central bankers are making strong statements to calm nervous markets but there is no denying the fact that banks are heading for more losses in the required holdings of government securities and rising interest rates will only add more stress on balance sheets of banks.
Investors also reviewed the latest data on home sales ahead of the interest rate decision by the Federal Reserve after the two-day meeting.
Traders are anticipating the Federal Reserve to slow down the rate hike to 25 basis points in the light of growing stress in the banking system.
Existing Home Sales Advanced in February
Existing home sales increased in February, halting declines for the 12-months in a row, the National Association of Realtors said Tuesday.
Existing home sales, which includes single and multi-family units, increased 14.5% in February from the previous month, but declined 22.6% from a year ago.
Monthly increase in annual pace was the largest increase following 22.4% rise in July 2020.
The median existing-home sales price eased 0.2% from the previous year to $363,000 and the inventory of unsold existing homes was unchanged from the previous month at 980,000 at the end of February, equivalent to 2.6 months' supply at the current monthly sales pace.
"Inventory levels are still at historic lows," Yun added. "Consequently, multiple offers are returning on a good number of properties."
First-time buyers accounted for 27% of all sales in February, down from 31% in January and 29% a year ago, and Individual investors or second-home buyers purchased 18% of homes in February, up from 16% in January but down from 19% a year ago.
Individual investors make up for the bulk of the purchase.
Indexes & Yields
The S&P 500 index increased 1.3% to 4,002.87 and the Nasdaq Composite index advanced 1.6% to 11,860.11.
The yield on 2-year Treasury notes increased 17 basis points to 4.17%, 10-year Treasury notes inched up 12 basis points to 3.59% and 30-year Treasury bonds advanced 6 basis points to 3.72%.
Crude oil futures price for immediate month delivery increased $1.69 to $69.61 a barrel and natural gas price rose 8 cents to $2.30 a thermal unit.
U.S. Stock Movers
Regional banks led the gainers after beaten down banks advanced following comments from the U.S. Treasury Secretary Janet Yellen.
First Republic Bank soared 34.6% to 11,750.69, KeyCorp increased 6.0% to $12.35 and PacWest Bancorporation jumped 15.6% to $11.93.
UBS Group AG soared 9.1% to $20.48 a day after the largest Swiss jumped 3% following the forced takeover of Credit Suisse engineered by the Swiss government and the Swiss National Bank.
Credit Suisse Group AG increased 1% to 96 cents in New York and jumped 5% to 4.7% to 86 Swiss cents.
Foot Locker Inc increased 6.1% to $42.28 a day after the specialty athletic retailer posted better-than-expected same store sales.
The retailer is also increasing its focus on selling online and plans to offer a deeper selection for younger children and kids.
Tesla Inc increased 4.1% to $12.35 after Moody's lifted the electric vehicle makers' bond rating from speculative or "junk bond" to Baa3.
The Baa3 is the lowest tier in the 10-tier investment grade rating system.
European Markets Rebound After ECB Reassurances and Joint Actions by Central Banks
European market indexes rebounded on the optimism that the joint actions by major central banks following the rescue of Credit Suisse stemmed the contagion from spreading.
Despite the rebound on Tuesday, the selloff in European banks is far from over. Interest rates in Europe are still in negative territory and not restrictive enough.
The sustained increases in interest rates are expected to expand unrealized losses in the government bond holdings at all banks- small and large.
Investors are questioning the health of the European banking system and worried that the banks may not have means to raise capital in the event of sharp crunch in liquidity or panic driven deposit outflows.
At least for now, investors set aside the liquidity and deposit outflow worries and bid up bank and financial services stocks.
The UK budget deficit jumped to a record high in the month since record keeping began in 1993, the Office for National Statistics said Tuesday.
The public sector debt, excluding banks, increased £9.7 to £16.7 billion after the government expanded fuel subsidies to a wider group of people.
The UK government has estimated the full-year deficit in 2023 to be around 6.1% of GDP.
Indexes & Yields
The DAX index jumped 1.8% to 15,195.34, the CAC-40 index advanced 1.4% to 7,112.91 and the FTSE 100 index increased 1.8% to 7,536.22.
The yield on 10-year German Bunds rebounded to 2.29%, the French bonds to 2.81%, the UK gilts to 3.37% and the Italian bonds to 4.11%.
The euro inched higher to $1.079, the British pound edged lower to $1.218 and the Swiss franc edged lower to 92.27 cents.
Brent crude oil increased $1.58 to $75.38 a barrel and the Dutch TTF natural gas futures for immediate month delivery edged up 2.13 to 41.46 per MWh.
Europe Stock Movers
European automakers advanced after February vehicle registrations increased at a faster pace after semiconductor shortages eased.
New passenger cars registrations in the European Union rose 11.5% to 802,763 vehicles in February, following an 11.3% increase in January.
Registrations rose in most markets in the union and Spain led the region with an increase of 19.2% followed by 17.4% in Italy.
In the first two months of 2023, registrations in Spain jumped 32.1%, in Italy rose 18.2%, in France increased 9.1% and in Germany edged up 0.2%.
Battery electric vehicle registrations increased 12.1% of total but petrol-fueled vehicles led with 36.9% market share.
BMW AG increased 1.8% to €97.34, Renault SA rose 3.7% to €36.76, Stellantis NV, the parent of Fiat and Chrysler, increased 2.2% to €16.19.
Pernod Ricard increased 0.9% to €202.40 and the French spirit and wine company said its American unit has agreed to acquire a majority stake in Skrewball, the maker of peanut butter flavored whiskey brand.
The company is also in the middle of repurchasing €300 million of its stock between February 20 and April 6 and not to exceed the share price of €320 a share.
Europe Movers: BMW, Just Eat Takeway.com, Kingfisher, Pernod Ricard, Stellantis, SThree
Bridgette Randall
21 Mar, 2023
Frankfurt
European automakers advanced after February vehicle registrations increased at a faster pace after semiconductor shortages eased.
