Stocks On Wall Street Closed Down and Treasury Yields Advanced Ahead of Rate Decision

Barry Adams
01 May, 2023
New York City

Regional banks remained in focus and investors recalibrated fast evolving financial disruptions with a potential to blow into a crisis. 

The speedy demise of the First Republic Bank and speedier sale of the failed bank to one of the largest and well capitalized banks failed to quell market anxieties. 

With the steep inversion of the yield curve and no end in sight of where the Federal Reserve is heading over the next six to nine months, investors are worried that there are more zombie banks out there with unrealized losses. 

Stocks on Wall Street traded slightly higher in a cautious trading after the regional banking crisis devoured another bank after weeks of chaos. 

First Republic Bank is the second example, after the failure of Silicon Valley Bank, of how regulators at all levels and board of directors failed to stem the risk stemming from the rapid rise in interest rates over the last thirteen months. 

The failure of Silicon Valley Bank cost the deposit insurance fund about $20 billion and the First Republic Bank seizure is expected to cost at least $13 billion, according to the FDIC. 

The FDIC has its own capital shortfall issues as well, the deposit insurance fund is very thinly capitalized and needs at least another $85 billion to meet the statutory capital requirement as determined by the U.S. Congress. 

This capital shortfall expanded by $50 billion after the two relatively large bank failures in as many months. 

One would like to think that regional banking crisis is over, but with no end in sight of rapid rate hikes and depositors are increasingly aware of the rising losses held by U.S. government securities at all banks, not just regional banks.  

 

U.S. Indexes & Yields 

The S&P 500 index added 1.61 points to 4,167.87 and the Nasdaq Composite decreased 13.99 points to 12,212.60. 

The yield on 2-year Treasury notes inched lower to 4.14%, 10-year Treasury notes rose to 3.57% and 30-year Treasury bonds held at 3.81%. 

Crude oil fell $0.93 to $75.85 a barrel and natural gas prices fell 9 cents to $2.31 a thermal unit. 

 

U.S. Stock Movers 

First Republic Bank dropped 34% to $2.30 after the Federal Deposit Insurance Corporation seized the ailing bank. 

JP Morgan agreed to acquire all deposits and a "substantial majority" of the seized bank after the U.S. government agency failed to convince rival banks to acquire the troubled lender. 

First Republic marks the third bank failure of an American bank since March. 

The acquisition includes approximately $173 billion of loans and $30 billion of securities and assumption of approximately $92 billion of deposits, including $30 billion of large bank deposits, which will be repaid post-close or eliminated in consolidation.  

FDIC will provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans, as well as $50 billion of five-year, fixed-rate term financing. 

JP Morgan Chase increased 4.4% to $144.30. 

Norwegian Cruise Line Holdings Ltd advanced 1.5% to $13.55 after the company reported its latest quarterly results. 

Revenue in the first quarter soared to $1.8 billion from $521.9 million and the net loss shrank to $159.2 million from $982.7 million and diluted loss per share fell to 38 cents from $2.35 a year ago. 

Gross cruise costs per capacity day was approximately $298 in the quarter and $301 in constant currency. 

Adjusted net cruise costs excluding fuel per capacity day in constant currency was approximately $161, a 14% decrease compared to the second half of 2022 as the company stepped up its cost containment efforts. 

 

Global Weakness In Chip Demand Dragged South Korea's Exports and Taiwan's Economy

Asian and European markets are closed for Labor Day holiday and crude oil prices eased. 

Crude oil prices in Asia and London traded down on private trading platforms following the unexpected decline in factory activities in China. 

South Korea's exports fell for the seventh month in a row on the persistent demand weakness for semiconductor chips and shipments to China plunged.  

India's factory activities expanded for the fourth month in a row on the rising new orders and shipments. 

However, export-reliant and tech-focused Taiwan's economy decreased 3.02% from a year ago in the first quarter ending in March and fell 6.37% from the final quarter of 2022. 

The technology hardware and components weakness is driven by a sharp fall in demand for smartphones, personal computers and other advanced electronics products. 

 

China's Manufacturing Activities Eased In April 

China's manufacturing activities slowed in April, the latest data from the National Bureau of Statistics showed over the weekend. 

The official Purchasing Managers' Index declined to a four-month low of 49.2 from 51.9 in March, 

The reading above 50 indicates expansion and below shows a contraction in growth, and the latest data indicated contraction for the first time in factory activities since December. 

Factory output grew the least since January but new orders and purchasing activities declined after advancing in the prior three months. 

 

India's Factory Activities Accelerated In April 

India's factory activity index or purchasing manager's index accelerated to a four-month high of 57.2 in April from 56.4 in March, the S&P Global said in a report Monday. 

Input costs accelerated on the faster price increases for raw materials but output prices rose to a 3-month high. 

Forward looking sentiment improved from an eight-month low in March on higher demand inquiries and clearance of pending order approvals. 

 

South Korea's Exports Fall On Semiconductor Weakness

South Korea's exports declined for the seventh month in a row, the Ministry of Trade, Industry and Energy reported Monday. 

Exports declined 14.2% from a year ago to a three-month low to $49.6 billion, following a 13.6% decline in the previous month. 

The 7-month string of exports decline is the longest period since 2019 and the sharpest fall on the ongoing weakness in semiconductor chip demand. 

Exports to China, South Korea's largest trading partner, dropped 26.5% to China, 4.4% to the U.S. but rose 9.9% to the European Union and 30.3% to the Middle East. 

Chips exports plunged 41% from a year ago and steel products shipments fell 10.7%. 

Imports fell 13.3% in April, the largest fall since August 2020,  resulting in a smaller trade deficit of $2.62 billion compared to $4.63 billion in March.  

Tokyo and Sydney Indexes Advanced 

Most Asian markets were closed for the Labor Day Holiday. 

The Nikkei index increased 0.9% to 29,123.18 and the ASX 200 index in Sydney increased 0.4% to 7,334.60. 

Financial markets in Indonesia, Shanghai, Hong Kong, Indonesia and Thailand were closed.