S&P Futures Jump on SVB Backstop, Rate Bets Shift: Markets Wrap

(Bloomberg) — US stock futures rallied more than 1.5% while the dollar and bond yields tumbled as investors digested the steps taken by regulators to shore up the American financial sector in the wake of Silicon Valley Bank’s failure.

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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 new lending program that Federal Reserve officials said would be big enough to protect uninsured deposits in the wider US banking system.

Two-year Treasury yields slumped as much as 24 basis points amid bets that the Federal Reserve will scale back interest-rate hikes. Economists at Goldman Sachs Group Inc. no longer expect an increase from the Fed at its March meeting given stresses in the banking system.

A gauge of dollar strength declined by 0.8%, with the currencies of Australia, New Zealand and Norway all advancing at least 1% versus the greenback.

Japan’s benchmark 10-year yield slumped further below ceiling of the central bank’s target trading band. 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.

Japanese stocks led losses in Asia, with financials being the biggest drag on the benchmark Topix gauge. The gauge headed for its biggest two-day loss in a year as the yen continued to strengthen.

Meanwhile, shares in Hong Kong and mainland China rose amid positive signs for policy continuity, with China’s central bank governor Governor Yi Gang and the finance and commerce ministers being kept in their posts. President Xi Jinping also pledged to pursue reasonable growth in economy, as well as self reliance on technology, in his closing speech at the National People’s Congress.

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%.

“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.”

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 fluctuated while gold rose on its allure as a haven. Bitcoin 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 1.6% as of 11:54 a.m. Tokyo time. The S&P 500 fell 1.5% on Friday
Nasdaq 100 futures rose 1.7%. The Nasdaq 100 fell 1.4%
Japan’s Topix index fell 2%
Hong Kong’s Hang Seng Index rose 1.7%
China’s Shanghai Composite Index rose 0.7%
Australia’s S&P/ASX 200 Index fell 0.2%

Currencies

The Bloomberg Dollar Spot Index fell 0.9%
The euro rose 0.7% to $1.0720
The Japanese yen rose 0.9% to 133.84 per dollar
The offshore yuan rose 1.1% to 6.8663 per dollar
The Australian dollar rose 1.3% to $0.6666

Cryptocurrencies

Bitcoin rose 3.8% to $22,317.81
Ether rose 2.8% to $1,601.05

Bonds

The yield on 10-year Treasuries declined four basis points to 3.66%
Japan’s 10-year yield declined 6.5 basis points to 0.33%
Australia’s 10-year yield declined nine basis points to 3.49%

Commodities

West Texas Intermediate crude rose 0.4% to $76.96 a barrel
Spot gold rose 1% to $1,887.61 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Vildana Hajric and Isabelle Lee.