Headlines

* US Treasury to pledge deposit protections if necessary

* BoE’s Bailey suggest won’t lift rates back to pre-crisis high

* Safe-haven dollar slides as bank fears ease, yen strong

* Asian market higher as fears on banking turmoil ease

FX: USD slid for a second day this morning as receding fears of a banking crisis saw less demand for the safest assets. The DXY closed below long-term support (March 2020 pandemic spike high) at 102.99. The US Treasury 2-year yield traded closer to 4% but still below the 200-day SMA. The 10-year yield traded above the psychological 3.50% level and 200-day SMA.

EUR pushed higher and is trading above 1.08 today. A slew of ECB rhetoric including reports that the ECB’s Schnabel pushed for the ECB statement to say more hiking is possible helped. GBP looks to be breaking higher and has made gains above 1.23. Governor Bailey said inflation is likely to fall steeply in the UK. He also suggested further monetary tightening would be required if signs of persistent inflationary pressures become evident. USD/JPY tracked higher US Treasury yields. But yen buying today has taken the major below 131. This is due to likely repatriation flows into the end of the country’s fiscal year on Friday. The risk-sensitive AUD has strengthened and is close to 0.67.

Stocks: US equities closed mixed but with major indices mostly higher. Banking crisis fears eased and surging oil prices saw outperformance in the energy sector and value stocks. The blue-chip S&P 500 rose 0.17%. The tech-heavy Nasdaq 100 finished down 0.74%. The Dow added 0.60%. Rising bond yields weighed heavily on rate-sensitive industries such as tech. The KBW Bank Index rose 2.5% as First Republic rose 11.8%. A 6% recovery in Deutsche Bank in Europe also soothed concerns.

Asian stocks were mixed with a modestly positive bias. The Hang Seng was choppy ahead of key earnings. The ASX 200 was boosted by strength in commodity and energy companies. Oil notched the biggest daily gain since October.  

US equity futures are modestly in the green. European equity futures are pointing to a higher open +0.3%. The Euro Stoxx 50 cash market closed up 0.3% to kick off the last day of the quarter.

Gold dropped sharply as Treasury yields rose. Any tailwinds from a softer dollar were offset by the lack of haven demand.  

Day Ahead – Relief seems palpable

It’s a quieter week for data with only the two inflation reports from the eurozone and US on Friday to really get excited about. The start of this week has seen relief in risky markets with stocks rebounding and havens getting sold. Bond yields have moved higher reflecting the better mood. But this does mean markets are pricing back in a higher chance of more global rate hikes to come.

That would not be good news for growth stocks especially. It means the strong outperformance of the Nasdaq could fade. The tech-heavy index was up over 20% from the December low at one point yesterday. The news that another US bank will buy the majority of SVB’s assets is welcome. It gives confidence that SVB was a more isolated case. We also got loser financial conditions with higher short-term yields and lower volatility. Value stocks and the Dow outperformed which could all be a sign of things to come in the near-term. That’s if the banking issues abate.

Chart of the Day – AUD/JPY to rebound?

AUD/JPY has been known as a classis risk on/off barometer in the past. It matches the cyclical, commodity-led aussie dollar with the traditionally known safe haven Japanese yen. The pair has tumbled since struggling to beat the 200-day SMA around 93 in mid-February. A neat descending bear channel has formed.

Prices printed a fresh low last Friday at 86.05. This beat the previous cycle bottom from December at 87.01. But the October 2021 peak looks to be offering support at 86.25. With prices oversold on various timeframes, the pair has bounced for two straight days. This hasn’t been seen for five weeks. Prices need to break out decisively from the descending channel up to 89 to reverse the bearish momentum.