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STOXX gives back early gains, now down 0.5%
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Credit Suisse shares resume fall, down 11% on day
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Banking index initially trades higher, now down 1%
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RISK VS RATES WHAT MATTERS MORE FOR THE BROAD DOLLAR? (1220)
Deciding whether the broad U.S. dollar should go up or down has become more difficult in the past few days, despite clear trends in other currencies and asset classes driven by turmoil in the banking industry.
This week so far, moves in the dollar index have netted out at a 0.4% decline, but that includes two days of gains and three of losses, with two days of roughly 1% moves in either direction.
Moves in other currencies are more clear-cut. Traditional safe-haven the Japanese yen has strengthened 2.1% this week , while global banking stocks have tumbled.
For most of last year, the only way was up for the dollar, as equities plunged and the U.S. currency benefited from safe haven flows, trends that reversed towards the end of the year causing the dollar to drop.
So what does the recent market volatility caused by turmoil in the banking sector mean for the dollar?
"The broad USD has been oscillating between risk and rates," say HSBC in a Friday note.
"If the governing factor for the (dollar index) goes back to being global equity market returns (i.e. the proxy for risk appetite), then the latest bout of market volatility should be USD positive."
However, they add, "one important differentiator in the current context is that rising market volatility has come alongside much lower, rather than much higher short-end yields," something that has historically led to a weaker dollar.
The U.S. two year yield has dropped nearly 100 basis points since market close on Wednesday 8 March, the day before troubles in the banking sector gathered steam, dragging the U.S. dollar lower.
So what does this mean for the dollar, if current turmoil continue?
HSBC says if financial contagion effects are bad, then the USD should gain as a safe haven currency, but they add: "The more probable outcome is that these financial stability risks are eventually contained and the USD ultimately weakens."
(Alun John)
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U.S. RETAIL PUNTERS FLOCK TO BIG BANK STOCKS [1152 GMT]
Retail investors in the United States are flocking to buy financial stocks even as a crisis in small, regional banks, which has also spilled over into Europe, roils global markets.
Traditional "too-big-to-fail" banks are seeing "unprecedented" amounts of retail flows, according to a note by Vanda Research, with financials receiving almost a billion of net flows in five days to Wednesday. Meanwhile, the S&P 500 sub-index for banks has fallen nearly 7% so far this week and is off 17.8% in March. Buy-the-dip enthusiasm has kicked in among individual traders, the research firm added, with activity concentrated in underperforming stocks in sectors like energy and financials that were badly hit after the collapse of Silicon Valley Bank on Friday. "We expect individual traders will likely continue to buy stocks in these sectors after this drastic devaluation, as long as a systemic crisis is avoided," said Marco Iachini, senior vice president at Vanda Research. Bank of America Corp saw the second highest net retail purchases by Wednesday, while Charles Schwab Corp came in fourth. "The broker (Charles Schwab) remains a top pick for analysts and individual investors alike," added Iachini. "It also undoubtedly helped sentiment that nearly 80% of Schwab's deposits sit within the FDIC limits."
(Bansari Mayur Kamdar)
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EUROPEAN SHARES RISE AFTER LATEST BANKING RESCUE (0910 GMT) European shares extended their recovery on Friday as supportive measures for banks in the United States and Europe calmed fears about an imminent collapse, but the index was still set to post a second successive weekly drop. The pan European STOXX 600 index is up around 0.7%, supported by oil and gas and basic resource companies up 2.6% and 2.4% respectively.
The banking sector also recovered ground, up around 1%, after large U.S. banks injected a $30 billion lifeline into San Francisco-based First Republic Bank on Thursday to rescue the lender.
The package came less than a day after Swiss bank Credit Suisse clinched an emergency central bank loan of up to $54 billion to shore up its liquidity.
But volatility in the sector remains high. Credit Suisse shares are down around 5% following two days of sharp swings, which saw the lender's shares jump 20% on Thursday following a 24% drop on Wednesday.
(Joice Alves)
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EUROPEAN SHARES SEEN HIGHER AFTER BANK RESCUES (0750 GMT) European futures point to a start of the day in positive territory for bourses across the region after the latest bank rescues helped douse market fears about an widerspread banking crisis. Large U.S. banks injected funds into San Francisco-based First Republic Bank on Thursday, injecting a $30 billion lifeline in to rescue the lender that has been caught up in a widening crisis triggered by the collapse of two other mid-size U.S. lenders over the past week. EUROSTOXX 50 futures are up 0.6%.
(Joice Alves)
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SUPPORT FOR TROUBLED BANKS CALMS MARKETS (0716 GMT) The week-long rollercoaster ride for global markets turned calmer and a little more positive on Friday as investors heaved a sigh of relief over efforts in the United States and Europe to backstop troubled lenders. Asian stock markets clawed back 1.7% after after a 2.7% fall to more than three month lows since Monday. Markets were relieved by moves by large U.S. banks to inject $30 billion in deposits into First Republic Bank on Thursday and rescue the lender caught up in a widening crisis triggered by the failure of two other mid-size U.S. lenders over the past week.
As promised, the European Central Bank raised interest rates by 50 basis points despite calls by some investors to hold back on policy tightening until the turmoil in the banking sector eases. What seems to have changed is the guidance for rate hikes though many policymakers had suggested in recent weeks that sizeable increases were warranted. On Friday, final CPI data for the eurozone is due in a thin calendar for economic data releases. As risk sentiment improved, the dollar eased and risk-sensitive currencies strengthened. Meanwhile, the Federal Reserve is set to continue its inflation-fighting campaign with a quarter-point hike in interest rates, that just days ago had looked doubtful due to the turmoil in the banking sector.
While Credit Suisse Group shares recovered most of the losses suffered on Wednesday after it said it would tap into a $54 billion loan from the Swiss National Bank, some analysts believe that the support has only bought the lender some time to work out what to do next. Citing people with knowledge of the matter, Bloomberg News reported that UBS Group and Credit Suisse are opposed to a forced merger. On the corporate front, Sanofi said it would cut U.S. list prices for its most-prescribed insulin product, Lantus, by 78% starting next year following similar moves by U.S. rivals.
Key developments that could influence markets on Friday: Europe economic data: Eurozone final Feb CPI, Q4 labour costs U.S. economic data: University of Michigan survey
(Anshuman Daga)
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