U.S. stocks are extending last week's sharp declines that have come amid worries regarding the ultimate impact on the banking sector of the recent collapses of SVB Financial and Silvergate Capital. The uneasiness has been exacerbated by the closure of Signature Bank in New York over the weekend. Treasury yields are falling sharply and the U.S. dollar is dropping. Crude oil prices are seeing pressure, and gold is rallying. The economic calendar is dormant today, but will heat up tomorrow as the Consumer Price Index will be released, beginning the development of the February inflation picture. Asia finished mixed, with Chinese and Hong Kong markets rising, and Europe is falling broadly amid heightened volatility due to the turbulence in the banking sector.
As of 8:58 a.m. ET, the March S&P 500 Index future is 59 points below fair value, the Nasdaq Index future is 56 points south of fair value, and the DJIA future is 432 points below fair value. WTI crude oil is dropping $3.81 to $72.87 per barrel, while Brent crude oil is falling $3.62 to $79.16 per barrel. The gold spot price is up $39.80 to $1,907.00 per ounce. Elsewhere, the Dollar Index is declining 0.7% to 103.92.
The stock markets have tumbled in the wake of the failure of SVB Financial Group (SIVB), as well as crypto-related Silvergate Capital Corp. (SI), and the closure of Signature Bank (SBNY) over the weekend, which has fostered severe volatility in the markets and fueled concerns about contagion in the financial markets. Meanwhile the Treasury Department, the Fed and Federal Deposit Insurance Corporation (FDIC) have enacted several measures to contain the issue.
For a look at what our experts think about the recent stock market drop, read our latest article, Bank Failure Pressures Stocks. Fixed Income Strategist with the Schwab Center for Financial Research, Collin Martin notes that, "The U.S. banking system is still relatively healthy. Capital ratios, a measure of banks' ability to cover their loans, have declined over the last year but are still at adequate levels." Meanwhile, he adds that "although markets are still pricing in additional Fed rate hikes at upcoming policy meetings, concerns about the financial sector have helped push down the expected "peak" rate."
Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Caveat Emptor: Important Market Shifts Underway, how given the topsy-turvy nature of the market thus far in 2023, it remains crucial for investors to know what they are buying—especially as it relates to growth, value, and quality.
In M&A news, Pfizer Inc. (PFE $39) confirmed that after talks that began in February it has reached an agreement to acquire cancer drugmaker Seagen Inc. (SGEN $173) for $229 per share in cash in a transaction valued at about $43.0 billion.
Treasury yields continue to fall, inflation data set to headline economic week
Treasury rates continue to tumble, as the yield on the 2-year note is plunging 42 basis points (bps) at 4.17%, the yield on the 10-year note is falling 23 bps to 3.47%, and the 30-year bond rate is losing 15 bps to 3.54%.
Bond yields remain under pressure as the markets wrestle with uncertainty regarding if the Fed may change its tightening campaign a bit sooner than expected in the wake of the recent turbulence in the banking sector.
The economic calendar is dormant today but will offer a number of reports this week that could amplify focus on the Fed ahead of its March 22 policy decision. The February inflation landscape will begin to develop tomorrow, with the release of the Consumer Price Index (CPI), which will be followed by the Producer Price Index (PPI) and Import Price Index reports. A look at the all-important consumer psyche will come via the February retail sales report and the preliminary University of Michigan Consumer Sentiment Index for March. Housing will be on display courtesy of the NAHB Housing Market Index, housing starts and building permits, and the weekly read on MBA Mortgage Applications. Other reports of note include the Fed's industrial production and capacity utilization report, the Leading Economic Index (LEI), business inventories, initial jobless claims for the week ended March 11, as well as regional manufacturing reads from the New York and Philadelphia regions.
Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, How to Prepare for Landing, how a "soft landing," with declining inflation but positive growth, would be ideal. However, she points out that turbulence appears likely. Kathy offers insight on how to handle it.
Europe continues to fall as weakness in banks remains
Stocks in Europe continue to fall broadly, with losses in the banking sector remaining, following the failures last week of SVB Financial Group and crypto-focused bank Silvergate Capital Corp., which was followed by the closure of Signature Bank over the weekend. Concerns have continued regarding the ultimate impact on the global financial system even as U.S. regulators have stepped in to try to contain the fallout, and as HSBC Holdings PLC. (HSBC $35) stepped in to buy the British arm of SVB Financial. The turmoil in the banking sector has caused some speculation to ramp up that the Fed may pause its aggressive rate hike campaign, while focus will be on this week's monetary policy decision by the European Central Bank, which is expected to raise its benchmark rate by 50 bps. The Bank of England is expected to offer its monetary policy decision next week.
Despite the recent choppiness in the markets, equities in the region have had a strong start for 2023, buoyed by signs that warmer-than-expected winter weather may help the region avoid an energy crisis, as well as China’s reopening. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, The Everything Everywhere All at Once Rally, how despite market volatility, inflationary pressures, and a potential earnings recession, a rally involving stocks, bonds, and some commodities started in November still persists. The euro and the British pound are rising versus the U.S. dollar, while bond yields in the Eurozone and the U.K. are tumbling.
The U.K. FTSE 100 Index is down 2.5%, France's CAC-40 Index is falling 3.1%, Germany's DAX Index is dropping 3.3%, Spain's IBEX 35 Index is tumbling 3.4%, Italy's FTSE MIB Index is plunging 4.2%, and Switzerland's Swiss Market Index is trading 2.0% lower.
Asia mixed despite continued turmoil in the banking sector
Stocks in Asia finished mixed with Chinese and Hong Kong markets rising, while Japanese equities fell with the global markets continuing to grapple with the weakness in the Financials sector. The uneasiness has come on the heels of some failures at banks in the U.S. that has fostered uncertainty regarding the ultimate impact on the global financial market system. The turmoil in the banking sector has caused some speculation that this may prompt the Fed to back off of its aggressive monetary policy campaign. Meanwhile, the Bank of Japan (BoJ) left rates unchanged, as widely expected, on Friday. Schwab's Jeffrey Kleintop discusses in his latest article, Are You Focused on the Wrong Central Bank?, how while investor attention is on the Fed, changes at the Bank of Japan might bring shifts to the economic environment, impacting the global markets. The markets are digesting late-Friday's economic data that showed February Chinese lending statistics came in above expectations, while India's industrial production grew at a larger-than-expected pace for January.
Japan's Nikkei 225 Index fell 1.1%, with the yen gaining ground against the U.S. dollar. China's Shanghai Composite Index rose 1.2%, and the Hong Kong Hang Seng Index increased 2.0%, led by the Technology sector. Australia's S&P/ASX 200 Index declined 0.5%, South Korea's Kospi Index increased 0.7%, and India's BSE Sensex 30 Index traded 1.5% lower.
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