Five things you need to know before the market opens on Thursday March 16:
1. -- Stocks Futures Slide As Bank Crisis Concerns Linger
U.S. equity futures slipped lower Thursday as turmoil from the banking sector continues to rattle global markets despite a $54 billion lifeline extended to trouble Swiss lender Credit Suisse earlier in the session.
The failures of Silicon Valley Bank and Signature Bank, alongside reports of capital and liquidity stress at Credit Suisse, have pummeled the banking sector for most of the week, triggering concerns for a broad-based financial crisis that could tip the global economy into recession.
The Swiss National Bank's effort to shore-up Credit Suisse could offer near-term support for markets, which continue to search for the next domino to fall in the quickly-escalating crisis, but investors will also need to navigate a crucial interest rate decision from the European Central Bank later today while bracing for the Federal Reserve's two-day policy meeting next week.
European bank stocks were trading firmly higher in early Frankfurt dealing, with the sector-wide Stoxx 600 Bank benchmark rising 1.42%, but bond markets continue to express caution as the risk of recession escalates amid a pullback in bank lending and worries over near-term job losses.
Treasury bond yields were also active in overnight trading, with 2-year notes rising past 4% in volatile dealing, as investors looked to position themselves ahead of the ECB rate decision and weekly jobless claims data, which is due at 8:30 am Eastern time.
Stocks are also facing the headwind of a fresh recession call from Goldman Sachs, which lifted the odds of the economy turning into contraction over the next 12 months to around 35% as the fallout from bank failures tightens credit conditions and job losses from the tech sector continue to escalate.
Traders continue to grapple with the impact of the banking crisis on the Fed's upcoming rate decision, with the CME Group's FedWatch indicating a 30% chance that Chairman Jerome Powell will hold rates at between 4.5% and 4.75% next week in Washington, with the bulk of wagers suggesting rates will ultimately peak at below 5% later in the spring.
Market volatility, as a result, looks back on the march, with the CBOE Group's VIX index surging 13.1% in the overnight session to 2685 points, down some 22% from its Monday afternoon peak, suggesting traders see daily swings on the S&P 500 of around 66 points, or 1.7%, over the near term.
Benchmark 2-year Treasury note yields were marked 5 basis points higher from last night's levels at 4.01% in overnight trading, with 10-year paper pegged at 3.501%. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.23% lower at 104.405.
On Wall Street, futures contracts tied to the S&P 500 are indicating a 7 point opening bell dip while those linked to the Dow Jones Industrial Average were looking at a 95 point decline. The tech-focused Nasdaq is looking at 15 point gain.
In overseas markets, Europe's Stoxx 600 gained 0.34% in early Frankfurt trading while Britain's FTSE 100 was marked 0.85% higher in London.
Overnight in Asia, the region-wide MSCI ex-Japan index was marked 0.86% lower while the Nikkei 225 closed 0.80% lower in Tokyo
2. -- Credit Suisse Grabs $54 Billion Lifeline From Swiss National Bank
Credit Suisse Group (CSGKF) shares surged higher in pre-market trading after the troubled investment bank agreed to a 50 billion Swiss franc lifeline from the Swiss National Bank, marking the first direct rescue of a major global lender since the global financial crisis.
Credit Suisse, which hit a record low Wednesday after its biggest shareholder, the Saudi National Bank, said it would not provide further capital if asked, received access to a so-called covered loan facility, which is similar in structure to the Federal Reserve's new bank lending backstop, and further access to a short-term liquidity fund.
The cash support followed a statement from the Swiss National Bank last night that said Credit Suisse was in-line with the "capital and liquidity requirements imposed on systemically important banks" and thus eligible for central bank assistance.
Still, while the stress surrounding Credit Suisse, which spilled-over into the European banking sector yesterday, will likely be soothed in the near-term, some analysts suggest authorities in Zurich are likely to orchestrate a full takeover of the bank, or force its breakup, over the coming months.
Credit Suisse's U.S.-listed shares were marked 7.4% higher in pre-market trading to indicate an opening bell price of $2.32 each. Its shares in Zurich were marked 22.6% higher and changing hands at 2.08 Swiss francs.
3. -- European Central Bank Rate Decision On Deck As Financial Sector Trembles
The European Central Bank faces a challenging policy decision later today in Frankfurt, as near-record inflation around the region demands aggressive rate hikes while contagion from bank failures in the United States, and weakness at Credit Suisse, endangers the Eurozone financial system.
Just days ago, before Credit Suisse's record decline pulled the region's banking sector into crisis-mode, investors were betting on the near-certainty of a 50 basis point rate hike -- to 3.5% -- from President Christine Lagarde, who has warned markets for months on the need for higher rates to combat core inflation rates that continue to accelerate.
The ECB may find itself unable to push rates that high, however, given the impact it will have on both regional financing conditions and bank-sector confidence.
As a result, Lagarde and her colleagues may either need to pull back on rate hikes plans, at least in the near-term, while offering either full and generous liquidity support to the banking sector or a slowdown in the pace of its quantitative tightening.
At present, futures prices suggest a 50/50 chance of a 50 basis point rate hike when the decision is unveiled at 8:15 am Eastern time.
4. -- First Republic Shares Slump Amid Bank Sale Reports
First Republic Bank (FRC) shares moved lower in pre-market trading following reports that the San Francisco-based lender and wealth manager is exploring strategic options including an outright sale.
First Republic, which arranged $70 billion in available liquidity support from both the Federal Reserve and "additional financing" from JPMorgan Chase JPM earlier this week, had its credit rating cut to 'junk' status by both S&P Global Ratings and Fitch Ratings on Wednesday, citing over-concentration in its deposit base and risks to its funding profile.
Bloomberg reported late Wednesday that the bank could seek an outright sale over the coming days, but is also exploring solutions to shore-up its broader liquidity base even as the Federal Reserve continues to offer one-year term loans against high-quality collateral such as Treasury bonds, agency debt or mortgage-backed securities.
First Republic shares were marked 6.3% lower in pre-market trading to indicate an opening bell price of $29.20 each.
5. -- FedEx Earnings Up Next As Cost-Cutting Accelerates
FedEx (FDX) shares moved firmly higher in pre-market trading ahead of the package delivery giant's third quarter earnings after the closing bell.
FedEx, which doubled-down on its cost-cutting plans late last year in an effort to enhance profitability amid a slowdown in package demand, is expected to post a bottom line of $2.72 per share on revenues of $22.74 billion for the three months ending in February, the group's fiscal third quarter.
CEO Raj Subramaniam, who faced investor pressure last summer to boost profits following the retirement of longtime founder Fred Smith, is seeking to reduce costs by $3.7 billion this year by reducing FedEx Express flights, parking underused planes, cutting back on Sunday deliveries and closing domestic sorting warehouses.
FedEx shares, which have well-outpaced gains for its larger, more profitable rival United Parcel Service (UPS) so far this year, were marked 1.38% higher in pre-market trading to indicate an opening bell price of $198.00 each.