New passenger cars registrations in the European Union rose 11.5% to 802,763 vehicles in February, following an 11.3% increase in January.
Registrations rose in most markets in the union and Spain led the region with an increase of 19.2% followed by 17.4% in Italy.
In the first two months of 2023, registrations in Spain jumped 32.1%, in Italy rose 18.2%, in France increased 9.1% and in Germany edged up 0.2%.
Battery electric vehicle registrations increased 12.1% of total but petrol-fueled vehicles led with 36.9% market share.
BMW AG increased 1.8% to €97.34, Renault SA rose 3.7% to €36.76, Stellantis NV, the parent of Fiat and Chrysler, increased 2.2% to €16.19.
Pernod Ricard SA increased 0.9% to €202.40 and the French spirit and wine company said its American unit has agreed to acquire a majority stake in Skrewball, the maker of peanut butter flavored whiskey brand.
The company is also in the middle of repurchasing €300 million of its stock between February 20 and April 6 and not to exceed the share price of €320 a share.
Kingfisher Plc declined 1.6% to 268.86 after the UK-based home improvement company reported a decline in sales and earnings in the fiscal year ending in January 2023.
Sales in the full-year declined 0.9% to £13.06 billion from £13.18 a year ago and after-tax net income dropped 44.1% to £471 million from £843 million and diluted earnings per share fell to 23.8 pence from 40.3 pence a year ago.
SThree Plc edged up a fraction to 432.65 pence after the specialty staffing company reported higher net fees in the fiscal first quarter of 2023.
Group net fees in the first quarter ending in February increased 4% from a year ago. Net fees in the three largest markets representing a total of 73% of revenue, fees in Germany increased 7%, in the Netherlands rose 4% but fell 6% in the U.S.
Just Eat Takeaway.com NV increased 1.3% to 1,562.38 pence after the food delivery company said it plans to reclassify some UK employees as self-employed, resulting in 1,700 redundancies.
European Markets Rebounded After Contagion Fears Eased
Bridgette Randall
21 Mar, 2023
Frankfurt
European market indexes rebounded on the optimism that the joint actions by major central banks following the rescue of Credit Suisse stemmed the contagion from spreading.
Despite the rebound on Tuesday, the selloff in European banks is far from over. Interest rates in Europe are still in negative territory and not restrictive enough.
The sustained increases in interest rates are expected to expand unrealized losses in the government bond holdings at all banks- small and large.
Investors are questioning the health of the European banking system and worried that the banks may not have means to raise capital in the event of sharp crunch in liquidity or panic driven deposit outflows.
At least for now, investors set aside the liquidity and deposit outflow worries and bid up bank and financial services stocks.
The UK budget deficit jumped to a record high in the month since record keeping began in 1993, the Office for National Statistics said Tuesday.
The public sector debt, excluding banks, increased £9.7 to £16.7 billion after the government expanded fuel subsidies to a wider group of people.
The UK government has estimated the full-year deficit in 2023 to be around 6.1% of GDP.
Indexes & Yields
The DAX index jumped 1.8% to 15,195.34, the CAC-40 index advanced 1.4% to 7,112.91 and the FTSE 100 index increased 1.8% to 7,536.22.
The yield on 10-year German Bunds rebounded to 2.29%, the French bonds to 2.81%, the UK gilts to 3.37% and the Italian bonds to 4.11%.
The euro inched higher to $1.079, the British pound edged lower to $1.218 and the Swiss franc edged lower to 92.27 cents.
Brent crude oil increased $1.58 to $75.38 a barrel and the Dutch TTF natural gas futures for immediate month delivery edged up 2.13 to 41.46 per MWh.
Europe Stock Movers
European automakers advanced after February vehicle registrations increased at a faster pace after semiconductor shortages eased.
New passenger cars registrations in the European Union rose 11.5% to 802,763 vehicles in February, following an 11.3% increase in January.
Registrations rose in most markets in the union and Spain led the region with an increase of 19.2% followed by 17.4% in Italy.
In the first two months of 2023, registrations in Spain jumped 32.1%, in Italy rose 18.2%, in France increased 9.1% and in Germany edged up 0.2%.
Battery electric vehicle registrations increased 12.1% of total but petrol-fueled vehicles led with 36.9% market share.
BMW AG increased 1.8% to €97.34, Renault SA rose 3.7% to €36.76, Stellantis NV, the parent of Fiat and Chrysler, increased 2.2% to €16.19.
Pernod Ricard increased 0.9% to €202.40 and the French spirit and wine company said its American unit has agreed to acquire a majority stake in Skrewball, the maker of peanut butter flavored whiskey brand.
The company is also in the middle of repurchasing €300 million of its stock between February 20 and April 6 and not to exceed the share price of €320 a share.
Movers: Citi Trends, Credit Suisse, First Republic Bank, Foot Locker, GameStop, Tesla, UBS
Scott Peters
21 Mar, 2023
New York City
Regional banks led the gainers after beaten down banks advanced following comments from the U.S. Treasury Secretary Janet Yellen.
Last week the Federal Reserve partially reversed its quantitative tightening program and added $300 billion in liquidity.
In months to come it will be clear if the Fed's balance sheet expansion will be inflationary or only act as a backstop and keep stressed banks solvent.
But for now, Secretary Yellen supported the balance sheet expansion move.
“The Fed facility and discount window lending are working as intended to provide liquidity to the banking system.
Aggregate deposit outflows from regional banks have stabilized," said Yellen to a group of gathering bankers on Tuesday.
First Republic Bank soared 34.6% to 11,750.69, KeyCorp increased 6.0% to $12.35 and PacWest Bancorporation jumped 15.6% to $11.93.
UBS Group AG soared 9.1% to $20.48 a day after the largest Swiss jumped 3% following the forced takeover of Credit Suisse engineered by the Swiss government and the Swiss National Bank.
Credit Suisse Group AG increased 1% to 96 cents in New York and jumped 5% to 4.7% to 86 Swiss cents.
