Mar. 17, 2023 at 12:19 am

US close: Stocks pop as banks swoop to save First Republic

March 17, 2023no commentNo tags

Wall Street ended on a high note on Thursday, as major banks deposited a combined $30bn with troubled lender First Republic Bank.

The Dow Jones Industrial Average closed up 1.17% at 32,246.55, while the S&P 500 rose by 1.76% to reach 3,960.28.

The tech-heavy Nasdaq Composite saw the biggest gains of the day, closing up 2.48% at 11,717.28.

The deposit of $30 billion into First Republic Bank was confirmed by a group of 11 banks, including Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo.

Each of them confirmed they would be depositing $5bn each into the troubled lender.

The move came on the heels of the recent collapse of Silicon Valley Bank and Silvergate Bank, which heightened concerns of a potential banking liquidity crisis.

Credit Suisse‘s liquidity had been called into question this week, causing consternation on the other side of the Atlantic as well.

However, sentiment surrounding Credit Suisse improved overnight on Wednesday, as the Swiss National Bank announced that it would be providing it with a CHF 50bn loan, among other measures.

“In a week that has seen traders struggle with the concept of whether to buy the dollar for its haven role, or sell it on the premise of a more dovish Fed, today has highlighted the potential for a similarly hawkish take from Powell next Wednesday,” said IG senior market analyst Joshua Mahony.

“Markets are currently pricing in a 79% chance that the Fed will hike by 25-basis points, with pre-meeting volatility likely to further impact those expectations.”

Mahony noted that what the week had proven was how detrimental higher interest rates could be to a sector that many believed was desperate for such a move.

“The pressure is on to cut rates as soon as possible, but the task for now is to stabilise things to allow for further tightening in a bid to drive down inflation first.”

Currency markets were mixed, with the dollar last trading flat on the pound at £0.8258, as it slipped 0.03% against the euro to €0.9422, and it weakened 0.27% on the yen to change hands at JPY 133.38.

Tightness persists in labour market, housebuilding rises

In economic news, the latest data from the US Department of Labor shows that the tightness in the job market persisted last week.

Initial unemployment claims fell by 20,000 to 192,000 for the week ended 11 March.

Meanwhile, the four-week moving average for claims, which smooths out week-to-week variations, fell by 750 to 196,500.

However, secondary jobless claims, which provide a better picture of hiring trends, dropped by 29,000 to 1.684 million for the week ended 4 March.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, attributed the declines in claims to the reversal of the impact from adverse weather in California and the Midwest.

“The trend probably is still below 200,000, but we expect it to rise sharply in the spring as the wave of layoff announcements translates into actual layoffs and claims for unemployment benefits,” he said.

“For now, though, the claims data make it clear that the slowdown in payroll growth over the past year-and-a-half is mostly a story about slowing gross hiring, not rising firings.”

Elsewhere, housebuilding activity in the US saw an uptick last month, but the details of the data revealed a less impressive picture.

Housing starts rose by 9.8% in February to reach an annual rate of 1.45 million, beating consensus estimates of 1.31 million.

However, starts for single-family homes only increased by 1.1% to 830,000.

Building permits increased by 13.8% to 1.339 million, with a 7.6% rise for single-family homes.

“US housing starts were much stronger than expected in February, with a surge in the volatile multi-sector accounting for most of the increase,” Nancy Vanden Houten and Ryan Sweet at Oxford Economics said in a research report.

“The rise in single family starts in February, albeit modest, suggests that the housing sector may have bottomed in January.”

Still on data, manufacturing activity in the US mid-Atlantic region failed to rebound as expected in March, according to a survey by the Federal Reserve Bank of Philadelphia.

The factory sector index increased from -24.3 in February to -23.2 in March, worse than economists’ expectations of -14.5.

The sub-index tracking new orders also fell from -13.6 to -28.2.

Earlier in Europe, rate-setters in Frankfurt raised short-term interest rates by 50 basis points, despite the recent stress in the banking sector on both sides of the Atlantic.

The European Central Bank stated that the move was in line with its goal of achieving a “timely return” of inflation to its 2.0% medium-term target.

However, the bank also acknowledged the “elevated” level of uncertainty and emphasised its data-dependent approach.

Some analysts had argued that not following through with the guidance might be perceived as a sign of serious concerns around lenders.

Adobe beats the Street, Charles Schwab falls further

In equities, Adobe rose 5.9% after the release of its quarterly earnings report, which surpassed Wall Street’s expectations.

The creative software giant’s positive results were released on Wednesday after the closing bell.

On the downside, however, Charles Schwab Corporation declined 2.8%, despite executives revealing they had purchased nearly $7m worth of its shares on Tuesday and Wednesday.

The financial services provider’s stock had taken a hit in the banking turmoil this month, falling by almost 25%.

Reporting by Josh White for Sharecast.com.

Dow Jones – Risers

Intel Corp. (INTC) $30.18 6.23%
Microsoft Corp. (MSFT) $276.20 4.05%
Travelers Company Inc. (TRV) $172.21 3.44%
Boeing Co. (BA) $203.19 2.51%
Salesforce.Com Inc. (CRM) $187.30 2.40%
Cisco Systems Inc. (CSCO) $50.12 2.16%
Nike Inc. (NKE) $120.65 2.10%
JP Morgan Chase & Co. (JPM) $130.75 1.94%
Apple Inc. (AAPL) $155.85 1.87%
McDonald’s Corp. (MCD) $270.57 1.59%