US and European Stocks Rise
US futures and European stocks climbed on the back of news of potential support from US authorities, which eased concerns over the struggling regional banking sector. All three major US indices saw gains in contract trading. First Republic Bank (NYSE:FRC) shares surged 27%, following news that US authorities may expand an emergency lending facility to help the bank bolster its balance sheet. In addition, First Citizens BancShares Inc. (NASDAQ:FCNCA) rose 40% after acquiring all loans and deposits of Silicon Valley Bank. The Treasury 10-year yield increased by about nine basis points, while the gauge of dollar strength remained steady. European equities performed well, particularly in the banking sector, with Deutsche Bank AG (XE:DBK) rebounding and Credit Suisse AG (NYSE:CS) seeing gains after steep losses last week.
Tech Layoffs Surge
Since the start of 2023, more than 153,000 global technology-sector employees have been laid off, according to data compiled by Layoffs.fyi. The tally of 2023 global tech layoffs has gone up more than sixfold since mid-January, with 528 tech companies laying off 153,598 employees since the year’s start. Last year, 1,024 tech companies laid off a total of 154,336 employees.
Interest Rate Hike Expectations Fall
Investors have scaled back their expectations of global interest rate rises following banking sector turmoil, with market indicators suggesting that the period of rapid increases has come to an abrupt end. The pricing of derivatives products, such as interest rate swaps, indicates that many of the world’s major central banks will not raise rates further, and, in some cases, will begin to impose cuts before the end of the year. Markets are split on whether the Bank of England and the European Central Bank will raise rates in May, after pricing in a high probability of a rise at the start of March.
PE Leverage Concerns Grow
Regulators and watchdogs are becoming increasingly concerned about the hidden leverage built over the past decade by private equity firms and others. The worry is that they were allowed to load up on cheap loans without enough oversight into how the debt could be interconnected, leading to a risk of suffering if banks or other credit providers suddenly pull back. Each loan may be small, but they have often been layered up in such a way that investors and borrowers could be affected.
German Transport System Paralysed
Germany’s transport system was paralysed by a one-day warning strike that brought national and local rail services to a standstill, causing misery for millions of commuters and severely disrupting freight traffic in Europe’s largest economy. The 24-hour strike, called by powerful service sector union Verdi and the EVG, which represents rail workers, was a response to employers ignoring the effects of the escalating cost of living crisis on their members. German household energy prices have risen 32% in the year to February, while food prices are up by 22%.
Lagarde Remains ECB’s Biggest Hawk
Despite mounting banking stress, Christine Lagarde, the President of the European Central Bank, is cementing her credentials as the biggest hawk among major central bankers, handing financial markets a reason to buy the euro and sell German bonds. The widening divergence in monetary policy sits at the heart of two trades favoured by currency and bond investors, with Lagarde’s inflation drive providing a tailwind for the euro that could lift it to $1.10 in the coming months.
Deposit Guarantees Benefit Large Banks
Marc Lasry, the billionaire co-founder of Avenue Capital Group, has said there is little benefit for small businesses and other depositors to keep their money with regional banks instead of Wall Street giants unless the Federal Reserve steps in. The risk of a regional bank failing is small, but it still makes sense for depositors to move their money to large Wall Street banks in the absence of new deposit guarantees from the Fed.
Trump Grand Jury Reconvenes
The New York grand jury will reconvene on Monday to continue hearing testimony regarding Donald Trump’s alleged involvement in hush money payments to a porn star. There is widespread anticipation surrounding the possibility of the former president being indicted, which has led him to launch verbal attacks against prosecutors. The grand jury is also looking into unrelated cases, and it remains unclear what their agenda will be for the upcoming week.
Israel Contemplates Delaying Judicial Overhaul
Israeli Prime Minister Benjamin Netanyahu is contemplating delaying his proposed judicial overhaul after protests escalated, leading to a national strike that halted international flights. The country’s main trade union has joined in the protests against the overhaul, which some senior officials believe is not worth causing civil unrest. However, right-wing ministers have threatened to break up the coalition if Netanyahu puts the proposals on hold. The possibility of a delay has boosted the shekel, which has faced sustained instability due to unrest in Israel.
Iraqi Oil Exports Halt
Negotiations between Iraqi federal government officials and Kurdish officials regarding the resumption of oil exports have failed, according to sources. Around 400,000 barrels a day of oil exports from a Turkish port were halted last week, due to a legal dispute between Iraq, Kurdistan, and Turkey. If the shipments from Ceyhan don’t resume in the coming days, global oil prices may rise. This news has caused the shares of DNO ASA and Genel Energy Plc, two of Kurdistan’s largest oil producers, to decline by about 10%. Meanwhile, Brent crude continues to experience gains from last week.