Foot Locker Inc increased 6.1% to $42.28 a day after the specialty athletic retailer posted better-than-expected same store sales.
The retailer is also increasing its focus on selling online and plans to offer a deeper selection for younger children and kids.
Citi Trends, Inc dropped 12.5% to $20.39 after the apparel and accessories retailer focused on the needs of African American and multicultural families reported a sharp decline in sales.
Sales in the fourth quarter ending on January 28 dropped 13.1% to $209.5 million and net income declined to $6.6 million from $9.8 million and diluted earnings per share fell to 81 cents from $1.16 a year ago.
In the full-year 2022, total sales declined 19.8% to $795 million and net income dropped to $58.9 million from $62.2 million and diluted earnings per share increased to $7.17 from $6.91 a year ago.
The retailer opened 12 new stores, remodeled 35 stores and closed 10 stores to end the fiscal year with 611 locations.
GameStop Corp increased 8.7% to $18.34 ahead of the specialty retailer releasing its fourth quarter earnings after the regular trading hours.
GameStop said revenue in the third quarter ending in October declined to $1.18 billion from $1.29 billion and net loss shrank to $94.7 million from $105.4 million and diluted loss per share fell to 31 cents from 35 cents a year ago.
Tesla Inc increased 4.1% to $12.35 after Moody's lifted the electric vehicle makers' bond rating from speculative or "junk bond" to Baa3.
The Baa3 is the lowest tier in the 10-tier investment grade rating system.
Home Sales Advanced in February, Median Price Dropped
Brian Turner
21 Mar, 2023
New York City
Existing home sales increased in February, halting declines for the 12-months in a row, the National Association of Realtors said Tuesday.
Existing home sales, which includes single and multi-family units, increased 14.5% in February from the previous month, but declined 22.6% from a year ago.
Monthly increase in annual pace was the largest increase following 22.4% rise in July 2020.
The median existing-home sales price eased 0.2% from the previous year to $363,000 and the inventory of unsold existing homes was unchanged from the previous month at 980,000 at the end of February, equivalent to 2.6 months' supply at the current monthly sales pace.
"Inventory levels are still at historic lows," Yun added. "Consequently, multiple offers are returning on a good number of properties."
Single-family home sales jumped to a seasonally adjusted annual rate of 4.14 million in February, up 15.3% from 3.59 million in January but down 21.4% from the previous year.
The median existing single-family home price declined 0.7% from a year ago to $367,500 in February.
First-time buyers accounted for 27% of all sales in February, down from 31% in January and 29% a year ago, and Individual investors or second-home buyers purchased 18% of homes in February, up from 16% in January but down from 19% a year ago.
Individual investors make up for the bulk of the purchase.
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.60% as of March 16, down from 6.73% from the previous week but up from 4.16% one year ago.
U.S. Treasury Secretary Reassured Support for Uninsured Bank Deposits to Stop Contagion
Barry Adams
21 Mar, 2023
New York City
Benchmark indexes advanced for the second day this week after investors bid up regional banks following comments from the U.S. Treasury Secretary.
Secretary Janet Yellen showed the government's willingness to extend financial guarantee to uninsured deposits at all regional banks "if needed."
The supportive comments lifted stocks of battered down mid-sized banks.
A third of all U.S. lending to businesses and consumers is provided by about 75 mid-sized banks with assets between $50 billion and $200 billion.
Investors are increasingly focused on the health of the U.S. banking system after the sudden collapse of Silicon Valley Bank and the $30 billion deposit infusion in the First Republic Bank.
Customers with uninsured deposits with balances larger than $250,000 may move deposits to larger banks in the event of a panic, leading to wider bank runs.
Investors also reviewed the latest data on home sales and the sharp rebound in European markets.
Existing Home Sales Advanced in February
Existing home sales increased in February, halting declines for the 12-months in a row, the National Association of Realtors said Tuesday.
Existing home sales, which includes single and multi-family units, increased 14.5% in February from the previous month, but declined 22.6% from a year ago.
Monthly increase in annual pace was the largest increase following 22.4% rise in July 2020.
The median existing-home sales price eased 0.2% from the previous year to $363,000 and the inventory of unsold existing homes was unchanged from the previous month at 980,000 at the end of February, equivalent to 2.6 months' supply at the current monthly sales pace.
"Inventory levels are still at historic lows," Yun added. "Consequently, multiple offers are returning on a good number of properties."
First-time buyers accounted for 27% of all sales in February, down from 31% in January and 29% a year ago, and Individual investors or second-home buyers purchased 18% of homes in February, up from 16% in January but down from 19% a year ago.
Individual investors make up for the bulk of the purchase.
Indexes & Yields
The S&P 500 index increased 0.7% to 3,978.13 and the Nasdaq Composite index advanced 0.6% to 11,750.69.
The yield on 2-year Treasury notes increased 20 basis points to 4.13%, 10-year Treasury notes inched up 8 basis points to 3.53% and 30-year Treasury bonds advanced 4 basis points to 3.75%.
Crude oil futures price for immediate month delivery increased 56 cents to $68.35 a barrel and natural gas price declined 6 cents to $2.15 a thermal unit.
U.S. Stock Movers
Regional banks led the gainers after beaten down banks advanced following comments from the U.S. Treasury Secretary Janet Yellen.
First Republic Bank soared 34.6% to 11,750.69, KeyCorp increased 6.0% to $12.35 and PacWest Bancorporation jumped 15.6% to $11.93.
UBS Group AG soared 9.1% to $20.48 a day after the largest Swiss jumped 3% following the forced takeover of Credit Suisse engineered by the Swiss government and the Swiss National Bank.
Credit Suisse Group AG increased 1% to 96 cents in New York and jumped 5% to 4.7% to 86 Swiss cents.
Foot Locker Inc increased 6.1% to $42.28 a day after the specialty athletic retailer posted better-than-expected same store sales.
The retailer is also increasing its focus on selling online and plans to offer a deeper selection for younger children and kids.
Tesla Inc increased 4.1% to $12.35 after Moody's lifted the electric vehicle makers' bond rating from speculative or "junk bond" to Baa3.
