Monday Morning Coffee - Markets Update - 27 Mar 2023 - Markets take a breath after last two weeks of banking turmoil
Markets Update: Markets take a breath after last two weeks of banking turmoil
Mon, 27 Mar 2023 08:15 CET
Today's important market events:
There was a mixed performance in APAC stocks as markets took a break from concerns about the banking sector. The FDIC has confirmed that First Citizens will take over all deposits and loans of Silicon Valley Bridge Bank. In Europe, equity futures are pointing to a higher open, with the Euro Stoxx 50 up 1.0% after closing down 1.8% on Friday. The DXY, a measure of the U.S. dollar against a basket of other currencies, is hovering just above the 103 mark, while the EUR/USD pair is trading below 1.08 and the USD/JPY pair is being capped by resistance at 131. Russian President Putin has announced that Moscow will station tactical nuclear weapons in Belarus, but the White House sees no need to adjust nuclear posture.
The Australian stock market (ASX 200) saw some slight gains, with the utilities and real estate sectors providing support. However, the gains were limited due to weakness in commodity-related sectors.
Meanwhile, the Nikkei 225 in Japan reclaimed the 27,500 level, but its further upside was limited due to firmer-than-expected Services PPI data from Japan and North Korea's fresh round of missile launches.
In Hong Kong, the Hang Seng and Shanghai Composite were under pressure despite the PBoC's RRR (Reserve Requirement Ratio) cut taking effect, with attention turning to earnings releases. Energy stocks led the downturn in Hong Kong following a decline in Sinopec's profits, and certain tech stocks weakened after Xiaomi's quarterly smartphone shipments fell. The latest data also showed that February YTD Industrial Profits declined by 22.9% Y/Y.
On the other hand, US equity futures (ES +0.5%) sustained the gains from Friday's intraday rebound, while European equity futures indicated a higher open with the Euro Stoxx 50 +1.0% after the cash market closed down 1.8% on Friday.
DXY (a dollar index) traded near 103.00 level after last Friday's gains against other currencies due to banking sector fears in Europe. Fed's Kashkari suggested that the situation brings the US closer to a recession, and it is too soon to forecast the rate decision for the next Fed meeting.
EUR/USD remained below 1.0800 handle as ECB's de Guindos suggested the need to assess whether recent banking sector events would tighten financing conditions. GBP/USD lacked direction after mixed data and a rebound off support at 1.2200. USD/JPY faced resistance at the 131.00 level and was impacted by Services PPI data. Antipodeans (currencies of Australia and New Zealand) were choppy with no clear direction. PBoC set the USD/CNY mid-point at 6.8714 vs exp. 6.8703 (prev. 6.8374).
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10yr UST futures were quiet after hawkish Fed speak and stronger-than-expected PMI data reversed some of the recent bull steepening in the curve. Bund futures were lacklustre, and market participants are looking towards upcoming German IFO data and ECB rhetoric. 10yr JGB futures were contained amid recent Services PPI data and a lack of additional buying by the BoJ.
Crude futures were indecisive and faced resistance near USD 70/bbl level. Saudi Aramco CEO expressed support for China's long-term energy security, and Aramco JV Hapco is set to commence construction of a refinery and petrochemical complex in China. Iraq won an arbitration case against Turkey regarding Kurdish oil exports, and Turkey halted Kurdish crude exports in response.
TotalEnergies reported that 33% of its operational staff at French refineries and depots were on strike. An oil leak from the Wytch Farm Oil Field in Dorset led to a major incident declaration.
Spot gold remained uneventful due to the flat dollar and inability to breach USD 2,000/oz level. Copper futures traded sideways due to mixed risk sentiment.
ECB's de Guindos expressed concern over the impact of events in the US banking system and Credit Suisse on the eurozone economy. He emphasized the need to assess whether this would lead to further tightening of financing conditions and potentially result in lower growth and lower inflation.
ECB's Centeno stated that he does not expect rate hikes to go beyond what is already priced into the market. He also mentioned that there are currently no signs of tensions in the Eurozone banking system, and Eurozone banks do not face problems similar to Credit Suisse.
S&P affirmed Germany's credit rating at AAA with a stable outlook, while Fitch affirmed Malta's credit rating at A+ with a stable outlook.
Looking ahead, some key events to watch for include the release of EZ M3 and German Ifo data, as well as speeches from Fed's Jefferson, BoE's Bailey, ECB's Schnabel & Elderson, and supply data from the US.