Asian shares are facing tough times, but US and European stock futures are showing promising signs. There are hopes that authorities will be able to ring-fence stress in the global banking system. However, there are concerns that the cost of insuring against default has reached dangerous levels. In the midst of all this, First Citizens BancShares Inc is reportedly in advanced talks to acquire Silicon Valley Bank from the Federal Deposit Insurance Corp.
US and EUROPE STOCK FUTURES SHOWING PROMISING SIGNS
S&P 500 futures have firmed 0.3% and Nasdaq futures 0.4%. EUROSTOXX 50 futures rallied 1.1% and FTSE futures 0.7%. This shows promising signs for the global banking system.
JAPAN’S NIKKEI GAINS, BUT SOUTH KOREA AND CHINA LOSE
Japan’s Nikkei gained 0.4%, but South Korea lost 0.3%. MSCI’s broadest index of Asia-Pacific shares outside Japan also eased 0.3%, led by a 0.9% drop in Chinese blue chips. Shares in Chinese search engine giant Baidu (NASDAQ:BIDU) fell more than 3% after it cancelled a planned livestreamed product launch open to media and the public related to its ChatGPT-like Ernie bot.
DEUTSCHE BANK SHARES FALL, COST OF INSURING BONDS JUMP
The mood remained jittery after shares in Deutsche Bank (ETR:DBKGn) fell 8.5% on Friday and the cost of insuring its bonds against the risk of default jumped sharply, along with the credit default swaps (CDS) of many other banks. This is a cause of concern as the current level of credit default swaps for European banks is just a little lower than it was during the height of the European financial crisis in 2013.
MARKETS PRICED FOR FED CUTS
Minneapolis Fed President Neel Kashkari said on Sunday that officials were watching “very, very closely” to see if the banking stress led to a credit crunch that threatened to tip the economy into recession. This, in turn, meant the Fed was closer to a peak in rates. Markets are well ahead of the central bank in pricing around an 80% chance rates have already peaked, while a first rate cut is odds-on for as early as July. Fed Governor Philip Jefferson speaks later on Monday, while Fed Vice Chair for Supervision Michael Barr testifies on “Bank Oversight” before the Senate on Tuesday.
YIELDS ON TWO-YEAR TREASURIES FALLING
Yields on two-year Treasuries have fallen an astonishing 102 basis points so far this month to stand at 3.77%, while the entire yields curve out to 30 years is below the 4.85% effective funds rate. That dive has sometimes been a drag on the dollar, at least against the safe-haven Japanese yen where it stands at 130.60 yen, having touched a seven-week low of 129.65 last week.
GOLD PRICES RISING WHILE OIL PRICES ARE FALLING
The drop in yields has combined with the run from risk to burnish gold, which was trading at $1,975 an ounce after reaching a high above $2,009 last week. Oil prices were little changed, and are nursing losses of almost 10% for the month as worries about global growth undermine commodities in general. Brent fell 1 cent to $74.98 a barrel, while U.S. crude added 2 cents to $69.28 per barrel.