The Baa3 is the lowest tier in the 10-tier investment grade rating system.
Regional Banks Rebounded Awaiting the Fed's Rate Decision
Barry Adams
20 Mar, 2023
New York City
Financial markets closed higher on Monday after Switzerland rescued Credit Suisse and six central banks worked together to provide liquidity if needed.
After months of fruitless actions and search for additional capital, Credit Suisse was forced by the Swiss government to merge with UBS and prevent a wider fallout in the global banking sector.
Swiss regulators and the central bank engineered takeover of Credit Suisse by UBS.
The move was widely anticipated by investors after Saudi National Bank, the largest stockholders in the second-largest Swiss bank, was unable to add more capital in the bank citing regulatory limitations.
Credit Suisse has been on the radar of Swiss regulators and the central banks, after deposit outflows picked up in the last nine months.
For months, UBS was reluctant to acquire the second-largest bank on the worries of the quality of the bank's assets and the negative impact of the global economic slowdown.
Global markets looked beyond the "shotgun wedding" between the two Swiss banks but ripple effects are expected to be felt by global investors for months to come.
In New York Treasury bond yields rebounded from the six-month lows and crude oil dropped to a new 15-month low after the expected increase in China's demand growth failed to materialize following the ending of zero-covid policy in China for a month.
Despite the forced purchase of Credit Suisse by UBS, there is no end in sight for the capital shortfall at the U.S. regional banks and a rise in interest rates will only make unrealized losses larger in the banking system.
Investors are also bracing for higher rates at the end of a two-day policy meeting of the Federal Reserve on Wednesday.
The Federal Reserve is expected to increase rates by at least 25 basis points, despite the ongoing financial instability in regional banks.
A total of 75 mid-sized or regional banks with assets between $50 billion and $200 billion are responsible for about one third of the U.S. lending.
Higher rates will force these institutions to redirect larger shares of future earnings to fill the capital shortfalls from these unrealized losses in the portfolio holding Treasury securities.
U.S. Indexes & Yields
The S&P 500 index increased 0.9% to 3,951.57 and the Nasdaq Composite index advanced 0.4% to 11,675.46.
The yield on 2-year Treasury notes increased to 3.98%, 10-year Treasury notes 3.48% and 30-year Treasury bonds advanced to 3.67%.
Crude oil increased 82 cents to $67.56 a barrel and natural gas prices fell 10 cents to $2.23 a thermal unit.
U.S. Movers
Credit Suisse Group AG plunged 52% to 96 cents in New York trading after the troubled Swiss bank agreed to be acquired by the rival UBS.
In a deal negotiated by the Swiss regulators and the Swiss National Bank, UBS agreed to pay 50 Swiss cents per share or $3.25 billion, significantly less than the expected price for shareholders.
The Swiss National Bank agreed to provide up to 100 billion Swiss francs in liquidity and the Swiss government will offer a loss guarantee of up to 9 billion Swiss francs but UBS will be responsible for the first 5 billion Swiss francs of potential losses.
Total assets held by Credit Suisse had declined to $70 billion just before the announcement of the transaction, indicating that a substantial part of the assets may be impaired or is expected to be impaired.
The deal orchestrated by the Swiss regulators and the central bank will pay stockholders but will write down $17 billion of AT1 bondholders which generally have a higher priority than shareholders in the credit structure.
Regional banks rebounded in New York trading and Western Alliance Bancorp advanced 3%, PacWest soared 16% and Key Corp increased 4%.
First Republic Bank plunged 15.9% to $19.30 after the rating agency Standard & Poor's lowered its rating on the embattled bank's bonds to B+ from BB+, deeper in the junk bond territory.
European Markets Rebound After Joint Central Bank Actions
European markets opened lower but turned higher after major central banks announced more liquidity measures following the Credit Suisse rescue by the Swiss authorities.
On Sunday, after days of negotiations, Switzerland National Bank and Swiss regulators announced a few details of Credit Suisse rescue.
The shotgun wedding between UBS, the largest Swiss bank and Credit Suisse, the second-largest Swiss bank, calmed financial markets for now.
The Federal Reserve Bank, the European Central Bank, the Swiss National Bank, the Bank of England, the Bank of Canada and the Bank of Japan announced coordinated measures to increase U.S. dollar liquidity to prevent the fallout from Credit Suisse's in global financial markets.
Market sentiment was further strengthened after the European Central Bank president Christine Lagarde assured investors in a speech on Monday that the Euro Area banks have more than adequate capital and liquidity needed.
"The euro area banking sector is resilient, with strong capital and liquidity positions," added Lagarde in a speech to the European Parliament on Monday.
Switzerland Government Forced UBS-Credit Suisse Merger
Credit Suisse Group AG plunged 52% to 96 cents in New York trading after the troubled Swiss bank agreed to be acquired by the rival UBS.
In a deal negotiated by the Swiss regulators and the Swiss National Bank, UBS agreed to pay 50 Swiss cents per share or $3.25 billion, significantly less than the expected price for shareholders.
The Swiss National Bank agreed to provide up to 100 billion Swiss francs in liquidity and the Swiss government will offer a loss guarantee of up to 9 billion Swiss francs but UBS will be responsible for the first 5 billion Swiss francs of potential losses.
Total assets held by Credit Suisse had declined to $70 billion just before the announcement of the transaction, indicating that a substantial part of the assets may be impaired or is expected to be impaired.
The deal orchestrated by the Swiss regulators and the central bank will pay stockholders but will write down $17 billion of AT1 bondholders, upending the traditional capital structure in the global banking industry.
UBS Group AG increased 4% to $18.95 in New York and advanced 1.3% to 17.33 Swiss francs.
Europe Indexes & Yields
The DAX index increased 1.1% to 14,933.38, the CAC-40 index added 1.3% to 7,013.14 and the FTSE 100 index advanced 1% to 7,403.85.
