(Bloomberg) — US stocks extended gains into the afternoon session on reports that major banks are in talks to bolster First Republic Bank sparking a rebound in shares of embattled regional lenders. Treasuries fell after the European Central Bank delivered a rate hike that added to bets the US central bank will also raise next week.
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The S&P 500 surged after reports that First Republic is set to get $30 billion in deposits from banks including JPMorgan Chase & Co. The regional lender’s shares have tumbled roughly 70% this week as investors speculated the bank could be the next to fail after two high-profile demises touched off the crisis last week. An index of regional banks erased losses that earlier approached 4%. The tech-heavy Nasdaq jumped more than 2% to a one-month high.
“Tech continues to trade based on rates and forward expectations for the path of the Fed,” Will Hershey, chief executive officer of Roundhill Financial Inc., wrote. Short-term movements in tech are not “contemplating the current issues in the banking sector and what that could mean moving forward for cost of capital and a broader slowdown in the economy.”
Meanwhile, Treasury Secretary Janet Yellen’s prepared remarks presented to Capitol Hill Thursday “did a good job of boosting confidence about the banking system,” said Art Hogan, chief market strategist at B. Riley Wealth Management.
“They’d like to see the support come from the private sector and that is likely going to be now the first of many larger, more sound banks supporting some of those banks that might have impaired balance sheets,” Hogan said of the big lenders coming to the regional bank’s aid.
The First Republic news comes after a lifeline from Swiss regulators overnight stabilized Credit Suisse Group AG, easing worries that the European lender would lead to a cascading crisis in that region. Depository receipts in Credit Suisse advanced in New York trading while the cost to insure the Swiss bank’s debt has been rising.
“That the market is reacting relatively positively to the fact that we are applying some guardrails here shouldn’t necessarily be a catalyst for markets to move much higher,” said Meera Pandit, JPMorgan Asset Management global market strategist on Bloomberg TV. “There is still some vulnerability here to a correction because we don’t know how this continues to evolve.”
Markets were also digesting a European Central Bank rate hike and comments from the ECB president that inflation is projected to remain too high for too long. The Federal Reserve is expected to raise interest rates by a quarter percentage point next week. Rising odds for that move sent two-year Treasury yields back above 4%, though they remained lower than they were just a week ago.
All eyes are now on the Federal Reserve’s policy meeting next week, with traders debating whether the central bank will increase interest rates. Market pricing now suggests the Fed will soon pivot and will start cutting rates this year.
Data Thursday showed first-time unemployment claims dropped more than analysts’ estimates last week, while housing starts and building permits exceeded expectations, underscoring the economic resilience that’s allowed the Fed to tighten aggressively over the past year.
“Central banks appear to be willing to push through the problems higher rates are causing in order to address inflation,” Louis Navellier, chief investment officer of Navellier & Associates wrote in his daily newsletter. He views the ECB’s rate increase as a “test run” ahead of the next Fed meeting.
“All else being equal, more restrictive lending increases recession risk,” he said. “Expect lots of volatility in the near term and remain cautious as this banking crisis plays out.”
Stocks
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The S&P 500 rose 1.5% as of 1:40 p.m. New York time
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The Nasdaq 100 rose 2.3%
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The Dow Jones Industrial Average rose 1%
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The MSCI World index rose 1.1%
Currencies
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The Bloomberg Dollar Spot Index fell 0.1%
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The euro rose 0.3% to $1.0605
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The British pound rose 0.4% to $1.2108
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The Japanese yen fell 0.2% to 133.70 per dollar
Cryptocurrencies
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Bitcoin rose 1.5% to $24,746.39
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Ether rose 0.4% to $1,660.1
Bonds
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The yield on 10-year Treasuries advanced 12 basis points to 3.57%
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Germany’s 10-year yield advanced 16 basis points to 2.29%
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Britain’s 10-year yield advanced 10 basis points to 3.43%
Commodities
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West Texas Intermediate crude rose 1.5% to $68.65 a barrel
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Gold futures fell 0.5% to $1,922.50 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Emily Graffeo and Isabelle Lee.
(An earlier version of this story was corrected to show that Credit Suisse is seeking to buy back debt.)
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