Dow futures dive 350 points as Credit Suisse woes revive banking anxiety, with retail sales data ahead

Dow futures dive 350 points as Credit Suisse woes revive banking anxiety, with retail sales data ahead
Dow futures dive 350 points as Credit Suisse woes revive banking anxiety, with retail sales data ahead

By Jamie Chisholm

US stock futures fell on Wednesday as fresh concerns about the health of Credit Suisse sparked renewed anxiety in the banking sector. It was as investors were waiting for fresh retail sales data.

How is stock index futures traded?

On Tuesday, the Dow Jones Industrial Average rose 336 points, or 1.06%, to 32,155, the S&P 500 gained 64 points, or 1.65%, to 3,919, and the Nasdaq Composite gained 239 points, or 2.14%, to 11,428.

What drives the markets

The mood in stock markets initially appeared calmer after several frenetic days as the failure of three US banks sparked a flight to haven assets, particularly government bonds, as traders struggled to gauge the impact of the financial sector’s wobble on the economy and central bank policy.

“After three sessions of massive turbulence, the past 24 hours has seen market volatility begin to stabilize for the first time since the SVB crisis began…The evidence from yesterday was that the backstopping of US bank depositors has begun to starve out the immediate oxygen crisis,” Jim said Reid, strategist at Deutsche Bank in an early morning note.

However, sentiment dampened hours before Wall Street’s opening bell on Wednesday, after Bloomberg reported that Credit Suisse’s largest shareholder had ruled out investing more funds in the beleaguered Swiss lender.

The news triggered a 15% drop in Credit Suisse shares to below two euros for the first time and triggered a broad sell-off in European banks. Shares in US regional banks, such as Zions ( ZION ) and Pacific West ( PACW ), were also under pressure

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Before banking worries resurfaced, the main focus on Wednesday was likely to have been the US retail sales data for February, due at 08:30. Traders will also be keen to see how price pressures trickle down the supply chain, with the producer price index for February also released at 8:30 am Eastern.

Consumer price data released Tuesday showed inflation in February ran at three times the Federal Reserve’s 2% target. Assuming there are no shocks from the retail sales and factory gate price reports, the market expects the central bank to raise interest rates by 25 basis points to a range of 4.7%% to 5.0% after the March 22 meeting.

Just two days ago, traders were betting that the Fed could leave interest rates unchanged in a week’s time to save stress in the banking sector.

Sharp moves in Treasury yields pushed the ICE BofAML MOVE index, a gauge of implied Treasury volatility, to a near 14-year high on Tuesday. A rising MOVE index has recently tended to pressure shares because the uncertainty in bonds makes it more difficult to value shares.

However, the CBOE VIX index, a measure of expected S&P 500 volatility, traded back around 24 before the Credit Suisse concerns flared, after rising to 30 earlier in the week.

“Investors are backing off their predictions of an imminent pause in interest rate hikes, not least after the US CPI print provided another reminder of high inflation. It is clear that we are still a long way from the pre-SVB situation that prevailed last time. Wednesday, but with concerns that bank contagion is beginning to subside, we are finally seeing some optimism returning to financial markets again,” he concluded.

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Other US economic updates are set for release on Wednesday: the Empire State manufacturing survey for March, due at 08:30; Business inventories in January and a home builder survey for March, both at 10am

– Jamie Chisholm


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03-15-23 0643ET

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