The Swiss Market Index increased 0.3% to 10,643.64 after reversing the loss of 1.9% in the first twenty minutes of trading.
The yield on 10-year German Bunds decreased to 2.21%, French bonds fell to 2.66%, the UK gilts to 3.30% and Italian bonds to 3.97%.
The euro inched higher to $1.07, the British pound to $1.22 and the Swiss franc to 92.90 cents.
Brent crude oil increased 88 cents to $73.84 a barrel and the Dutch TTF natural gas price fell 3.52 to 39.33 per MWh.
German Wholesale Inflation Eased After Energy Prices Declined
Germany's producer price index, a measure of wholesale inflation, declined for the fifth month in a row and approached the lowest level in eighteen months, the latest data from the Federal Statistics Office or Destatis showed today.
The producer price index increased 15.8% from a year ago in February, slower than the 17.6% rise in January.
The latest increase in prices was the smallest since September when prices rose 14.2%.
Euro Area Good Trade Deficit Slightly Widened In January
The Euro Area international goods trade deficit slightly widened in January, the latest data from the Eurostat showed Monday.
The international good trade deficit increased to Є30.6 billion in January from Є30.2 billion a year ago.
Imports increased 9.7% to €253.5 billion from €231.1 billion and exports advanced 11.0% to €222.9 billion from €200.8 billion a year ago.
Europe Stock Movers
FirstGroup Plc declined as much as 1% but closed a fraction down to 104.50 pence despite the company extending its partnership to October 2023 with the Department for Transportation and HS2 Limited.
FirstGroup and Trenitalia are working together with the UK government in the largest infrastructure project in Europe to build high-speed rail service for the West Coast Partnership.
Spectris Plc increased 0.1% to 3,457.25 pence after the company said it initiated the third tranche of its stock repurchase program.
Between March 20 and July 31, the company plans to acquire its stock not to exceed 9.711 million shares for a total purchase price not to exceed £40 million.
European Markets Recover After Joint Actions by Six Central Banks Following Credit Suisse Rescue
Bridgette Randall
20 Mar, 2023
Frankfurt
European markets opened lower but turned higher after major central banks announced more liquidity measures following the Credit Suisse rescue by the Swiss authorities.
On Sunday, after days of negotiations, Switzerland National Bank and Swiss regulators announced a few details of Credit Suisse rescue.
The shotgun wedding between UBS, the largest Swiss bank and Credit Suisse, the second-largest Swiss bank, calmed financial markets for now.
The Federal Reserve Bank, the European Central Bank, the Swiss National Bank, the Bank of England, the Bank of Canada and the Bank of Japan announced coordinated measures to increase U.S. dollar liquidity to prevent the fallout from Credit Suisse's in global financial markets.
Market sentiment was further strengthened after the European Central Bank president Christine Lagarde assured investors in a speech on Monday that the Euro Area banks have more than adequate capital and liquidity needed.
"The euro area banking sector is resilient, with strong capital and liquidity positions," added Lagarde in a speech to the European Parliament on Monday.
Switzerland Government Forced UBS-Credit Suisse Merger
Credit Suisse Group AG plunged 52% to 96 cents in New York trading after the troubled Swiss bank agreed to be acquired by the rival UBS.
In a deal negotiated by the Swiss regulators and the Swiss National Bank, UBS agreed to pay 50 Swiss cents per share or $3.25 billion, significantly less than the expected price for shareholders.
The Swiss National Bank agreed to provide up to 100 billion Swiss francs in liquidity and the Swiss government will offer a loss guarantee of up to 9 billion Swiss francs but UBS will be responsible for the first 5 billion Swiss francs of potential losses.
Total assets held by Credit Suisse had declined to $70 billion just before the announcement of the transaction, indicating that a substantial part of the assets may be impaired or is expected to be impaired.
The deal orchestrated by the Swiss regulators and the central bank will pay stockholders but will write down $17 billion of AT1 bondholders, upending the traditional capital structure in the global banking industry.
UBS Group AG increased 4% to $18.95 in New York and advanced 1.3% to 17.33 Swiss francs.
Indexes & Yields
The DAX index increased 1.1% to 14,933.38, the CAC-40 index added 1.3% to 7,013.14 and the FTSE 100 index advanced 1% to 7,403.85.
The Swiss Market Index increased 0.3% to 10,643.64 after reversing the loss of 1.9% in the first twenty minutes of trading.
The yield on 10-year German Bunds decreased to 2.21%, French bonds fell to 2.66%, the UK gilts to 3.30% and Italian bonds to 3.97%.
The euro inched higher to $1.07, the British pound to $1.22 and the Swiss franc to 92.90 cents.
Brent crude oil increased 88 cents to $73.84 a barrel and the Dutch TTF natural gas price fell 3.52 to 39.33 per MWh.
German Wholesale Inflation Eased After Energy Prices Declined
Germany's producer price index, a measure of wholesale inflation, declined for the fifth month in a row and approached the lowest level in eighteen months, the latest data from the Federal Statistics Office or Destatis showed today.
The producer price index increased 15.8% from a year ago in February, slower than the 17.6% rise in January.
The latest increase in prices was the smallest since September when prices rose 14.2%.
Euro Area Good Trade Deficit Slightly Widened In January
The Euro Area international goods trade deficit slightly widened in January, the latest data from the Eurostat showed Monday.
The international good trade deficit increased to Є30.6 billion in January from Є30.2 billion a year ago.
Imports increased 9.7% to €253.5 billion from €231.1 billion and exports advanced 11.0% to €222.9 billion from €200.8 billion a year ago.
Europe Stock Movers
FirstGroup Plc declined as much as 1% but closed a fraction down to 104.50 pence despite the company extending its partnership to October 2023 with the Department for Transportation and HS2 Limited.
FirstGroup and Trenitalia are working together with the UK government in the largest infrastructure project in Europe to build high-speed rail service for the West Coast Partnership.
Spectris Plc increased 0.1% to 3,457.25 pence after the company said it initiated the third tranche of its stock repurchase program.
