Headlines

* US studies ways to guarantee all bank deposits if crisis grows

* Dollar languishes as bank crisis fears ebb on Credit Suisse rescue

* Gold pulls back from $2000 but flight to safety theme dominant

* Asia stocks bounce gingerly, but contagion fears lurk

FX: USD moved lower for a third day. The DXY hit the 50-day SMA at 103.44 which has acted as previous support.  The US Treasury 2-year yield rebounded after making fresh cycle lows. It is trading around the 200-day SMA and the key psychological level of 4%. The 10-year yield also posted a new low for the move at 3.29% before rebounding close to its 200-day SMA at 3.5%. That means bonds were sold as market sentiment improved through yesterday morning.

EUR closed higher for a third straight session. It has tapped its 50-day SMA at 1.0726. GBP burst higher to a top of 1.2285, a level last seen in early February. Focus is moving to Thursday’s BoE meeting which is a near coin-flip between a pause and a 25bp hike. USD/JPY ended lower at 131.31 but is slightly better bid this morning.  AUD has lost some of yesterday’s gains today trading below 0.67. The RBA minutes noted that the Board agreed to reconsider the case for pausing at the April meeting.

Stocks: US equities moved higher as the risk mood steadied. The benchmark S&P 500 added 0.89%. It closed close to its highs and climbed above the 200-day SMA at 3936. The tech-heavy Nasdaq 100 gained 0.34%. The Dow outperformedand gained 1.20%. The KBW bank index which has sold off heavily this week amid the banking stress ended up 0.8%. Heavyweights like JPMorgan Chase and Morgan Stanley rose 1.1% and 1.8%. But shares of First Republic, the next bank heavily in the spotlight sank 48%. This is despite recent efforts to shore up the regional bank.

Asian stocks mostly tracked Wall Street’s gains. The Nikkei 225 was closed for a holiday. The Hang Seng gained on strength in consumer stocks.

US equity futures are in the green. European equity futures are pointing to a higher open +0.5%. The Euro Stoxx 50 cash market closed up 1.3%.

Gold topped $2000 for the first time this year, marking a high at $2009. But it closed at $1978. We note it struggled to remain above this key psychological level for an extended period of time in August 2020 and March last year.

Day Ahead – The calm before the..?

Risk sentiment has calmed from the febrile atmosphere this time yesterday. Markets were teetering on panic mode after the UBS takeover of Credit Suisse. The US 2-year Treasury yield is as good a guide for risk as any at the moment. This tracks potentially what the Fed will do. Bonds rose sharply in the early hours of yesterday before losing ground through the day. Markets currently price in a 75/25% chance between a 25bp hike and no move.

Volatility has fallen back with the VIX down to 23 after spiking above 30 last week. There are still concerns about First Republic Bank in the US which closed down nearly 50%. But hopes are high that the FDIC’s deposit insurance amount could be lifted or the ceiling abolished. Whether the disquiet about the terms of the Credit Suisse rescue package seep into the wider market and change the mood again is a key question. That and the FOMC decision tomorrow.

Chart of the Day – Bitcoin bounces

After plunging over 60% last year, bitcoin has stunned every other major asset class recently. The most popular digital asset has added around 25% since its low in early March at $19,568 when the SVB troubles were kicking off.

The virtual currency is supposedly benefitting as a shelter from banking instability and a less aggressive Fed. Bulls pushed prices up to $28,578 yesterday, its highest since last June. They are now eyeing up the next key round number at $30k. The 200-week SMA sits below as support at $25,455.