Dollar Slides, US Futures Rally as SVB Nerves Cool: Markets Wrap

Dollar Slides, US Futures Rally as SVB Nerves Cool: Markets Wrap
Brett Miller and Tassia Sipahutar
·4 min read

(Bloomberg) -- US stock futures surged and the dollar retreated after American financial regulators took steps to shore up the financial sector with a new lending program in the wake of Silicon Valley Bank’s failure.

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Futures on the S&P 500 jumped more than 1% and the greenback slid versus major peers after Treasury Secretary Janet Yellen said the her office would protect “all depositors” at the bank, whose demise Friday marked the biggest such event since 2008. The government actions will also include a program offered by the Federal Reserve with funds from the Treasury.

Two-year Treasury yields added to their sharp decline last week, falling 12 basis points amid bets for slower rate hikes from the Fed. Yields on the 10-year maturity rose slightly.

Australian and New Zealand government bond yields tumbled as traders globally reassess the path of interest rate hikes and the economic cost the tightening cycle has taken already. The problems at SVB Financial Group’s bank were caused in large part by the fallout from higher US interest rates.

“Tightening monetary cycles often end abruptly when ‘something breaks’ and a financial crisis is triggered,” Ed Yardeni, the founder of Yardeni Research, said in a note. “If the Silicon Valley Bank run is that something, it could mean tightening ends sooner and bond yields have peaked. We can’t say for sure that’s the case but can say the debacle should keep the tech sector mired in its rolling recession for longer.”

Australian and Japanese shares fell. Investors will be monitoring how Chinese markets react to news that central bank governor Governor Yi Gang was kept in his post, as have the finance and commerce ministers. The continuity may be welcomed by investors, who have grown sensitive to policy risks from Beijing.

Monday’s moves in markets come after risk assets got pummeled last week, with the US stock benchmark suffering its worst week since September. Wall Street’s so-called “fear gauge” spiked, with the Cboe Volatility Index hitting the highest this year. Treasury two-year yields plummeted 28 basis points to 4.59%.

Anxiety is also running high ahead of this week’s consumer price index report, especially after Fed Chair Jerome Powell recently emphasized that a move to a faster pace of tightening would be based on the “totality of the data.”

Yet for now the reassurances from US regulators over SVB are having the desired impact.

“This will bring confidence back to the markets. But from the Fed’s point of view, there are additional dangers that need to be reviewed, which will take some time,” Carol Pepper of Pepper International said on Bloomberg TV. “So I’m hoping that this will help them to have a good reason to pause because frankly creating financial stability is the number one job at the Fed.”

Elsewhere in markets, oil and gold rose. Bitcoin also climbed, reflecting the relief among investors.

Key events this week:

  • China retail sales, industrial production, medium-term lending, surveyed jobless rate, Wednesday

  • Eurozone industrial production, Wednesday

  • US business inventories, retail sales, PPI, empire manufacturing, Wednesday

  • Eurozone rate decision, Thursday

  • US housing starts, initial jobless claims, Thursday

  • Janet Yellen appears before the Senate Finance Committee, Thursday

  • US University of Michigan consumer sentiment, industrial production, Conference Board leading index, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures rose 1.3% as of 9:03 a.m. Tokyo time. The S&P 500 fell 1.5% on Friday

  • Nasdaq 100 futures rose 1.4%. The Nasdaq 100 fell 1.4%

  • Japan’s Topix index fell 1.2%

  • Australia’s S&P/ASX 200 Index fell 1%

  • Hong Kong’s Hang Seng futures rose 0.1%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.4%

  • The euro rose 0.3% to $1.0680

  • The Japanese yen rose 0.1% to 134.85 per dollar

  • The offshore yuan rose 0.4% to 6.9107 per dollar

  • The Australian dollar rose 0.8% to $0.6631

Cryptocurrencies

  • Bitcoin rose 3.3% to $22,209.44

  • Ether rose 2.2% to $1,591.51

Bonds

  • The yield on 10-year Treasuries advanced five basis points to 3.75%

  • Australia’s 10-year yield declined six basis points to 3.52%

Commodities

  • West Texas Intermediate crude rose 0.6% to $77.15 a barrel

  • Spot gold rose 0.5% to $1,877.87 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Matthew Burgess, Ruth Carson, Masaki Kondo and Yumi Teso.

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