Between March 20 and July 31, the company plans to acquire its stock not to exceed 9.711 million shares for a total purchase price not to exceed £40 million.
Movers: Amazon.com, First Republic, New York Community Bancorp, UBS
Scott Peters
20 Mar, 2023
New York City
Credit Suisse Group AG plunged 52% to 96 cents in New York trading after the troubled Swiss bank agreed to be acquired by the rival UBS.
In a deal negotiated by the Swiss regulators and the Swiss National Bank, UBS agreed to pay 50 Swiss cents per share or $3.25 billion, significantly less than the expected price for shareholders.
The Swiss National Bank agreed to provide up to 100 billion Swiss francs in liquidity and the Swiss government will offer a loss guarantee of up to 9 billion Swiss francs but UBS will be responsible for the first 5 billion Swiss francs of potential losses.
Total assets held by Credit Suisse had declined to $70 billion just before the announcement of the transaction, indicating that a substantial part of the assets may be impaired or is expected to be impaired.
The deal orchestrated by the Swiss regulators and the central bank will pay stockholders but will write down $17 billion of AT1 bondholders which generally have a higher priority than shareholders in the credit structure.
UBS Group AG increased 4% to $18.95 in New York and advanced 1.3% to 17.33 Swiss francs.
Regional banks rebounded in New York trading and Western Alliance Bancorp advanced 3%, PacWest soared 16% and Key Corp increased 4%.
First Republic Bank plunged 15.9% to $19.30 after the rating agency Standard & Poor's lowered its rating on the embattled bank's bonds to B+ from BB+, deeper in the junk bond territory.
Amazon.com, Inc declined 2.2% to $96.72 after chief executive Andy Jassy said in a memo to employees that the company is planning to layoff 9,000.
The latest announcement follows the elimination of 18,000 jobs in November ahead of the peak holiday sales period, after the online marketplace operator added 800,000 positions in two years of Pandemic between 2020 and 2021.
The current job cuts are expected to be hit the hardest in advertising and cloud computing unit AWS.
New York Community Bancorp, Inc soared 35% to $8.83 after the regional bank's subsidiary Flagstar Bank will assume nearly all bank deposits and own and operate all 40 branches of the former Signature Bank from the FDIC.
Foot Locker Inc declined 5.2% to $40.07 after the specialty athletic retailer reported a fall in total sales and a sharp decline in earnings in the fourth quarter.
Sales in the fourth quarter ending on January 28 decreased 0.3% to $2.33 billion and net income plunged to $19 million from $103 million and diluted earnings per share dropped to 19 cents from $1.02 a year ago.
Comparable sales in the quarter increased 4.2%.
During the fourth quarter, the company paid a quarterly dividend of 40 cents per share and repurchased 4.1 million shares for a total of $129 million and paid a total of $150 million in dividends.
The Board of Directors declared a quarterly cash dividend of 40 cents per share payable on April 28 to shareholders of record on April 14.
In the full-year 2022, total sales fell to $8.6 billion from $9.0 billion and net income dropped to $342 million from $893 million and diluted earnings per share fell to $3.58 from $8.61.
Switzerland Forced Merger of Credit Suisse with UBS and Prevent Wider Fallout
Scott Peters
20 Mar, 2023
New York City
Credit Suisse Group AG plunged 52% to 96 cents in New York trading after the troubled Swiss bank agreed to be acquired by the rival UBS.
In a deal negotiated by the Swiss regulators and the Swiss National Bank, UBS agreed to pay 50 Swiss cents per share or $3.25 billion, significantly less than the expected price for shareholders.
The Swiss National Bank agreed to provide up to 100 billion Swiss francs in liquidity and the Swiss government will offer a loss guarantee of up to 9 billion Swiss francs but UBS will be responsible for the first 5 billion Swiss francs of potential losses.
After four years of oversight lapses, management turmoil, multiple scandals and steady but rising deposit outflows in the last two years, regulators forced the 167-year old Swiss institution to be acquired by UBS.
Total assets held by Credit Suisse had declined to $70 billion just before the announcement of the transaction, indicating that a substantial part of the assets may be impaired or is expected to be impaired.
According to the sources in Zurich, London and New York, UBS was not interested in acquiring the troubled Credit Suisse and the bank was mildly interested in its asset management arm.
The deal orchestrated by the Swiss regulators and the central bank will pay stockholders but will write down $17 billion of AT1 bondholders which generally have a higher priority than shareholders in the credit structure.
After the merger, net assets under management will jump to $5 trillion with the addition of $1.3 trillion from Credit Suisse.
Treasury Yields Rise As Unrealized Losses at Banks Are Set to Rise After Rate Hike On Wednesday
Barry Adams
20 Mar, 2023
New York City
Financial markets turned higher after Swiss regulators and the central bank engineered takeover of Credit Suisse by UBS.
The move was widely anticipated by investors after Saudi National Bank, the largest stockholders in the troubled Swiss bank, was unable to add more capital in the bank citing regulatory limitations.
Credit Suisse has been struggling with deposit outflows with the growing worries of the viability of the institution.
Global markets looked beyond the "shotgun wedding" between the two Swiss banks but ripple effects are expected to be felt by global investors for months to come.
In New York Treasury bond yields rebounded from the six-month lows and crude oil dropped to a new 15-month low after the expected increase in China's demand growth failed to materialize after the ending of the zero-Covid policy for more than a month.
Despite the forced purchase of Credit Suisse by UBS, there is no end in sight for the capital shortfall at the U.S. regional banks and rising interest rates will only make unrealized losses larger in the banking system.
Investors are also bracing for higher rates at the end of a two-day policy meeting of the Federal Reserve on Wednesday. The central bank is expected to increase rates by at least 25 basis points, despite the ongoing financial instability in regional banks.
Indexes & Yields
The S&P 500 index increased 0.7% to 3,942.71 and the Nasdaq Composite index advanced 0.2% to 11,646.56.
The yield on 2-year Treasury notes increased to 3.92%, 10-year Treasury notes 3.44% and 30-year Treasury bonds advanced to 3.62%.
