Dow futures dive over 400 points as Credit Suisse woes reignite bank sector angst, with retail sales data ahead

by user


U.S. stock futures were sliding on Wednesday as fresh concerns over the health of Credit Suisse sparked renewed banking sector anxiety. That’s as investors awaited fresh retail sales data.

How are stock-index futures trading
  • S&P 500 futures
    ES00,
    -1.64%

    fell 51 points, or 1.3% to 3903

  • Dow Jones Industrial Average futures
    YM00,
    -1.63%

    shed 424 points, or 1.3% to 31982

  • Nasdaq 100 futures
    NQ00,
    -1.33%

    lost 117 points, or 0.9% to 12215

On Tuesday, the Dow Jones Industrial Average
DJIA,
+1.06%

rose 336 points, or 1.06%, to 32155, the S&P 500
SPX,
+1.65%

increased 64 points, or 1.65%, to 3919, and the Nasdaq Composite
COMP,
+2.14%

gained 239 points, or 2.14%, to 11428.

What’s driving markets

The mood in stock markets initially seemed calmer following a febrile several days when the failure of three U.S. banks sparked a flight to haven assets, notably Treasuries, as traders struggled to gauge the impact of the financial sector wobbles on the economy and central bank policy.

“After three sessions of massive turbulence, the last 24 hours has seen market volatility begin to stabilise for the first time since the SVB crisis began….The evidence from yesterday was that the back stopping of U.S. bank depositors has started to starve the immediate crisis of oxygen,” said Jim Reid, strategist at Deutsche Bank in an early morning note.

However, sentiment was soured a few hours before Wall Street’s opening bell on Wednesday, after Bloomberg reported that the biggest shareholder of Credit Suisse
CSGN,
-19.64%

had ruled out investing any more funds in the beleaguered Swiss lender.

The news sparked a 15% plunge in Credit Suisse shares to below two euros for the first time and triggered a broad sell-off in European banks. Shares of U.S. regional banks, such as Zions
ZION,
+4.47%

and Pacific West
PACW,
+33.85%
,
were also under pressure

Before concerns about the banking resurfaced, the main focus on Wednesday was likely to have been the U.S. retail sales data for February, due for release at 8:30 a.m. Traders will also be keen to see how price pressures are percolating down the supply chain, with the producer price index for February also released at 8:30 a.m. All times Eastern.

Consumer prices data released on Tuesday showed inflation running in February at three times the Federal Reserve’s 2% target. Providing there are no shocks from the retail sales and factory gate prices 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 its meeting on March 22nd.

Just two day’s ago traders were betting the Fed may leave rates unchanged in a week’s time in order to salve stresses in the banking sector.

Sharp movements in government 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 tended of late to pressure equities because the uncertainty in bonds makes it more difficult to value stocks.

However, the CBOE VIX index
VIX,
+13.91%
,
a measure of expected S&P 500 volatility, was trading back down around 24 before the Credit Suisse concerns flared up, having spiked to 30 earlier in the week.

“Investors are rowing back on their predictions of an imminent pause in rate hikes, not least after the U.S. CPI print offered a fresh reminder about high inflation. Obviously we’re still a long way from the pre-SVB state of affairs that prevailed last Wednesday, but with worries about bank contagion starting to subside, we’re finally seeing some optimism return to financial markets again,” he concluded.

Other U.S. economic updates set for release on Wednesday: the Empire State manufacturing survey for March, due 8:30 a.m.; January business inventories and a homebuilders survey for March, both at 10 a.m.



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