Bailouts are back, Fed outlook reassessed, Pfizer M&A – what moves markets


By Jeffrey Smith — Bailouts are back. Tech bros and crypto firms breathe a sigh of relief as the FBI steps in to guarantee all deposits at Silicon Valley Bank and signature bankas well as setting up a new liquidity program to counter contagion to the wider banking sector. However, that hasn’t stopped other West Coast banks in particular from selling out premarket. The dollar plummets as markets bet that the Federal Reserve will be too afraid of causing a crash in March to raise interest rates. Bond yields fall as the flight to safety outweighs fears of future inflation. Crypto is rising accordingly. And Pfizer intends to buy Seagen for $43 billion. Here’s what you need to know in the financial markets on Monday, March 13.

1. Feds rescue tech bros

Federal authorities bailed out Silicon Valley Bank (NASDAQ:) depositors and signature bank (NASDAQ:), aiming to avoid a run on the country’s second-tier regional banks.

The Federal Reserve, the Federal Deposit Insurance Corporation and the Treasury said they will ensure that the two banks honor all of their deposits, the vast majority of which are above the $250,000 federally insured threshold.

They also created a new tool called the Bank Term Funding Plan (BTFP) that allows banks to sell government bonds and other high-quality liquid assets at par to the Fed if they need to raise liquidity. The program will be held back by $25 billion in taxpayers’ money.

The move means the banks’ clients, many of them venture capitalists and crypto platforms, won’t have to bear the brunt of what have been seemingly surprisingly basic risk management mistakes at the two banks.

2. Bank stocks are still falling despite interest rate freeze bets

The signs of panic at the onset of financial instability prompted a sharp and abrupt reassessment of the interest rate outlook.

Goldman Sachs and others said they now expect the Fed to remain unchanged at its March meeting, contrary to the consensus for a 25 basis point hike before last week’s events. The declining and risky assets were widely supported after falling out of bed with a bump on Friday.

However, if the Fed and Treasury thought they had drawn a line under the fiasco, they were wrong. Shares in Bank of the First Republic (NYSE:), fell 60% in premarket trading amid bets it will be the next domino to fall, while PacWest Bancorp (NASDAQ:) stock fell 40% and Western Alliance (NYSE:) fell 45%.

Banks with high concentrations of volatile corporate deposits are considered to be most at risk due to liquidity concerns, while banks with a more stable retail deposit base are considered more isolated.

3. Stocks open mixed; Pfizer close to closing the Seagen deal

Stocks more broadly struggled to make headway in premarket trading, with many still unsettled by the federal bailout of institutions largely unknown outside their respective niches until last week.

At 06:30 ET (10:30 GMT), we were down 34 points, or 0.1%, while up 0.2% and up a more solid 0.6%. All three major cash indices had lost between 1% and 1.8% on Friday. European markets were more turbulent, with major benchmark indices each losing more than 2% in early trading.

While the focus is likely to remain on the banking sector later on (HSBC (LON:) fell 4.3% after acquiring SVB’s UK operations for a nominal £1), other stocks in the news include Pfizer (NYSE: ), which eventually agreed to buy Seagen (NASDAQ:) for $43 billion, and Novartis (NYSE:), which outperformed after announcing a major new buyback program. A rumored deal to sell Qualtrics (NASDAQ:) to Silver Lake for $12.5 billion failed to prevent SAP (ETR:) from falling almost 3%. Boeing (NYSE:) bucks the trend by hoping for a large order from Saudi Arabia.

4. Crypto breathes a sigh of relief

One asset class with an unequivocally positive response to the weekend’s developments was crypto. Some of the biggest savers at the two banks bailed out were Coinbase (NASDAQ:) and publisher Circle, both of whom would lose a large chunk of their reserves if a bailout didn’t happen.

USD Coin — a stablecoin designed to trade at $1 — was down to 88 cents over the weekend, after Circle’s $3.3 billion exposure to Silicon Valley Bank (never a secret) became public knowledge. It had recovered to 98.60 in New York early Monday and was still trading at a marked discount to par. Coinbase shares, meanwhile, rose 3.3% in premarket.

Elsewhere, it rose 8.5% to $22,229, while rising 8.6% to $1,585, bolstered by perceptions that the Fed will be forced to halt its rate hikes.

5. Oil away from economic fears; OPEC+ production held up in February

Crude oil prices fell, with concerns about the long-term consequences of US bank failures outweighing the sharp fall in the dollar, which should generally support prices.

At 06:45 ET, futures were down 1.3% to $75.64 a barrel, while they were down 1.2% to $81.76 a barrel.

Argus Media estimated that overall output from the OPEC+ bloc had held steady in February, despite pressure on Russia from tightening Western sanctions.

Source link


Please enter your comment!
Please enter your name here