Crude oil decreased 72 cents to $66.01 a barrel and natural gas prices edged fractionally lower to $2.29 a thermal unit.
U.S. Movers
Credit Suisse Group AG plunged 52% to 96 cents in New York trading after the troubled Swiss bank agreed to be acquired by the rival UBS.
In a deal negotiated by the Swiss regulators and the Swiss National Bank, UBS agreed to pay 50 Swiss cents per share or $3.25 billion, significantly less than the expected price for shareholders.
The Swiss National Bank agreed to provide up to 100 billion Swiss francs in liquidity and the Swiss government will offer a loss guarantee of up to 9 billion Swiss francs but UBS will be responsible for the first 5 billion Swiss francs of potential losses.
Total assets held by Credit Suisse had declined to $70 billion just before the announcement of the transaction, indicating that a substantial part of the assets may be impaired or is expected to be impaired.
The deal orchestrated by the Swiss regulators and the central bank will pay stockholders but will write down $17 billion of AT1 bondholders which generally have a higher priority than shareholders in the credit structure.
Regional banks rebounded in New York trading and Western Alliance Bancorp advanced 3%, PacWest soared 16% and Key Corp increased 4%.
First Republic Bank plunged 15.9% to $19.30 after the rating agency Standard & Poor's lowered its rating on the embattled bank's bonds to B+ from BB+, deeper in the junk bond territory.
Investors are Waking Up to New Reality of Bank Stress, World Markets On Edge
Barry Adams
17 Mar, 2023
New York City
The U.S. bank system stress is finally getting some attention on Wall Street.
Investors are dealing with a new reality that the Federal Reserves' aggressive rate hikes are having impacts in the banking sector, a set of conditions not experienced by investors and bank executives for decades.
Rapid increases in interest rates have battered most portfolios of banks, especially those including U.S. Treasuries of longer maturities, 10-years and beyond.
Granted these are unrealized losses, but with every basis point increase in rates, bond prices are falling to adjust the new higher yield.
And with that comes higher stress in securities held by banks. For the last three decades banks have dealt with all kinds of problems, but none created as many challenges as the rapid hikes in rates in 2022.
What impact these banks will face will depend on how much of the bank's assets are in long-dated U.S. Treasury securities, but not a single bank will be able to escape unscathed from these losses.
This fast evolving interest rate crisis has worried regulators for years, but no one expected inflation to surge to a 4-decade high and sequential multiple large-sized rate hikes that followed.
The pledge by top banks to provide deposit infusion failed to impress investors and regional banks accelerated losses for the third day this week.
The largest 11 banks on Thursday pledged to deposit $30 billion for the next 120 days only with First Republic Bank, the move was partly driven by self preservation.
Big bank's move was orchestrated by the FDIC, Federal Reserve, U.S. Treasury and Office of Comptroller in an effort to revive the flagging support and prevent a run on the bank before it happens and avoid the perception of a government bailout.
Despite the announcement, First Republic Bank plunged 20% after investors looked for details on how and how much interest rate the bank will pay on these new deposits.
The joint statement from the eleven banks is short on details.
First Republic Bank said in a filing with the Securities and Exchange Commission "on March 9, 2023, the bank has also increased short-term borrowings from the Federal Home Loan Bank by $10 billion at a rate of 5.09%."
The California bank is in discussion with several banks and other private equity funds in reviewing its options including sale of the company.
In Friday's trading, size of the bank did not matter and large and mid-sized banks declined amid lingering concerns about the health of the U.S. banking system.
JPMorgan Chase, Wells Fargo, Bank of America, PNC Bank, US Bancorp and Truist financial Corp declined between 3% and 7%.
U.S. banks are sitting on $620 billion of unrecognized losses as of the end of 2022, reflecting a 28% loss of unrealized equity capital in the banking system.
Moreover, in the first quarter of 2023, the yields on Treasury bonds have risen, generating additional losses for banks of all sizes holding long and short-dated U.S. Treasury securities.
If the Federal Funds rates are increased to 6%, total unrealized equity capital loss across all banks could rise to 50%, effectively endangering the entire U.S. banking system.
The rapid collapse of Silicon Valley Bank is raising questions about how prepared banks are in facing swift departure of bank deposits in the world of online banking.
Silicon Valley Bank lost 25% or $42 billion of deposits in less than eight hours, after a bank run was started by the venture capitalists community.
Indexes & Yields
The S&P 500 index decreased 1.1% to 3,916.64 and the Nasdaq Composite index dropped 0.7% to 11,630.51.
The yield on 2-year Treasury notes inched lower to 3.86%, 10-year Treasury notes to 3.44% and 30-year Treasury bonds dropped to 3.63%.
Crude oil price for immediate month delivery decreased $2.04 to $66.31 a barrel and natural gas price fell 16 cents to $2.34 a thermal unit.
U.S. Stock Movers
First Republic Bank declined 32.7% to $22.06 despite 11 largest banks pledged to deposit $30 billion in the embattled bank in a show of support and prevent a run on the bank.
Western Alliance Bancorp dropped 15% to $31.38, Zions Bancorporation fell 6.7% to $29.94 and KeyCorp declined 6.1% to $11.57.
FedEx Corp increased 7.9% to $220.34 after the parcel delivery company revised higher its fiscal year outlook.
Revenue in the quarter ended in February declined to $22.2 billion from $23.6 billion and net income fell to $771 million from $1.1 billion and diluted earnings per share dropped to $3.05 from $4.20 a year ago.
The parcel delivery company completed a repurchase of 9.2 million shares in the fiscal third quarter.
The company lifted its fiscal year 2023 diluted earnings per share forecast in the range of $13.80 to $14.40 before the mark-to-market retirement plans accounting adjustments, compared to the prior forecast of $12.50 to $13.50 a share.
The company estimated fiscal year capital spending of $5.9 billion.
