Five things you need to know before the market opens on Monday March 27:
1. -- Stock Futures Higher As Bank Stocks Rebound
U.S. equity futures nudged higher Monday, while the dollar steadied against its global peers and bank stocks jumped, as markets took comfort from the sale of Silicon Valley Bank and reports of extended support from the broader domestic financial system.
Silicon Valley Bank Bridge, the remaining assets of the failed SVB Financial that were held by the FDIC, was sold to First Citizens bank late Sunday in a move that looks to have steadied concerns over a near-term run on deposits in the regional banking system.
The auction followed a meeting on Friday of the U.S. Financial Stability Oversight Council, group composed of Federal Reserve, SEC and FDIC regulators chaired by Treasury Secretary Janet Yellen, which discussed "ongoing efforts at member agencies to monitor financial developments."
"The Council discussed current conditions in the banking sector and noted that while some institutions have come under stress, the U.S. banking system remains sound and resilient," the FSOC said in a brief statement.
Stocks are certainly finding support from the effort on Monday, with European banking stocks mounting a solid rebound from their Friday sell-off and U.S. regional bank shares moving firmly higher in pre-market trading.
Bond yields are also on the move, with benchmark 2-year notes rising to 3.925% in overnight trading, and ahead of a $42 billion auction later today, amid renewed recession concerns linked to the pullback in loan growth tied to the banking sector crisis.
"What's unclear for us is how much of these banking stresses are leading to a widespread credit crunch," Minneapolis Fed President Neel Kashkari told CBS's 'Face The Nation' on Sunday. "That credit crunch would then slow down the economy. It definitely brings us closer (to recession)."
Those concerns are also having an affect on Fed rate forecasts, following on from last week's 25 basis point increase in the key Fed Funds rate, which now sits between 4.75% and 5%.
The CME Group's FedWatch suggests a 67.5% chance the Fed will hold rates steady at its next meeting in May, with a near 70% chance of a rate cut by late July. That's adding further pressure to the U.S. dollar index, which is down around 1.6% against its global peers so far this month and was last seen trading at 103.150 in overnight dealing.
Stocks looks set for at least a solid start to the Monday session, however, as futures contracts tied to the S&P 500 indicate a 19 point opening bell gain and those linked to the Dow Jones Industrial Average suggest a 140 point bump. Futures tied to the Nasdaq are indicating a more modest 34 point gain as tech stocks face the headwind of higher Treasury bond yields.
Overnight in Asia, the region-wide MSCI ex-Japan index was marked 0.76% lower into the close of trading, while Japan's Nikkei 225 fell 0.0.33% for its third consecutive session decline.
In Europe, the Stoxx 600 was marked 1% higher in early Frankfurt trading, with bank stocks leading the advance thanks to a 3% rebound in Deutsche Bank shares, while the FTSE 100 was marked 0.56% higher in London.
2. -- Week Ahead: Inflation Data In Focus As Fed Rate Bets Fade
Friday's release of the Fed's preferred inflation gauge will highlight another quiet week for data and earnings releases over the coming days as traders round out the final session of a brutal March and pre for the start of the first quarter reporting season.
The Bureau of Economic Analysis will publish its PCE Price index data Friday at 8:30 am Eastern time, with investors looking for an easing in inflation pressures that could justify bets on a near-term pause in rate hikes from the Fed as it grapples with the fallout from the collapse of SVB Financial and the broader banking sector turmoil.
Analysts see a modest decline in the monthly core PCE reading, which is expected to come in at 0.4%, with the year-on-year tally holding at 4.7%.
On the earnings front, Dow component Walgreen Boots Alliance (WBA) will post its second quarter earnings on Wednesday, prior to the start of trading, with chipmaker Micron Technology (MU) and upscale clothing retailer Lululemon (LULU) reporting after the closing bell.
Another event of note this week is likely to be testimony from Michael Barr, the Fed's vice chair for supervision, to the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
The Treasury's auction of $42 billion in 2-year notes, slated for Monday with results expected at 1:00 pm Eastern time, will also be closely-tracked by markets following last week's bond market volatility and the huge changes in rate forecasts that followed the Fed's policy meeting on March 22.
3. -- First Citizens Agrees To Buy Silicon Valley Bank Loans, Deposits
First Citizens BancShares (FCNCA) agreed to buy failed lender Silicon Valley Bank in a deal that could support regional lenders and shore-up confidence in the country's broader financial system.
North Carolina-based First Citizens will assume around $56 billion in Silicon Valley Bank deposits and take on the tech start-up lender's $72 billion loan book at a discount of around $165 billion.
In a nod to the purchase of Signature Bank New York Community Bancorp last week, First Citizens agreed to offer $500 million in equity enhancement to the Federal Deposit Insurance Corp., which will ultimately take a hit of around $20 billion from its intervention in Silicon Valley Bank.
"We look forward to building relationships with our new customers and positioning our company for continued success as we affirm our commitment to support the integrity of our nation's banking system," said First Citizens' CEO Frank Holding.
First Citizen shares closed at $582.55 each Friday on the Nasdaq, after falling around 1.11% on the session to extend the stock's year-to-date decline to around 23.2%.
4. -- U.S. Bank Stocks Higher, But Deposit Outflows Quicken
U.S. bank shares were active again in pre-market trading following data late Friday which showed deposits at smaller, regional lenders fell the most on record in the wake of SVB Financial's collapse on March 10.
Deposits are smaller U.S. banks, defined as those sitting outside of the top 25 in terms of asset size, fell by $119 billion to $5.46 trillion over the seven-day period that ended on March 15, according to Fed data. Some of that flight found its way into larger banks, however, with the data showing deposits at larger institutions rose $67 billion to $10.74 trillion.
While not evident from the Fed data, much of the cash that is leaving smaller banks could be finding its way into money market funds, according to Bank of America's closely-tracked 'Flow Show' report, which suggested an addition of more than $300 billion over the past month, taking the overall tally to a record $5.1 trillion.
First Republic (FRC) shares were marked 24.7% higher in pre-market trading to indicate an opening bell price of $15.41 each. PacWest (PACW) shares jumped 8% to $10.31 each while Western Alliance Bancorp. (WALPL) gained 5% to $34.70
5. -- Israel Protests Deepen Pressure on Prime Minister Netanyahu
Israeli Prime Minister Benjamin Netanyahu remained under intense political pressure Monday amid national protests and political chaos linked to his controversial plans to overhaul the country's judicial system.
Netanyahu, who is attempting to hold together a coalition government of hardline nationalists and religious leaders, fired his Defence Minister, Yoav Gallant, on Sunday, sparking a series of protests around the country after Gallant made public comments against Netanyahu's plans.
Likud party supporters, however, are reportedly heading to the Knesset to back Netanyahu and the coalition, raising concerns over potential political violence in the capital city of Jerusalem, with Israeli President Isaac Herzog recently warning that the country is "within touching distance" of a civil war.
U.S. officials, meanwhile, urged Israeli leaders to find a compromise.
"As the president recently discussed with Prime Minister Netanyahu, democratic values have always been, and must remain, a hallmark of the U.S.-Israel relationship," White House National Security Council spokeswoman Adrienne Watson said in a statement.
"Democratic societies are strengthened by checks and balances, and fundamental changes to a democratic system should be pursued with the broadest possible base of popular support," Watson added.
