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Wall Street's main indexes down >1%
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All major S&P sectors red; financials down most, tech down
least
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Euro STOXX 600 index off ~1.6%
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Dollar dips; crude down >3%, gold up >2%; bitcoin up >6%
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U.S. 10-Year Treasury yield slides to ~3.39%
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DREARY DATA FEEDS RECESSION JITTERS (1144 EDT/1544 GMT) A trio of mostly gloomy indicators sent market participants staggering toward the finish line of a tumultuous week, wherein encouraging signs of cooling inflation were overshadowed by potential contagion in the banking sector.
First, the mood of the American consumer - who bears the weight of 70% of the U.S. economy on their back - has unexpectedly dimmed this month. The University of Michigan's (UMich) preliminary take on March Consumer Sentiment shed 3.6 points to land at 63.4 instead of staying put at an even 67, as analysts predicted. Both current conditions and near-term expectations components deflated, reflecting a general malaise and growing jitters over inflation clouds gathering on the horizon. "This month's decrease was already fully realized prior to the failure of Silicon Valley Bank, at which time about 85% of our interviews for this preliminary release had been completed," notes Joanne Hsu, director of UMich's Surveys of Consumers. "Overall, all components of the index worsened relatively evenly, primarily on the basis of persistently high prices, creating downward momentum for sentiment leading into the financial turmoil that began last week." Some solace can be found in the cooling of short- and long-term inflation expectations. One-year and five-year price growth is now seen at 3.8% and 2.8%, respectively. "It is important to keep in mind that these expectations are predicated on the expectation that the Fed maintains its stance on fighting inflation," says Thomas Simons, economist at Jefferies.
Simons noted that the optics of a pause in the eyes of the consumer, when current inflation remains unacceptably high, "should not be underestimated." Separately, industrial production defied consensus by not budging last month, according to the Federal Reserve. But while consensus called for a 0.2% uptick, February's flat line sits atop an upwardly-revised January gain of 0.3%. The preliminary report had January unchanged. Even so, manufacturing output provided a bright spot, squeaking out a 0.1% gain instead of dropping 0.3% as forecast. Meanwhile, capacity utilization , seen as a barometer of economic slack, surprised by landing at an even 78%, undershooting expectations by 40 basis points. "Factory output is contracting so far in Q1," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "Higher borrowing costs and a weakening in demand for goods are weighing on manufacturing even as supply constraints have eased." Finally, The Conference Board (TCB)released its forward-looking Leading Index reading for February, which stuck the expectations landing by repeating January's 0.3% drop. The reading marks the index's 11th consecutive month in negative territory. The Leading Index is an amalgamation of ten indicators, including new factory orders, building permits, the S&P 500, among others. The report "still points to risk of recession in the US economy," says Justyna Zabinska-LaMonica, senior manager at TCB. "The most recent financial turmoil in the US banking sector is not reflected in the LEI data but could have a negative impact on the outlook if it persists. "Overall, The Conference Board forecasts rising interest rates paired with declining consumer spending will most likely push the US economy into recession in the near term."
Here's a look at the index compared with TCB's on
expectations component of its own Consumer Confidence index.
Wall Street was sharply lower in late morning trading with
financial stocks leading a broad sell-off.
(Stephen Culp)
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WALL STREET SINKS WITH BANKS, ECONOMIC DATA IN FOCUS (1034 EDT/1434 GMT) While Nasdaq spent some time zig-zagging in and out of positive territory on Friday it has now turned more decisively red and the S&P 500 and the Dow are also lower with renewed pressure from the financial sector as bank stocks fall.
Trading in equities has been particularly volatile this week on rising investor anxiety about the idea of broader weakness in the financial system after last Friday's government take over of Silicon Valley Bank, and Sunday's take over of Signature Bank as well as liquidity fears for Credit Suisse which prompted support from the Swiss central bank.
SVB Financial said on Friday it filed for a court-supervised reorganization under Chapter 11 bankruptcy protection to seek buyers for its assets.
Also, this morning's crop of economic data was less than inspiring with consumer sentiment ebbing. While production at U.S. factories edged up in February and output in the prior month was stronger than expected though manufacturing continued to struggle under the weight of higher interest rates. All S&P 500 sectors are now negative with financials posting the biggest loss. Tech is around flat. Here is your morning snapshot from 1034 GMT:
(Sinéad Carew)
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FED BALANCE SHEET JUMP RAISES QUESTIONS FOR QT (0940 EDT/1340 GMT) The Federal Reserve’s balance sheet jumped by around $300 billion in the latest week as banks rushed to shore up cash balances, raising questions on whether the U.S. central bank will be able to continue its quantitative tightening (QT) program. The Fed began letting bonds roll off its balance sheet last June as part of its process to normalize monetary conditions, but the latest week’s expansion has now undone a large portion of this tightening. The Fed’s balance sheet peaked at $8.965 trillion in April 2022, and fell as low as $8.340 trillion on March 1, before rising back to now stand at $8.639 trillion. The Fed injected $440 billion in bank reserves in the latest week, which reverses a third of the $1.3 trillion of the tightening in bank reserves that has occurred since the end of 2021, JPMorgan analysts including Nikolaos Panigirtzoglou said in a note.
With the backdrop of elevated banking system liquidity or reserve needs, "this naturally raises the question whether the Fed can continue QT, similar to 2018/2019,” they said. The Fed had to inject additional reserves into the banking system in 2019 after it pared its balance sheet too far, causing a spike in the cost of borrowing in the repurchase agreement (repo) market as banks scrambled for cash.
(Karen Brettell)
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INDIVIDUAL INVESTOR BULLS RUN FOR THE HILLS -AAII (0900 EDT/1300 GMT) Optimism among individual investors fell to a six-month low in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, bearish sentiment jumped, while neutral sentiment slipped.
AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, dropped 5.6 percentage points to 19.2%. Optimism was last lower on September 22, 2022 (17.7%).
Bullish sentiment is at an "unusually low level for the fourth consecutive week and the 44th time out of the past 63 weeks." Bullish sentiment is also below its historical average of 37.5% for the 67th time out of the past 69 weeks.
Bearish sentiment, or expectations that stock prices will fall over the next six months, increased 6.7 percentage points to 48.4%. Pessimism was last higher on December 22, 2022 (52.3%).
"This is the third consecutive week and the 42nd time out of the past 63 weeks that bearish sentiment is at an unusually high level." Bearish sentiment is also above its historical average of 31.0% for the 64th time out of the past 69 weeks. Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, dipped by 1.0 percentage point to 32.4%. At 11 consecutive weeks, this is the longest stretch of above-average readings since a 22-week stretch between August 2019 and January 2020. The historical average for neutral sentiment is 31.5%. With these changes, the bull-bear spread widened to -29.2 percentage points from -16.9 percentage points last week. The spread remains "unusually low for the fourth consecutive week" and is at an "unusually low level for the 46th time out of the past 63 weeks":
AAII noted this week’s bullish sentiment reading is the 34th lowest since the Sentiment Survey started in July 1987.
Additionally, the survey period included the Silicon Valley Bank and Signature Bank failures, as well as recent headlines surrounding Credit Suisse. "These banking issues notwithstanding, 12 of the survey’s 50 lowest bullish sentiment readings have been recorded during the current reflation bear market."
AAII added that "historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and the bull-bear spread.
"Similarly, the market benchmark has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually high readings for bearish sentiment."
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