European Markets Extend Weekly Losses On Bank System Worries
Rapid rise in rates has created a new scenario not experienced for decades and investors are questioning how many banks are strong enough to digest accumulating losses in the assets held by financial institutions.
With the rates advancing from negative to 3% and expected to reach as high as 5% before the end of 2023, large and small banks and insurance companies will be forced to deal with large losses in government securities.
U.S. banks have accumulated unrealized losses of $620 billion, about 28% of its equity capital as of end of 2022.
Rates are still rising in the U.S. and unrealized losses are expected to grow to as much as 50% of the equity capital, endangering most financial institutions.
In Europe, banks turned lower on the worries of large losses at banks and looming economic slowdown also dented market sentiment.
Investors were on defensive after the statistical office confirmed the elevated inflation in February.
Euro Area Inflation Edged Slightly Lower In February
The inflation rate in the Euro Area edged slightly lower in February from January but the rate was significantly higher than a year ago, the latest update from Eurostat showed.
The Harmonized index of consumer prices or HICP on an annual basis increased 8.5% in February, slightly lower than 8.6% in January. The index increased 5.9% in the month a year ago.
The final read on the inflation measure matched the preliminary estimate released on March 2.
Core rate of inflation, which excludes energy, food, alcohol and tobacco products, accelerated to 5.6%, matching the flash estimate, from 5.3% in January.
Indexes & Yields
The DAX index fell 1.3% to 14,768.20, the CAC-40 index declined 1.5% to 6,925.40 and the FTSE 100 index dropped 1% to 7,335.40.
The yield on 10-year German Bunds decreased to 2.09%, French bonds edged lower to 2.67%, the UK gilts to 3.24% and Italian bonds to 4.04%.
The euro edged higher to $1.067, the British pound inched up to $1.21 and the Swiss franc closed at 92.75 cents.
Brent crude oil declined $2.37 yo $72.30 a barrel and the Dutch TTF natural gas futures fell 2.3% to Є43.10 per MWh.
Europe Movers
Diploma PLC increased 3.5% to 2,727.12 pence after the company said it completed the sale of 9.3 million shares for 2,525 pence a share and raised £235 million.
The company said it plans to use proceeds to refinance the acquisition of Tennessee Industrial Electronics, LLC, a value-add distributor of aftermarket parts and repair services provider into the fast-growing US industrial automation end market,
The company plans to use some of the proceeds to fund its "strong M&A pipeline to accelerate future organic growth."
The purchase price of £76 million represents a multiple of 9.8 times operating earnings and the acquisition is expected to deliver revenue of £31 million.
Bodycote Plc increased 5.5% to 613.30 pence after the provider of thermal processing service and heat treatment reported revenue and earnings rose in in the full-year.
Revenue in the full-year 2022 increased 17.3% to £743.6 million from £615.8 million and net income rose to £74.3 million from £60.0 million and earnings per share to 38.6 pence from 31.2 pence a year ago.
European Markets Extend Weekly Losses On Banking System Worries
Bridgette Randall
17 Mar, 2023
Frankfurt
European markets closed down on the growing worries about the health of the banking system in the U.S. and Europe.
Rapid rise in rates has created a new scenario not experienced for decades and investors are questioning how many banks are strong enough to digest accumulating losses in the assets held by financial institutions.
With the rates advancing from negative to 3% and expected to reach as high as 5% before the end of 2023, large and small banks and insurance companies will be forced to deal with large losses in government securities.
U.S. banks have accumulated unrealized losses of $620 billion, about 28% of its equity capital as of end of 2022.
Rates are still rising in the U.S. and unrealized losses are expected to grow to as much as 50% of the equity capital, endangering most financial institutions.
In Europe, banks turned lower on the worries of large losses at banks and looming economic slowdown also dented market sentiment.
Investors were on defensive after the statistical office confirmed the elevated inflation in February.
Euro Area Inflation Edged Slightly Lower In February
The inflation rate in the Euro Area edged slightly lower in February from January but the rate was significantly higher than a year ago, the latest update from Eurostat showed.
The Harmonized index of consumer prices or HICP on an annual basis increased 8.5% in February, slightly lower than 8.6% in January. The index increased 5.9% in the month a year ago.
The final read on the inflation measure matched the preliminary estimate released on March 2.
Core rate of inflation, which excludes energy, food, alcohol and tobacco products, accelerated to 5.6%, matching the flash estimate, from 5.3% in January.
Indexes & Yields
The DAX index fell 1.3% to 14,768.20, the CAC-40 index declined 1.5% to 6,925.40 and the FTSE 100 index dropped 1% to 7,335.40.
For the week, the DAX declined 4.1%, the CAC-40 fell 4.3% and the FTSE 100 dropped 5.7%.
The yield on 10-year German Bunds decreased to 2.09%, French bonds edged lower to 2.67%, the UK gilts to 3.24% and Italian bonds to 4.04%.
The euro edged higher to $1.067, the British pound inched up to $1.21 and the Swiss franc closed at 92.75 cents.
Brent crude oil declined $2.37 yo $72.30 a barrel and the Dutch TTF natural gas futures fell 2.3% to Є43.10 per MWh.
Europe Movers
Diploma PLC increased 3.5% to 2,727.12 pence after the company said it completed the sale of 9.3 million shares for 2,525 pence a share and raised £235 million.
The company said it plans to use proceeds to refinance the acquisition of Tennessee Industrial Electronics, LLC, a value-add distributor of aftermarket parts and repair services provider into the fast-growing US industrial automation end market,
The company plans to use some of the proceeds to fund its "strong M&A pipeline to accelerate future organic growth."
The purchase price of £76 million represents a multiple of 9.8 times operating earnings and the acquisition is expected to deliver revenue of £31 million.
Bodycote Plc increased 5.5% to 613.30 pence after the provider of thermal processing service and heat treatment reported revenue and earnings rose in in the full-year.
Revenue in the full-year 2022 increased 17.3% to £743.6 million from £615.8 million and net income rose to £74.3 million from £60.0 million and earnings per share to 38.6 pence from 31.2 pence a year ago.