ASX to drop, US stocks higher on rate outlook
The yield on the US 10-year note plunged 13 basis points to 3.57 per cent at 4.59pm in New York; it earlier fell below 3.50 per cent. The two-year yield fell to 3.98 per cent, a more than 100 basis point drop from a week ago.
On Wall Street, financials lagged with shares in several regional US banks plunging, following the failure of Silicon Valley Bank and Signature Bank. The VIX leapt 6.9 per cent to 26.52.
Late in the trading day, the Fed said it would review what happened at SVB and release a report by May 1.
Pershing Square Capital Management’s Bill Ackman said that regional bank stocks are an “incredible bargain” right now as long as the government does the “right thing”.
The trade is not without real risk but offers “very attractive asymmetry”, he said in a tweet, adding that a decline in rates makes this an even better investment.
Financial stress among smaller US banks could prompt the Fed to pause its hiking cycle as soon as this month, according to Daniel Ivascyn, chief investment officer at Pacific Investment Management Co.
“A lot has changed over the weekend,” said Ivascyn, the manager of the $116 billion Pimco Income Fund, the world’s largest actively managed bond fund. “There has been a meaningful tightening of financial conditions and significant risk aversion that we don’t think is over. This is likely a multi-month adjustment process” for the financial system.
In a tweet, Mohamed El-Erian said the banking crisis is not the only short-term hurdle: “You would be forgiven for forgetting that the big event this week for the global #economy/#markets was supposed to be Tuesday’s US CPI #inflation data. Let’s hope the numbers are muted We can ill-afford data that accentuate the tricky growth/inflation/financial stability trilemma.”
Local: MI consumer confidence March at 10.30am AEDT; NAB February business survey at 11.30am AEDT
Overseas data: NZ January net migration; UK January ILO unemployment rate; US consumer price index at 11.30pm AEDT
Other top stories
PM mounts diplomatic blitz to calm AUKUS fears The government has mounted a major diplomatic offensive to calm regional concerns about the AUKUS security pact, and push back against accusations by China.
Chanticleer: Four reasons the SVB collapse can’t happen here Banks often complain about APRA’s intrusive supervision, but depositors should be grateful the regulator understands the importance of matching assets and liabilities.
Chanticleer: How Twitter helped kill a bank, then bail it out Social media helped speed up the demise of SVB and its rescue. Investors and regulators should take note.
Britain ramps up military spending for AUKUS, toughens talk on China The $9bn two-year increase will help fund the AUKUS submarine program, and replenish dwindling stockpiles of munitions sent to Ukraine.
Biden assures Americans: ‘Our banking system is safe’ President Joe Biden declared that the government was responding decisively to the collapse of Silicon Valley Bank and Signature Bank to protect depositors.
Transport group Kelsian hits M&A market, lines up funding Ferry and bus operator Kelsian Group’s set to pitch equity investors for a $300 million capital injection, with proceeds pegged for an acquisition in the United States.
ASX futures down 132 points or 1.86% to 6974 near 7.30am AEDT
- AUD +1.3% to 66.67 US cents
- Bitcoin +12.9% to $US24,215 near 7.35am AEDT
- On Wall St: Dow -0.3% S&P -0.2% Nasdaq +0.5%
- In New York: BHP +1% Rio +1.3% Atlassian +1.6%
- Tesla +0.6% Apple +1.3% Amazon +1.9% Microsoft +2.1%
- In Europe: Stoxx 50 -3.1% FTSE -2.6% CAC -2.9% DAX -3%
- Spot gold 2.3% to $US1911.72/oz at 1.45pm in New York
- Brent crude -2.3% to $US80.87 a barrel
- Iron ore +1.8% to $US131.10 a tonne
- 10-year yield: US 3.57% Australia 3.52% Germany 2.25%
- US prices as of 4.59pm in New York
US regional bank shorters win in rescue package mismatch While Wall Street was modestly higher to start the week, investors who had bet against regional banks were the biggest winners on the day.
Traders overhaul bets on US interest rates Traders are now betting that the Fed will lift its key rate just once more or not at all this year — a staggering pivot from last week.
Pfizer is purchasing cancer-drug maker Seagen for an enterprise value of $US43 billion, using the biggest deal of the year to set its course out of the pandemic and back into mainstream pharma.
Pfizer will pay $US229 a share in cash for Bothell, Washington-based Seagen, according to a statement Monday, about a third more than the drugmaker’s closing share price Friday. It expects the deal to close late this year or early 2024.
US consumer price expectations
The latest US CPI data will be released at 11.30pm AEDT.
Morgan Stanley: “We forecast core CPI to come in at 0.38 per cent month in February following a 0.41 per cent M print in January. This holds our year-over-year rate at 5.5 per cent. We see food prices rising by 0.43 per cent M in February, with energy up 0.4 per cent M, together increasing headline CPI to 0.39 per cent M on the month, but lowering the year-over-year rate to 6.0 per cent from 6.3 per cent prior.
“Underlying our forecast, we see core goods prices increasing 0.23 per cent in February, vs 0.07 per cent M in January, driven by a re-accelerating in new and used car prices. We also see core services prices easing to 0.44 per cent M in February, with shelter coming down slightly to 0.67 per cent M.”
TD Securities: “The February CPI report will likely contain bad news for the Fed in terms of inflation, with core CPI inflation accelerating to 0.5 per cent m/m (consensus: 0.4 per cent) from 0.4 per cent in January. Core goods price deflation no longer is pushing down core inflation and shelter inflation still has not yet turned around. Easing gasoline and foods prices, however, likely will have had some downward impact on headline inflation to a consensus matching 0.4 per cent m/m from 0.5 per cent in January.”
Scotiabank’s Derek Holt: “Measures like the Cleveland Fed’s ‘nowcast’ indicate that core CPI may prove to be hot once more with a gain of 0.4–0.5 per cent m/m SA following the 0.4 per cent gain in January. I have estimated a gain of 0.3 per cent m/m. Relatively soft vehicle prices, little change in gasoline prices, ongoing pressure on owners’ equivalent rent and rent itself until 2023H2–24, and ongoing pressure on core service price inflation are among the drivers.”
Wells Fargo: “We still see inflation set to grind lower, but the process is likely to be bumpy and take time. Despite some directional improvement over the past couple of quarters, prices are still growing well-above the Fed’s 2 per cent target, and the tight labour market suggests that there are still inflationary pressures that could forestall a full return to 2 per cent inflation.”
Trafigura Group’s head of metals operations is leaving as part of a global restructuring of its logistics team, the latest shakeup at the trading house since it was hit by a vast alleged nickel fraud.
Svetlana Kabanova, who ran operations for Trafigura’s metals trading unit, is leaving the company, Bloomberg reported. Instead of separate heads of energy and metals, Trafigura will now have a single global head of operations, one of the people said. The restructuring had long been planned but it has recently been accelerated, the person said.
Volkswagen has chosen Canada to build its first battery plant outside Europe in a bid to fast-track an expansion in the key US market.
The site, in St. Thomas, Ontario, is slated to start production in 2027, Europe’s biggest carmaker said Monday. The decision to locate the facility in Canada, amid rich incentives offered in the US as part of the Inflation Reduction Act, will help VW get access to key raw materials and clean energy, according to the company.
Bowen defends need for future gas supply as labour pushes Greens Chris Bowen says gas will ‘increasingly’ dominate the 18 per cent of energy generation not covered by his 82 per cent renewables target in 2030.